SHRM Case # 4

Organizational Restructuring at Flexco

Flexco commenced existence as a business unit of a large private sector organization. This organization had operations in a number of information technology applications. Flexco was originally set up as a service function to some of these operations. The parent organization had experienced very rapid growth over a number of years. In the mid-1990s, its senior management decided to undertake a programme of internal rationalization because it was felt that management control systems were inadequate and that it had exposure in a very wide range of operations. This review of operations led to a policy to outsource some non-strategic operations and to ‘spin-off’ or divest the internal operating units associated with these operations. Flexco was one of these operations. Its senior managers decided to ‘engineer’ a buyout, and having raised the finance largely through an investment company it commenced operations as an independent company in its own right.

As a business unit of the original parent organization, Flexco had operated with a fairly simple but functionally arranged organizational structure. The General Manager of the unit, who became the managing director of Flexco, had undertaken an overall coordinating role but with specific responsibility for the financial management of the business unit. Two other central business unit managers each had specific functional responsibilities. One was responsible for arranging contracts and coordinating service provision across the parts of the parent organization that composed its business at that time. The other manager was responsible for service development and training. Other functional requirements were contracted from the corporate service provision of the parent organization. In this way, personnel services were brought in from the parent organization. The HR department was aware of its image as being a cost. Over the lifetime of the organization, it had followed the a strategy to counter this by developing a professional image and as a provider of value in the work that it did for the respective parts of the business. Flexco had therefore been able to draw on this central HR function whenever it required support in this area. A somewhat paternalist ethos had developed across the business, despite its outward appearance as having an entrepreneurial approach with one outcome of this being that the organization ‘looked after’ its employees and provided them with employment security.

The transformation of Flexco to an independent organization therefore heralded further change for this business and those who worked for it. It would no longer have what had been in practice a guaranteed supply of contracts, nor the old parent organization’s financial backing and the support of its corporate service provision. It expected to continue to work for the parts of the old parent organization but had been told that it would not be given preferred status in relation to other providers. The strategy of outsourcing was seen as an opportunity to test the market place to a greater extent than had been the case previously.

The exposure to market forces led to a number of structural changes. These were driven by a desire to cut costs, maximize the utilization of those that worked for Flexco and increase the level of managerial control.
The strategy of the new organization was now focused outward towards their marketplace and competition rather than just inward toward those parts of the old parent organization for which they had traditionally worked. Thus the new situation that they found themselves in was seen to offer a series of threats as well as opportunities. Although the old business unit had had a simple functional structure, supported by the parent organization’s corporate service provision, the organization of work under the three central managers had developed around the use of bureaucratic procedures. This had been encouraged by the stable and generally repetitious nature of work carried out within the old parent organization. Because the old parent organization had operations in a range of locations around the country, there were also a number of regionally based service centers, staffed by a regional manager and service support staff.

The structural changes that occurred were focused on these aspects of Flexco. The senior managers wished to see the development of a much higher level of functional flexibility. This was accompanied by a review of staffing levels in the workforce. This particular process utilized voluntary severance and some compulsory redundancies. Indeed, in some areas, more than the numbers of staff that needed to leave wished to do so and a decision was taken to let them go. However, this also occurred amongst the service support staff and it was agreed that these staff would be paid off but reengaged on a flexible contract basis. Several of these staff were happy to proceed on this basis. This proved to be a more costly exercise than was first anticipated but was seen to offer significant cost savings after initial severance costs were absorbed. The result of this was a reduction in the total staffing to about 70% of the buyout number and the creation of a core group of staff supported by other groups of flexible workers. Some of these, including several in the service support area, were now contracted as part of an ‘on call’ network. Those who remained in the core were expected to absorb much of the work of those who left and there was a desire to introduce some sort of performance management system, although ideas about this were rather hazy.

The managers in the regional service centres were also affected by these strategic and structural changes. While in most cases, they retained their jobs, the nature of their work changed significantly. Previously, these managers had had fairly comfortable existence coordinating the delivery of the contracts agreed with the old parent organization for locations within their region. Now they were expected to maintain these contracts against commercial competition in the new ‘open marketplace’ and to win new work from other businesses. In addition, they were expected to assume responsibility for the management of the people that Flexco either employed or contracted to work in the region for which they were responsible. In the past, HR issues of almost any nature had been referred up to the personnel function of the old parent organization’s corporate service provision. Now, of course, this option did not exist.



Case Questions:
Present a summary of the case.
What are the major issues in the case?
Discuss the HR strategies of Flexco aimed at organizational restructuring.
How do you account for workers’ reaction to Flexco’s HR initiatives mentioned in the case?
What recommendations would you make to senior management of Flexco so far as the HR initiatives for organizational restructuring is concerned?

(Source: A Human Resource Startegy Approach to Managing Change by Thornhill, et al.)