The employee in reorganization and restructuring – an often underestimated key to success

Employees are almost always seen as part of the problem in restructuring and rarely as part of the solution. Yet they might have a contribution to make if they were involved at an early stage. Too often companies delay getting their employees on board and don’t inform them about the upcoming changes in a timely manner. They avoid the necessary transparency until the last second – as if a major problem is being created as soon as things are called by their name.

In this regard, enormous potential remains untapped. Yet it is precisely during a turnaround that employees can become real drivers and levers of change – if a few basic rules are observed and they are consciously integrated into the upcoming processes. But how can entrepreneurial and financial risks be minimized by focusing more on the “human factor” in order to successfully lead a company out of a crisis?

The first step requires a change of mindset: Many companies get into an “us versus them” mindset from the outset – especially when employee representatives are involved. Then it becomes about negotiation and tactics, less about the contribution that employees could make to the solution. This is accompanied by the observation that employees are often left in the dark and condemned to passivity during restructuring. The potential that could come from their experience and expertise is almost never tapped into. Finally, workers are usually treated as an anonymous group – rarely as the individuals with their respective skills and experience that they were once hired as.

So when it comes down to the individual, two questions follow from this that need to be answered:

• What behavioral incentives affect employees and do they serve the company’s goals? It is necessary to analyze the structural framework conditions that control the behavior of employees: Are there structures that have favored the crisis with the wrong behavioral incentives? What do we need to change in order to promote goal-oriented employee behavior in line with corporate objectives?
• How do we motivate employees in an unsettling crisis situation? Because a restructuring is a difficult change situation in which employees need special support in order to be able to actively work through a successful restructuring.

Ultimately, every restructuring pursues two goals: Securing the ongoing operating business and establishing a sustainable position that enables profitable growth in the long term. For creditors and entrepreneurs, this means first averting losses and looking ahead to maximize returns and earnings. Employees, on the other hand, are interested in securing their jobs and livelihoods so that they can participate in the company’s success in the future with rising incomes and career advancement. In this way, however, all the key stakeholders – creditors, entrepreneurs and employees – pursue the same central goal: that the turnaround is successful.

Reorganization report with an extended field of vision

In this context, it is worth taking a look at the classic reorganization reports, which typically analyze the company concerned in terms of aspects such as the legal framework, earnings situation or competitive environment. This performance and financial analysis are usually geared to key figures: Measurable, seemingly objectifiable and thus comparable facts are in the foreground. What is often missing, or at least underrepresented, is a systematic consideration of factors that influence human behavior.

Yet it is precisely such chains of effect between corporate structures and the behavior of employees that are crucial to entrepreneurial success. It is often a matter of the right organizational and responsibility structures and performance incentives, as well as the many “unwritten laws” that drive an organization forward – or cause it to stumble. Specifically, three areas are important in this context:

• Does the company have the necessary human capital to emerge from the crisis or to realign itself strategically? This includes the qualifications of the employees, who must support the desired innovation and growth targets, but also the structure and quality of further training.
• Is the organizational structure right? What are the decision-making channels like, and how quickly is the relevant information available? Does the structure enable interdepartmental exchange and cooperation as well as flexible reaction to new external impulses?
• How do you create a corporate culture that promotes profitable growth? How do you deal with feedback and mistakes? And how is leadership practiced? Do superiors actually trust their employees to take on responsibility or are individual assignments merely passed down?

These issues, often considered “soft” or “subordinate” in turnaround, are critical to sustainable business success. Leaving them unaddressed can lead to veritable business risks. Reorganization reports should therefore include these aspects more systematically in order to make greater use of this success lever for restructuring. Possible risks in case of non-observance are the migration of top performers, internal resignation, wrong prioritization, procrastination in decision-making, interface losses, but also a lack of expertise, without which the strategic realignment remains lip service.

With the wrong organizational structure, silo thinking, overcomplicated processes and procrastination are pre-programmed. And a poor corporate culture also causes companies to fall short of their actual potential – for example, if it is considered acceptable for mistakes to be covered up or opportunities not to be exploited due to pronounced silo thinking. A lack of support for personal initiative or a pronounced “knowledge is power” culture also have a negative impact on performance.

Create a convincing narrative

It is of central importance for every change situation to have a good narrative – a coherent story that describes the project vividly and convincingly. This applies all the more to a reorganization or restructuring, which can shake a company to its foundations. Such a narrative creates clarity and commitment within the company. What exactly is happening – and thus: what is not happening? When, how and why should it happen? Many companies deal with these questions too little or too late. And so, for example, uncertainty is carried into the entire workforce, when in fact the changes only affect part of the company.

At the same time, company leaders often assume that with the usual brief – and possibly poorly written – announcement of the project, “everything is clear after all”. Instead, the usual technical and cryptic announcements bring even more uncertainty into the company. Managers are usually not involved in advance and provide contradictory information. This makes them look untrustworthy and reinforces skepticism. Precisely because employees have a keen sense of nuances and notice the inconsistencies, it is essential that everyone in the company speaks with one voice. This is the only way to create credibility and trust in the turnaround and the new strategy.

Ensure empowerment of managers

Almost more important than a coherent story are supervisors and managers who can convincingly communicate the turnaround project, as well as the future way forward, in face-to-face discussions with their teams. After all, those with whom employees work on a day-to-day basis usually enjoy the highest credibility. It is from them that the teams want to hear what is going on and how they assess the situation.

However, managers do not only have a role as communicators they are also role models. The way a manager approaches the situation, how he or she behaves, and what he or she does is a role model. At the same time, they are implementers, providing assistance – especially when the measures involve doing things differently than before.

Unfortunately, many companies fail to explain to their executives exactly what is expected of them in their role even before the announcement of the project. Let alone help them meet those expectations. Therefore, sufficient empowerment of executives is one of the most important measures in any crisis and change situation.

So more than just clear communication is needed. Above all, managers, with their important multiplier role, must be picked up and enabled to assume their roles in a crisis. Then employees can also be motivated to make their contribution to a successful turnaround.