Forms of corporate restructuring Ι Characteristics of corporate restructuring.
Explanation of types of corporate restructuring
Corporate restructuring can be broadly classified as financial restructuring and organisational restructuring.
1. Financial restructuring
Reorganising a company’s financial assets and liabilities so that the most favourable financial environment is created is called financial restructuring.
The process of financial restructuring is often linked to corporate restructuring because restructuring the general performance and composition of the firm is likely to have an effect on the financial shape of the corporation.
The approach taken to keep the company competitive even in a depressed economy is through a reordering of corporate assets and liabilities.
Need for financial restructuring
The financial restructuring may be considered to be a process for eliminating wastes arising from the operations of the firm.
For example, if two departments of a company are seen to be performing similar or overlapping functions, it is only reasonable that the departments are combined instead of using the financial resources to fund the operation of both.
This will be a measure to ensure that there is a favourable reduction in costs without hindering the ability of the company in achieving its objectives.
2. Organisational restructuring
In the organisational restructuring, the focus is on management and internal corporate governance structures. Organisational restructuring is practised by many companies in order to keep their organisations perfectly suited to changing business conditions.
Need for organisation restructuring
- New skills and capabilities are needed to meet current or expected operational requirements.
- Accountability for results is not effectively communicated and needs better clarity.
- Parts of the organisation are significantly over-or-understaffed.
- Organisational communication is inconsistent, fragmented and inefficient.
- Significant staffing increases or decreases are contemplated.
- Personnel retention is a significant problem.
- Morale is deteriorating.
Explanation of characteristics of corporate restructuring
The key characteristics of corporate restructuring are:
- Selling or closing of unprofitable divisions from its core business, thereby achieving staff reduction and a stronger balance sheet.
- Revamping of corporate management.
- Sale of underutilised assets such as patents/brands.
- Outsourcing of operations like payroll and technical support to a more efficient third party.
- Moving of operations like manufacturing to lower-cost locations.
- The reorganisation of major functions like sales, marketing and distribution
- Renegotiation of labour contracts at reduced costs.
- Refinancing of corporate debt to reduce interest payments.
- A major public relations campaign to change the position of the company in the market.