Restructuring in 2021: What are the risks?

Many labour market’s across Europe have largely been on pause throughout the pandemic. Whether through generous government and central bank stimulus or furlough schemes that subsidised wages of around 45m people¹, employees and organisations have in some way been shielded from the fallout of the pandemic. As the pandemic continues to affect us all in 2021 the strain will be on these government schemes to remain, and on organisations to keep their people employed where they can. However, as we’ve seen already, some companies need to act now and restructure to survive and thrive beyond 2021.

33% of C-suite executives believe restructuring the organisation is a top measure needed to ensure survival²

The scale of restructuring

Although outlooks continue to brighten and some markets are starting to slowly recover, the unemployment rate is still expected to reach 8.1%³ across the eurozone and continue to rise through 2021. This isn’t surprising considering the significant size of the job cuts that have happened so far from big named brands. Even with the help from government schemes to prevent job cuts, we’ve seen companies from a variety of industries reduce headcount in the tens of thousands like never before.

With companies being forced to downsize in order to survive, organisations that will remain standing at the end of this year and beyond are those who handle this transition period effectively. Large-scale restructuring programmes are highly complex and require an extensive collaborative approach across the organisation as well as a significant investment in time and resources. The risks of getting a large-scale restructuring programme wrong can be huge and sometimes fatal for organisations.

Putting people at the heart of a restructure

Businesses will be depending on their HR professionals to deliver and provide support for a key part of any large-scale restructuring programme. Putting people at the heart of any restructure is what separates a successful process from a high risk one. This people aspect requires technical expertise in topics such as employment law, social plans and specific career transition approaches as well as programme management, communication and change management. Additionally, any complications that arise with various regional and/or local requirements will only add to the complexities of a restructuring programme.

Risk assessment

Here are 5 potential risks that get overlooked in large-scale restructuring programmes:

1. Employee engagement and morale drop
Risk - High

The risk of low engagement and a drop in morale is high. Employee issues and concerns need to be addressed appropriately as any confusion or frustration left unattended will quickly lead to negativity that will seep onto remaining employees. Some of these concerns may also include how those who are leaving are treated as they evaluate how fairly the process is handled.

2. Significant productivity loss
Risk – Moderately high

Due to the inevitable disruption caused by a restructure, productivity will be affected. But by how much? If managers fail to lead and provide transparent communications throughout the process, the risk of productivity taking a significant loss is moderately high.

3. Employer brand damage
Risk - Moderately high

An erosion of trust caused by a poorly handled restructuring programme can have a negative impact on turnover, engagement and the employer brand. The impact of this may not be felt immediately but can certainly be seen over a longer period which is why this risk is moderately high.

4. Restructuring goals not fully met
Risk – Moderately high

In the absence of clarity of what success looks like and how it will be measured, the restructure effort presents a moderately high risk of failure. The difference a well thought-out and realistic plan can make on the success of a restructure can be substantial.

5. Negative leaver sentiments
Risk - Moderate 

If any part of the consultation or communication process is dealt with badly, the impact on leavers sentiment may be negative. Even though these people are leaving the business, the risk is still moderate as any loosely defined processes, false starts or inconsistencies has a potential to come back and harm the organisation.

With more changes looming this year, there are positive steps HR professionals can take to support their organisation with planned restructuring programmes. Putting the building blocks together now ensures that line managers, the HR team and the business leaders are prepared to implement a smooth transitional process and that risks are kept to a minimum.

To learn more about how you can support your business and prepare for a large-scale restructuring programme you can download our guide here.

References

1. Allianz Research 2020: The Risk of 9 Million Zombie Jobs in Europe
2. LHH 2020 research: 2021: The Year of the HR Leader
3. FT Article 2020: Europe staves off mass unemployment but needs to redeploy workers