Rethinking Restructuring: Why Organization Design Matters More Than Layoffs -

Why Pakistan’s Rising Cost of Labour Demands Better Organization Design, Not Bigger Layoffs

By Syed Shoaib (PHR), KFLA™

Pakistan’s corporate boardrooms are facing an uncomfortable reality. Although inflation has eased from the historic highs witnessed over the past two years, the pressure on businesses has not. Labour costs continue to rise, energy prices remain volatile, imported raw materials remain expensive, and employees understandably expect salaries to keep pace with the increasing cost of living. For many organizations, the immediate response is predictable: freeze hiring, reduce headcount, or launch another restructuring exercise.

Yet history repeatedly demonstrates that restructuring alone rarely solves financial pressure. What determines success is not whether an organization restructures, but how it restructures.

According to the Federal Budget 2026–27, the government expects average inflation to remain at 8.2% during the current fiscal year while proposing a 10% increase in the national minimum wage (Source: Dawn, June 2026). This was followed by the recommendation from the Pakistan Institute of Development Economics (PIDE), which proposed a 12.5% increase in the minimum wage to better reflect prevailing economic realities, as reported by Dawn.

For employers, these figures represent far more than economic statistics; they translate directly into higher payroll costs that ultimately affect the bottom line.

Consider a manufacturing company employing 1,000 workers. A monthly increase of Rs5,000 per employee would raise annual payroll expenditure by approximately Rs60 million, even before accounting for EOBI, social security contributions, gratuity, overtime, bonuses, leave encashment, and the inevitable salary compression adjustments required across higher grades. Similar pressures are being experienced across engineering, construction, manufacturing, logistics, utilities, and infrastructure sectors.

Meanwhile, production costs continue to challenge industry. Pakistan’s manufacturing sector has shown encouraging signs of recovery, with overall manufacturing growing by 6.6% and Large-Scale Manufacturing expanding by 6.5% during FY2025–26. (Dawn) Yet higher production does not automatically translate into higher profitability. Rising labour expenses, energy tariffs, imported inputs, financing costs, and regulatory compliance continue to squeeze operating margins.

This is precisely where many organizations make costly mistakes.

When financial pressure intensifies, restructuring often becomes synonymous with downsizing. Departments are merged, positions are eliminated, reporting layers are compressed, and hiring freezes are imposed. While these actions may temporarily reduce payroll expenses, they frequently overlook a more fundamental question:

Are we paying for the right work, or simply paying fewer people?

The relationship between strategy and organization design is much like that between an architectural blueprint and a building’s structural framework. Strategy defines what the organization intends to achieve, while the structure enables it to achieve those objectives. Just as a structural engineer would never remove steel or concrete to cut costs without understanding their role in supporting the building, organizations should never eliminate positions or budgets without first understanding how every function and role contributes to executing the business strategy.

Once the organization defines the strategy, the organizational structure determines how work should be organized to achieve those objectives. Aligning the organizational structure with the business strategy enables leaders to objectively evaluate roles based on their contributions rather than on job titles, tenure, or the individuals who occupy them. Without this alignment, organizations risk inefficiencies, duplicated effort, unclear accountability, and unnecessary cost. Only then can restructuring decisions improve efficiency while preserving the capabilities needed to execute the strategy.

The missing piece in many restructuring initiatives is job evaluation; it transforms restructuring from intuition into science.

Job evaluation provides the analytical discipline required to support effective restructuring. Rather than relying on job titles, tenure, or individual incumbents, a structured job evaluation assesses the relative value of each position using objective compensable factors such as know-how, problem-solving, accountability, responsibility, decision-making authority, and organizational impact.

When integrated with organization design, job evaluation helps validate the new structure by ensuring that roles are appropriately sized, reporting relationships are logically aligned, overlaps and unnecessary layers are identified, career paths are clearly differentiated, and compensation reflects each role’s relative contribution to the organization.

The outcomes of job evaluation provide the foundation for a logical grading structure and an equitable compensation framework. They ensure that employees are rewarded according to the value of the role they perform rather than the title they hold or the number of years they have served. More importantly, they strengthen internal equity, improve transparency, and provide employees with clearly defined career progression pathways.

Viewed in this way, restructuring is not an exercise in reducing headcount; it is an exercise in improving organizational effectiveness. Workforce optimization should therefore be the outcome of sound organization design. Otherwise, organizations risk removing critical capabilities while leaving the real structural inefficiencies untouched.

Engineering organizations illustrate this particularly well. Consider a manufacturing plant where multiple supervisors oversee nearly identical production activities across different shifts, each with its own administrative staff. Rather than eliminating technical expertise, a comprehensive organizational review may reveal opportunities to streamline supervisory layers, consolidate administrative support, automate routine reporting, redefine spans of control, and improve decision-making. The result is lower operating costs without compromising operational excellence, quality, or safety.

The same principle applies equally to project engineering firms, EPC contractors, utilities, and construction companies.

Additionally, today’s business environment also demands a shift from labor-intensive growth to productivity-led growth. As automation, artificial intelligence, digital engineering, industrial analytics, and smart manufacturing become increasingly common, organizations will compete less on workforce size and more on workforce capability. Successful organizations will not necessarily employ fewer people; rather, they will employ the right people, in the right roles, performing the right work.

Pakistan’s economic landscape is sending a clear message. Rising wages, persistent inflationary pressures, and increasing production costs are unlikely to disappear soon. Organizations that continue to respond with reactive downsizing may achieve temporary financial relief but risk weakening their long-term capabilities and competitiveness.

Those that invest in aligning strategy with organization design, supported by disciplined job analysis, objective job evaluation, equitable grading structures, and strategic workforce planning, will be far better positioned to manage costs while strengthening performance. Inflation increases the cost of doing business, but poor organization design increases the cost of inefficiency. In an economy where every rupee matters, the smartest investment is not simply reducing payroll; it ensures that every role creates measurable value and directly contributes to executing the organization’s strategy.

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