The Financial Controller and CFO's Toolkit, 3rd Edition

Chapter 22The Hidden Costs of Reorganizations and Downsizing

OVERVIEW

Far too often, the CFO and controller have been silent when a reorganization is muted. If anyone is to talk sense to the board and senior management team, it has to be the CFO. This chapter will hopefully make the reader aware as to why they need to be very vocal and take steps to prevent these costly mistakes.

A major reorganization is as complex as putting in a new runway at Heathrow Airport while keeping the airport operational. The steps, the consultation, the dynamics, and so forth are as difficult. Then, how is it that we are unable to fully understand the ramifications and costs of a reorganization? Why do organizations appear to have an addiction to reorganizations? This chapter, while not a cure for the addiction, may help management be more aware of the symptoms so that advice can be sought.

RAMIFICATIONS AND ASSOCIATED COSTS

The CFO has historically been far too silent about the associated costs when a reorganization is muted. If anyone is to talk sense to the board and senior management team, it has to be the CFO. The CFO needs to ascertain the costs of such an exercise. To assist, I set out what typically happens in a reorganization.

1. Loss of key staff in the third- and fourth-tier management ranks. There is a period of chaos, where staff members are disillusioned and many key staff in the third- and fourth-tier management ranks walk out the door with a golden parachute and straight into ...