As the American public struggles to understand ongoing reorganizations, such as the huge downsizing of the entire U.S. federal government and the much smaller reorganization of the MSNBC television network), it can be useful to recall why reorganizations occur, and why they are often traumatic. It’s even more important, longer term, to realize how trauma of reorganizations can be avoided with a different kind of organizational arrangement: a network of competence, rather than a hierarchy of authority.
Massive reorganizations occur in large part because an organization, big or small, public or private, has gotten out of sync with its context. That often happens when the organization is run as a traditional hierarchy of authority, which is inherently inflexible. By contrast, when organizations continuously adapt to their context, as networks of competence, there is much less need for abrupt major change.
How Reorganizations And Downsizings Cause PTSD
The psychological impact of reorganizations and downsizings can be traumatic. As Daniel Seewald wrote in 2019, “One morning, after months of rumors, a message was circulated around from executive leadership that all employees should remain at their desks for the entirety of the day. If you received a phone call, you were to pack-up only your personal belongings and go to a conference room where you would presumably be stripped of all corporate assets and informed of your employment status.”
“My co-workers responded differently,” continues Seewald. “Some joked at the absurdity. Some people chewed their nails. And some people cried. We each coped in our own individual way. For those of us who survived this corporate bloodletting, we were offered bland gestures of perseverance and then told to get back to work the next day. Only we didn’t. Not the next day. Not the next week. And hardly for the next month. Years later it is still talked about by some of my former colleagues. Much like a group of post-traumatic stress disorder (PTSD) sufferers.”
How Reorganizations Cause Trauma
The sequence of events in a reorganization is remarkably standard and sadly well-suited to generating trauma.
- First, the organization gets out of step with its context. For instance, its costs go up and grow out of step with market prices going down. Its customers lose interest in its products. Waste, fraud or abuse creep into the system. The management pays insufficient attention to growing competition and income falls. Staff become demoralized and less productive.
- A convulsion occurs and new management is installed. Usually, the management has come from outside and so doesn’t know all the details of what has gone wrong and where the problems lie. They also don’t know who to trust. They look around for help.
- The management recruits a consultant who also doesn’t know the organization but who purports to have dealt with similar problems in the past.
- The consultant gains the trust of the management who starts to listen to the consultant more than their own staff.
- The staff perceive that the consultants are being trusted more than themselves. They were already worried about the new management. Now they distrust them even more.
- The management is under pressure to get results quickly and so tends to follow the advice of the consultant for quick fixes.
- The quick fixes, which are often based on insufficient or incorrect information, inevitably involve errors, which further accelerate the mistrust of the management.
- Then the main recommendations and decisions are announced. The worst fears are often realized. The best people often leave even before anyone is let go. Incompetent staff who have sweet-talked their way into the confidence of the management are promoted.
- The promised gains of the reorganization fail to materialize, as rumors swirl about the next change in management or reorganization.
Why Reorganizations Are Recurring More Frequently
This would be bad enough if a reorganization was a once-in-lifetime event. The deeper problem is that restructurings recur. The reorganization doesn’t solve the problem, and the external context keeps changing faster. Reorganizations keep occurring, sometimes until bankruptcy puts an end to the organization.
Seewald suggests that “restructuring can be a necessary evil.” The problem is that change today is happening faster and faster. Reorganizations are becoming larger and ever more traumatic,
As the consulting firm PWC concludes, in the private sector, “Elevated interest rates helped push Chapter 11 bankruptcy filings to their highest level in eight years in 2024 and we expect the high volume of restructurings to continue through the first half of 2025.” The downsizing of the U.S. federal government illustrates the same phenomenon on a huge scale in the public sector.
According to Harvard Business School researcher, Stuart Gilson, “corporate restructuring, when done right, can be a win for everyone.” But triumphs in reorganizations are uncommon. More often, the effects of repeated restructurings create a hangover that undermines the productivity and risk-taking of employees.
Resolving The Root Cause: Networks Of Competence
The root cause of the problems caused by corporate reorganizations is the pervasive use of a form of organization known as a hierarchy of authority.
Hierarchies of authority
As shown in Figure 1, in hierarchies of authority, there is only one genuine leader. Everyone else in the organization is reporting to, and subject to the instructions of, someone at the level above. There is limited, if any, horizontal interaction between the vertical silos. These features constrain the coordination and innovation of such organizations, which find it difficult to adapt to a changed context. Around 80% of public firms and almost all public sector organizations are run in this way. Hierarchies of authority typically give primacy to methods, processes, frameworks and directives. Subjective factors such as culture, values, and staff engagement are not totally ignored, but they are regarded as “nice to have but not essential.” This way of running organizations was successful in the 20th century. In the fast-changing world of 2025, the context is different.
Endless discussions of low staff engagement, limited innovation, lack of psychological safety, weak teamwork and slowing growth proceed with little if any recognition that these are inevitable consequences of running the firm as a hierarchy of authority.
Networks Of Competence
Meanwhile, the world has changed. The internet has given rise first, to firms with new possibilities for innovation, and then to customers who have more choices, and finally to firms again, the potential of new business models that build on network effects, sometimes exponentially. Firms have begun finding that networks of competence are better adapted to the faster-paced, rapidly changing customer-driven marketplace of the 21st century.
As depicted in Figure 1, in networks of competence,
· No one is the subordinate of anyone else. Everyone is interacting with others horizontally, so that everyone can be, and should be, a leader.
· There are typically defined interfaces among teams so that horizontal interaction happens naturally, thereby facilitating coordination, autonomy, and innovation.
· A network of competence can only function successfully if it has a clear direction, mostly the creation of value for stakeholders, particularly customers. Around 20% of public firms are now run at least in large part in this mode.
· The explicit customer focus in networks of competence has paved the way for creating exponential network effects.
By contrast to hierarchies of authority, networks of competence place subjective concerns like culture, mindsets, values, and narratives as the primary drivers of everything that happens in the organization to ensure the coherence and direction of the organization’s activities. Many of these firms are performing above average in terms of long-term value creation and staff engagement as shown below in Figure 2.
Whatever the outcome of the ongoing reorganizations and downsizings, urgent thought needs to be given to moving in future towards networks of competence.
And read also:
How Networks Of Competence Are Crushing Hierarchies Of Authority
Why Networks Of Competence Also Require Hierarchies