Restructuring Organizations

Restructuring Organizations

Submitted by Soumya S.

IntroductionO Companies restructure for various

reasons are mentioned under portfolio strategy, mergers and acquisition & turn around management

O It may be expansion or contraction of portfolio

O Changes in nature, volume of business, business condition etc

O It helps to prevent a unit from becoming sick

O Process by which a firm does an analysis of itself and alters what it owes and owns, refocuses itself to specific task of performance improvements

O Involves activities to make more balanced and profitable

Corporate Restructuring

Giving a new structure to rebuild /rearrange.”

Thus,Corporate Restructuring is a structured decision-making exercise undertaken to evaluate the current endowments of company, and fine tuning the available skills, machinery, and technology

to meet the challenges of tomorrow.

The Oxford Dictionary, 2007

• Renegotiation of labor contracts to reduce overhead• Refinancing of corporate debt to reduce interest payments• A major public relations campaign to reposition the company with consumers• Forfeiture of all or part of the ownership share by pre-restructuring stock holders (if the remainder represents only a fraction of the original firm, it is termed a stub).

O Ensure the company has enough liquidity to operate during implementation of a complete restructuring

O Produce accurate working capital forecasts

O Provide open and clear lines of communication with creditors who mostly control the company's ability to raise financing

O Update detailed business plan and considerations

Essentials of Restructuring

O Change in fiscal and government policies

O Liberalization, Privatization, and Globalization (LPG)

O Information Technology Revolution

O Concept of Customer Delight

O Cost Reduction

O Improving bottom-line

O Core Competencies

Reasons for Restructuring

O Enhancing shareholder value O Incompatible company objectives O Transfer of Corporate assetsO Evolving appropriate capital structure O Consistent growth and profitabilityO Incompatible company objectivesO Enhancing shareholder valueO Resolving conflictO Transferring corporate assets O Restructuring capital structure O Bifurcation of Business

Reasons for………..

O Inadequate commitment from the Top management

O Resistance to changeO Poor communicationO Absence of requisite skillsO Scepticism O Failure to understand the benefits of

restructuringO Availability of resourcesO Organizational WorkloadO  Non adherence to time scheduleO Lack of clear and visible leadership

Barriers to Restructuring

O Customer Focus

O Core Business Processes

O Cross functional teams

O Information Technology

Key elements of M & A:

O Financial Restructuring:O Involves change in the capital structure and

capital mix of the company to minimize its cost of capital

O Also involves infusion of financial resources to facilitate mergers, acquisitions, joint venture, strategic alliances, LBOs, and stock buy-back

O Depends on availability of free cash flows, takeover threats faced by the company and concentration of equity ownership.

Types of Restructuring

O Generate cash for exploiting available investment opportunities

O Ensure effective use of available financial resources

O Change the existing financial structure, in order to reduce the cost of capital

O Leveraging the firm

O Preventing attempts of hostile takeover.

Purpose of Financial Restructuring:

O Involves divesting or acquiring a line of business perceived peripheral to the long term business strategy of the company

O Represents the company’s attempt to respond to the marketing needs without losing sight of its core competencies.

O Purpose:

O Restructuring as a result of some strategic alliance

O Responding to shareholder’s desire to downsize and refocus the company’s operations

O Responding to outside board’s suggestion to restructure

O Responding to strategies adopted as a response to exercising call or put options

Portfolio Restructuring

O Restructuring strategy designed to increase the efficiency and effectiveness of personnel, through significant changes in the organizational structure

O Is a response changes in the business and related environments.

O Takes the form of divestiture and acquisitions.

Organizational Restructuring

O Projects difference in terms of work culture and

value system

O Standardized restructuring strategy not possible

O Includes:

O Hardware Restructuring

O Software Restructuring

Strategies for Restructuring

O The structure of the organization is redefined,

dismantled or modified

O  Focuses on:O Identifying the core competencies of the businessO Flattening the organizational layers to improve

organizational responsivenessO Initiating downsizing to reduce excess workforce

reduction in overheadsO Creating self-directed teamO Benchmarking against the toughest competitors in order

to adopt best practices

Hardware Restructuring

O Involves cultural and process changes, in order to establish a collaborative environment that facilitates growth and restructuring.

O Focuses on:O Adopting an open and transparent communication mechanismO Building an environment of guidance and coaching O Building an environment of trustO Raising the aspiration levels of individualsO Empowering people & encouraging decentralized decision

makingO Helping individuals develop foresight, i.e. understanding

changes and getting ready for the anticipated changes O Training people to accept new ideas and challenging

assignments

Software Restructuring

O Process of eliminating existing inefficienciesO Aims at:

O Improving operations O Alter the relative strength of the organization to face

competitionO Facilitate creating of competitive advantageO Provide better customer satisfactionO Generate profits in a free market economyO Help the organization differentiate itself from

competitorsO Ensure it delivers value to the customers

Strategic Options in Corporate Restructuring

Types

Types

Types

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