Restructuring Organizations

Submitted by Soumya S.

Introduction
O 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

Corporate Restructuring

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

The Oxford Dictionary, 2007

Giving a new structure to rebuild /rearrange.
Thus, Corporate Restructuring is a structured decisionmaking exercise undertaken to evaluate the current endowments of company, and fine tuning the available skills, machinery, and technology to meet the challenges of tomorrow.

 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).

Essentials of Restructuring
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

Reasons for 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..
O Enhancing shareholder value

O Incompatible company objectives

O Transfer of Corporate assets O Evolving appropriate capital structure O Consistent growth and profitability

O Incompatible company objectives

O Enhancing shareholder value O Resolving conflict O Transferring corporate assets

O Restructuring capital structure

O Bifurcation of Business

Barriers to Restructuring
O Inadequate commitment from the Top

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management Resistance to change Poor communication Absence of requisite skills Scepticism Failure to understand the benefits of restructuring Availability of resources Organizational Workload Non adherence to time schedule Lack of clear and visible leadership

Key elements of M & A:

O Customer Focus O Core Business Processes O Cross functional teams O Information Technology

Types of Restructuring
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.

Purpose of Financial 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.

Portfolio Restructuring
O Involves divesting or acquiring a line of

business perceived peripheral to the long term business strategy of the company O Represents the companys 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 shareholders desire to downsize and

refocus the companys operations O Responding to outside boards suggestion to restructure O Responding to strategies adopted as a response to exercising call or put options

Organizational 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.

Strategies for 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

Hardware Restructuring
O The structure of the organization is redefined,

dismantled or modified
O Focuses on:
O Identifying the core competencies of the business O Flattening the organizational layers to improve

organizational responsiveness O Initiating downsizing to reduce excess workforce reduction in overheads O Creating self-directed team O Benchmarking against the toughest competitors in order to adopt best practices

Software 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 mechanism O Building an environment of guidance and coaching O Building an environment of trust O Raising the aspiration levels of individuals O Empowering people & encouraging decentralized decision

making O 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

Strategic Options in Corporate Restructuring

O Process of eliminating existing inefficiencies O Aims at: O Improving operations O Alter the relative strength of the organization to face competition O Facilitate creating of competitive advantage O Provide better customer satisfaction O Generate profits in a free market economy O Help the organization differentiate itself from competitors O Ensure it delivers value to the customers

Types

Types

Types

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