There are two main problems that are likely to arise if a firm engages in reorganization too frequently. One problem will be organizational and the other will be psychological.
Organizationally, too much reorganization will tend to result in confusion. When a firm changes the way in which it is organized, its workers have to get used to the new structure. That is, they have to get used to working with different people. They have to get used to having new responsibilities. They have to get used to new procedures. In some ways, it is as if they are all new employees having to learn the ropes again and again. This sort of thing robs the company of efficiency because its workers are constantly having to relearn the structure of the firm.
Psychologically, the constant reorganization can sap the morale of the workers. They can come to feel uncertain about the firm’s future and about their own role in the firm. They feel uncertain because they are not used to their own roles and do not feel comfortable. They may worry that all of the reorganization means that the firm lacks focus and is floundering. The reorganizations will make it harder for them to feel comfortable and confident. This can lead to lower productivity or even to the best workers (who can find other jobs most easily) leaving the firm completely.
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