What is restructuring? Corporate restructuring process

What is corporate restructuring?

Corporate restructuring is the process of reorganizing the company's operational apparatus to improve the efficiency and performance of the organization, providing a better state to achieve its goals. Enterprise restructuring can be carried out at various levels, from organizational structural changes, management apparatus, operational processes, to business model changes, development strategies, etc.

The corporate restructuring process is considered critical to eliminate all financial crises and improve the efficiency of the company's operations. For some business projects, corporate restructuring may be the last attempt to maintain solvency when the company faces financial difficulties and has to restructure its debts to creditors. In order to maintain business operations, this procedure requires restructuring of the company's debt and the sale of unnecessary assets.

Why business restructuring is necessary?

Corporate restructuring is a dynamic and complex process in which companies participate to adapt to the changing business environment, capture new opportunities and improve their overall efficiency and competitiveness. It involves various strategic and financial activities to reshape the assets, operations and ownership structure of the organization. Enterprise restructuring to:

• Improve efficiency: Companies can restructure to improve operational efficiency by streamlining processes, reducing costs and eliminating excesses.

• Strengthening profitability: Restructuring can help companies focus on high-margin business segments while receding or shrinking the size of non-profit segments.

• Responding to market changes: Firms often adapt to the growth momentum of the market by repositioning their products/services or entering new markets.

• Debt relief: Companies suffering from excessive debt can restructure to ease their financial burdens and improve their credit standing.

• Unlocking shareholder value: To increase shareholder value through stock repurchase, dividend payment or change in corporate governance.

• Facilitating growth and expansion: Restructuring can provide a strong foundation for enterprises to grow and expand. By improving operational and financial efficiency, enterprises can increase investment capacity, expand markets, develop new products, and access new business opportunities.

• Increased competitiveness: Restructuring helps businesses quickly adapt to the intense competition environment. Through optimization of organization and processes, businesses can improve product/service availability, increase flexibility and quickly respond to customer requirements, creating competitive advantages.

When is corporate restructuring?

The need for corporate restructuring arises as a result of changes in a company's ownership structure. Such changes in the company's ownership structure can be attributed to takeover, merger, unfavorable economic conditions, adverse business changes such as acquisition, bankruptcy, lack of inter-departmental links, over-hired personnel, etc.

Corporate restructuring can occur in a variety of situations and does not have a specific time frame that can be applied to all situations. A number of times an enterprise can consider restructuring:

Change in strategy

When an enterprise decides to change its strategic direction, such as expanding into new markets, switching to other products/services, or focusing on new business areas, restructuring can occur to adjust organizational structures and work processes.

Lack of profit

Poor corporate performance can be the result of wrong decisions made by managers, or a decline in corporate profits due to changing customer needs or increasing costs.

Changes in the capital structure

When an enterprise needs to adjust its capital structure, such as consolidating or separating business units, or making acquisitions or selling shares, it needs to consider restructuring to suit its financial requirements.

A change in the business environment

As the business environment changes, such as changes in regulations, new technologies or competitive competition, restructuring may be necessary to ensure adaptability to the new environment.

6-step process of corporate restructuring

Step 1. Determine the current status of the business

Determining the current status of the enterprise is the basis for management to understand and know where the stagnation and laxity are, and which parts are inefficient. Only then can a complete and complete restructuring plan be developed. Surveying and evaluating the current situation will also help enterprises understand their strengths, weaknesses, opportunities and challenges.

The scope of enterprise restructuring needs a comprehensive review of all gaps in operational structure. Depending on each enterprise, this scope will be considered whether restructuring should take place in some areas or the entire enterprise.

Step 2. Targeting restructuring

Enterprises need to clearly define the goals and reasons of the restructuring process. It could be improving performance, reducing costs, increasing competition, adapting to changes in the business environment, restructuring debt, or changing business models.

Based on the restructuring objective, enterprises should conduct analysis and assessment of feasible restructuring options. Possible options include organizational structural changes, staff cuts, restructuring of public debt, mergers and acquisitions of business units, or changes in business models.

Step 3. Plan in detail

After selecting the restructuring plan, enterprises need to plan in detail to implement the restructuring process. The plan should include specific activities, including:

• Scope of restructuring: Need to be clearly defined, including areas, activities, departments, personnel, etc.
• Roadmap for restructuring: Specific identification, including phases, timestamps, tasks to be performed in each phase.
• Restructuring resources: finance, human resources, material resources, etc. needs to be mobilized for restructuring.
• Cost of restructuring: Need to be planned and managed closely.

Enterprises can consult with corporate restructuring consultants. Consultants can help businesses plan detailed restructuring more efficiently and practically.

Step 4. Define an approach

Consider the approaches available to achieve the restructuring objective. There can be many methods such as hybrid restructuring (combination of cost reduction, organizational restructuring), joint ventures, strategic cooperation, mergers and acquisitions, technology transfer, new development, etc.

In addition, businesses also need to come up with solutions, strategies, strategies, and implementation plans in the form of slideshows. Helping enterprises to gain clarity on the implementation of restructuring.

Step 5. Carry out a plan

Implement the restructuring plan by implementing the planned activities. Establishing a steering committee for business restructuring, responsible for leading, directing and managing the implementation of the restructuring plan. To assign specific tasks to each relevant department and individual.

Step 6. Operate the new system and periodically evaluate

Ensure the new system has been properly implemented and functioning in a stable manner. System components, including software, hardware, and network, need to be installed and integrated correctly. At the same time, ensure staff have received sufficient training on the use of the new system. Help them have enough knowledge and skills to use and manage the system effectively.

At the same time, a comprehensive inspection of the new system should be carried out to ensure stability, performance and security. Establish monitoring mechanisms to monitor the operation of the new system and evaluate performance. Important parameters and indicators should be measured and monitored periodically to determine whether the system is performing well or needs to be adjusted.

Example of corporate restructuring

Example 1: L&T Ltd. has merged its cement division into a separate company, Ultratech Cement Co., Ltd. After that, the company was transferred to Grasim Industries (Aditya Bula Corporation). After the agreement, L&T benefited from the actual value of the cement sector and focused on its core businesses such as engineering and construction. Grasim Ind. benefit from economies of scale, increased capacity, overall competitiveness, multifunctional coordination and combined resources.

Example 2: Tata Steel Ltd. Acquisition of Corus Group Plc overseas, significantly improved Tata Steel Ltd's ability to coordinate production. Through the acquisition, Tata Steel Ltd. may combine Corus' low-cost and high-quality production activities. This leads to the leveraging of a wide range of retail and distribution networks, technology transfer and R&D capacity building.

Problems to Resolve in Corporate Restructuring

Enterprise Basic Restructuring:

• Research and evaluate the current structural model of the enterprise to identify strengths and weaknesses, issues to improve and unreasonable aspects of the organization.
• Define a new company structure model in line with the objectives and strategies of the business. The new model should increase flexibility, optimize performance, and enhance its ability to respond quickly to changes in the business environment.
• Clearly define the responsibilities and powers of each department in the new company. Helps create transparency, encourage accountability, and increase the efficiency of each group's work.
• Identify and describe specific tasks for each individual in the company, ensuring that everyone understands their duties and responsibilities.
• Develop a comprehensive management system that includes company rules, regulations, standards and procedures. Ensuring compliance with quality processes and standards, enhancing business consistency and efficiency.
• Operate and maintain the efficiency of the new management system, including ongoing monitoring and evaluation, continuous improvement and adaptation to changes in the business environment, to ensure the success and sustainability of the new company structure model.

Comprehensive Enterprise Restructuring:

• This includes tasks in the basic restructuring of enterprises, in addition to the re-development of administrative and personnel management policies.
• Re-establishment of marketing, business, supply chain management policies.
• Restoration of policies in production and engineering.
• Restoring accounting policies, financial management.

Corporate restructuring does not necessarily involve layoffs, but temporary layoffs and other employment-impacting moves are common when the company restructures.

Corporate restructuring is an essential tool that companies use to adapt to changes in the business environment, improve financial efficiency, and achieve competitive advantages. However, the restructuring process has many difficulties. It's complicated and takes a long time to make. This is not something most organizations can do on a regular basis and stay active.