How Reorganizations Can Harm a Workforce

I wrote last month about The Man Who Broke Capitalism, an analysis of the management thinking and legacy of longtime General Electric CEO Jack Welch.

Research shows frequent reorganizations tend to cause emotional exhaustion.

Source: Nicola Barts / Pexels

While Welch is well known as "The Manager of the Century" (the 20th century, that is, per Fortune magazine), a more lasting and accurate moniker may be "The King of Reorganizations," for popularizing in management circles reorganizing and downsizing—which are often, from an employee standpoint, damaging activities.

This biography of Welch was very much on my mind as I recently came across research in Public Money & Management examining the effects of frequent reorganizations on the workforce. Not surprisingly, these effects are far from positive.

The Fatigue Factor

Over the years, various studies have discussed how reorganizations can cause employee resistance. Such resistance is predictable since, during reorganizations, management will be making changes (normally to reduce costs) that, in the aggregate, are not in employees' best economic interests. Downsizing inherently means some employees will be laid off. Who and how many are the main variables to be sorted out.

The research I recently read, "Repetitive reorganizations, uncertainty and change fatigue," focused on companies that reorganized frequently. (This model applies nicely to Welch's General Electric; for years, Welch routinely used downsizing as a tool to help him meet quarterly earnings targets.)

The study emphasizes the notion of "change fatigue." This basically means that the uncertainty involved in frequent reorganizations leads to stress and emotional exhaustion—plus resistance to the changes intended by management.

The study argues against casual reorganizations done without a compelling business rationale. "Drastic changes should only be a last resort where no alternative solution can be employed," the research concludes. "If reorganizations are necessary, the prime concern should be to take measures to avoid and reduce uncertainty among employees, preferably by good communication."

Plain Old Worn Out

All this sounds 100 percent reasonable to me. As a Fortune 500 veteran of many (and the term "many" is carefully and accurately chosen here) reorganizations, I can personally attest that they plain old wear people out.

When people are worn out, they're rarely doing their best work.

They may be thinking about surviving, about finding another job, about how they'd rather be fishing or shopping or anyplace but where they are—and chances are, they're not thinking about how much they love their company and doing the absolute best job they can.

As I've often said, I'm not Pollyannaish on this topic: There are entirely valid reasons for undertaking major reorganizations. Some "reorgs" are essential; a company with a bloated cost structure that badly lags its field, for example, may cease to exist if it doesn't streamline and become more cost-competitive.

But that's an entirely different matter from a strong company entering into a reorg capriciously or because a new executive wants to put his or her stamp on the operation.

I recently talked about reorganizations with a friend who'd been through many. Her observations cut right to the chase.

"First of all," she said, " You wonder, 'Am I going to lose my job?' That's a big stress to be working under."

Yep, that concisely sums it up. Goes to the heart of the matter.

This is why I believe surveys that study the psychological effects of reorganizations and analyze issues like "change fatigue" should be part of every MBA curriculum. In the years after "The Manager of the Century" retired, GE imploded, with an exhausted, demoralized workforce being doubtless a sizable part of their problems.

Large reorganizations are sometimes necessary, sometimes not. But you can reliably count on them to exact a heavy human toll.