Sunday, April 10, 2011

Reorganization before restructuring becomes a matter of survival

Technology companies have to constantly be on the lookout for entrants that will destabilize their competitive landscape. As I said many times, the technology map changes every 18 to 36 months. The fact that Facebook, a company founded a year after Google went public, overtook Google in 2010 in terms of unique users signing on in the US was a shocker not only to Larry Page but also to the Google board.

This week, co-founder Larry Page took over the CEO job from Eric Schmidt, and his first order of business was to reorganize the company. Indeed he laid out 5 key Business Groups within Google with clear accountability for each of their leaders to focus on bottom line, and the competitive landscape. And today's competitive landscape is Social Media.

Many companies get settled in a comfort zone thinking they are safe with their market share and leadership position, and forget to see their environment changing around them. And that is where cash flow slows down, margins start shrinking and debt-service becomes more difficult to cover. When that happens it is too late to reorganize. It is time for restructuring. New management is appointed. Payroll is cut. Overhead is drastically shrunk. And the company winds up fighting for its survival. 

The lead time between the awareness that a reorganization must take place, with clear accountability, and the time the necessity of a restructuring hits, is generally between 12 and 18 months. Yes, it does happen that fast.

I frequently recommend to the companies and CEOs I advise to reorganize their org chart and their business lines every 24 months regardless of sector, just so that group heads don't start getting too comfortable. But in the technology sector it is a matter of survival to reorganize in shorter cycles.