Corporate Restructuring

What is Corporate Restructuring – Corporate restructuring is the process of dismantling and reconstructing either a whole organization or certain divisions of a corporation that need special attention. This may require considerable movement of the company’s liabilities and assets.

Corporate restructuring often involves redesigning and reorganizing one or more facets of the organization. This process is undertaken for a variety of reason, the chief being to improve efficiency and profitability in the organization.

When does an Organization need Restructuring – An organization nay need restructuring sue to a variety of reasons. Some of them most common ones are that the company is facing a financial crisis or there is a slump in the economy, mergers, acquisitions, buy-outs, takeovers, under-performance, or sudden, tremendous growth of the organization. Let us go through the most common reasons for Corporate Restructuring within an Organization.

One of the times when major restructuring is required within an organization is when the company has grown tremendously, to the point that the original structure can no longer manage the general interests of the company efficiently. For instance, the organization may require to be split into subsidiaries to improve focus of each function and create a sub-management within each subsidiary.

On the other hand, an organization may face restructuring as a result of a financial crunch or a temporary or long term slump in the economy in general. When this happens, the organization may need financial restructuring as a means to keep the company afloat during these tough times. This may be done by down-sizing staff, combining departments, reducing production, moving production to low cost facilities and business outsourcing etc. In this type of restructuring the focus is on survival rather than on growth.

Lastly, one of the most common reasons for corporate restructuring is mergers, takeovers, acquisitions, and the like. The acquisition of the company by new owners leads to redesigning of the company’s divisions, repositioning the company’s products and services and even restructuring the management.

Characteristics of Corporate Restructuring – Corporate restructuring usually includes the use of underutilized assets, like patents or brands which have not been properly utilized by the company, retention or downsizing of staff, streamlining certain processes, division or functions within the organization.

Companies facing financial setbacks also consider moving of manufacturing or production units into low-cost facilities or locations. Labor costs are renegotiated to reduce overheads and staff is downsized to bare minimum. Human Resources, Payroll, Technical Staff and other Support functions are outsourced to third party vendors who specialize in the given fields to lower costs and to improve efficiency.

In case of mergers or acquisitions, the extra divisions are removed or repositions to improve efficiency and to cut duplication of work and extra overheads.

Companies which are looking at turning their image around, or launching a new product, also indulge in major Public Relations campaigns in order to reposition the organization with consumers. Corporate restructuring usually comes hand in hand with several changes in the management.

What remains at the end of a corporate restructure may be albeit a smaller, but a definitely more efficient and profitable organization or even a conglomerate of subsidiaries.