One of the most powerful levers for change available to a chief executive is reorganization.1 At its best, it can sweep away inertia and cynicism and energize employees with a common sense of purpose, thereby making it easier to implement a new strategy, to digest an acquisition, or to improve productivity. But reorganizations frequently fail, even when they draw on a wealth of practical experience and decades of intense academic research that have generated proven principles for organizational design. And unfortunately, failed reorganizations don’t just leave a company back where it started: they can usher in still more inertia and cynicism among employees.
Opposition from employees is a major reason for the problems that bedevil so many reorganizations. When the chief executive announces one, the knee-jerk reaction of most employees is to resist. Change, after all, tends to provoke anxieties and conflicts, and employees are not always convinced of the need for it. Indeed, the common view is that CEOs reorganize when they don’t really know how to deal with difficult issues.
So although state-of-the-art design is vital for a successful reorganization, it isn’t enough. In our experience, sustained organizational change and strategic results can be achieved only...