Business Management Report: Management Restructuring - Essay Example

?Business Management Report: Management Restructuring Contents Contents Introduction 2 Management Restructuring 3 Why Organization Do Restructuring3 Processes of Restructuring 4 Advantages of Restructuring 7 Disadvantages of Restructuring 9 Recommendation 11 Conclusion 12 Reference 13 Bibliography 15 Introduction The company management obtains the way of corporate restructuring when they feel that they need to change the company structure or reorganize various departments for making more profit or become better organized for fulfilling the present needs of the company. The top management of a company take the decision of restructuring when they feel that they should change the ownership of the company, work with some other company, or divide the company in parts. Because of some present situations the management have to take the restructuring decision like the financial condition or decreasing market share or in a situation when some strategy change may open a new window to generate more revenue. The national organization of U.K. has also undergone a management restructuring recently. In this report the researcher have identified that why the organization go for the management restructuring, the advantages and disadvantages caused for restructuring. The researcher also has provided some suggestion which step the company should obtain for correcting the disadvantages caused for the restructuring. The right process of restructuring should be taken by the company otherwise it would hamper the working of the organization, the customers and as a result the profit of the organization. The researcher has used various sources like books, journals for obtaining the information about corporate restructuring. Management Restructuring Why Organization Do Restructuring The organizations take the decision of management restructuring as they want to add more value in the processes of the company. The organization may take the decision of restructuring because of the following reasons. The company is losing the market share for the past financial periods. The company management would diagnose the problem and would take certain steps for solve this problem and solving the problem may need some restructuring in the management. The competition in the industry may have been increased recently. The management may want to take some strategies so that they can retain their market share in the future which may lead to a corporate restructuring process. The organization may be failed to adopt a new technology which is a trend in the industry so the company is losing the competitiveness. So the management can take decision to acquire some companies who has that technical knowhow or may add some division in the company itself for solving the problem. The relations with the customers may get poor or they can lose some important clients. May be the services of the company was not up to the mark, so the company can take the decision to restructuring the management for improving the services. The debt of the company may be increased. In this situation the company management can offer the creditors for the convertible debt option. Loss of key management personnel may be also a cause that leads the organization to change the management structure. The management can appoint some managers from other company, also they can fill the blank position using the lower level managers in the position and giving them extra responsibility. Above mentioned points are certain causes of management restructuring. There may be also some other causes when the management can take the decision of restructuring the management. For maximizing the efficiency a firm can layoff its workers. A financial services firm has grown consistently over a decade. But for maximize the efficiency the firm has chosen the strategy of downsizing the company, so they have reduced the work forces, restructured the parts of the organization, consolidating the operations of its various business units and scaled back some business or close down the existing facilities (Oyer, 2002, p.2). It can be said from the study that in that particular situation the company management felt the need that the company downsizing can increase the efficiency of the business. Processes of Restructuring If the company wants to achieve growth then it will obtain for introducing or developing new products, also by expanding or enlarging the products’ capacity. Otherwise the company can acquire existing business firms for the growth of their product. The restructuring of a company is of two types, internal restructuring and external restructuring. Restructuring Internal Restructuring External Restructuring Growth Strategy Downsizing Strategy Job Cutting Outsourcing Debt Structure Change Financial Model Changing Merger (Amalgamation, Absorption) Acquisition Demerger (Spin off, Split off) Management Buyout When a company change its internal organizational structure then it is called internal restructuring (Block, 2004, p.484-485). The organization may take the steps for some reasons. The processes of internal restructuring are as follows The company may take the job cutting plan for downsizing the company which may be necessary in that economic situation (Eurofound, 2010). The middle and lower management structure of the company can be changed as per the new policy taken by the higher management. The company may outsource some of its activities to any other companies which have specialization in that particular area. The company may restructure its debt structure. They may offer the creditors to convert their debt to equity, thus the liabilities of the company would decrease and the debt holders also become the stake holder of the company. This is the convertible debt option offered by the company. The external growth strategies of the company are of two types, growth strategy and downsizing strategy. The growth strategies are as follows Merger: Merger is the combination of the two firms which can be done by amalgamation or by the way of absorption (PricewaterhouseCoopers LLP, 2006, p.201). In the amalgamation process the identity of two companies dissolve and a new separate legal entity is formed. The absorption is the process as the name suggests. A company absorbed another company and as a result the identity of the acquired company has been dissolved and the identity of the acquired company remains same. In a merger the two firms agree to integrate the operations and the newly formed entity is able to develop new products by using the production capacity, the technical knowhow of one another. The management of the company come into an agreement after considering the different perspectives that how they would be able to use the expertise of the other firm or firms for improving the quality of their products and thus improve the revenue. Acquisition: If a company buys the stake of other company and thus it has importance in the decision of the other firm then the corporate restructuring is called as acquisition (Ballard, 2007, p.154). Acquisition can be of two types, friendly acquisition and hostile acquisition. The friendly acquisition is the process when a company management expresses its wish to acquire large amount of stakes of the other company against a specified amount and the board of directors of the acquired company permitted to do so (Gorzala, 2010, p.8). The hostile takeover process is that the company management of the acquiring company acquired the stakes of the company through the stock market and thus hey become the largest stakeholder of the acquired company (Steinbacher, 2007, p.6). Different types of strategies are taken by a company when they have taken the decision of downsizing of the company. Demerger: The management can take the decision of spin-off. Spin off of a company means that the management is dividing the firm in two parts. Two parts are become the separate legal entity and have separate management (Tubke, 2005, p.2). Also they can take the decision of split-up of the firm. In this process the firm is being divided into several parts by the company management (Bittker and Eustice, 1987, p.64). The parts are become separate entities. Buyout: The management of the company can take the decision of buy out the shares of the company which is a hint of company downsizing. The management want to take more control in their hands (Amihud, 2002, p.4). Advantages of Restructuring Figure: Factors to be considered by the Company Management before Restructuring Data Source: (PriceWaterHouse Coopers, 2008, p.3) The organization can add value in the processes and thus can make profit by the management restructuring process. But they have to consider some questions before doing the corporate restructuring. The company has to identify that the proposed restructuring would add value in the company or not. The management has to consider the business drivers, how they would implement the process. There planning should be robust. They have to consider that how the redesigned organization would look like. The company management have to consider the responsibilities and value of the employees that they would get, as they are the most important part of the organization. The management have to consider that the risks (short term and long term) are balanced or not. If the company management consider the above mentioned factors and take the needed steps for restructuring then the initiative of the company will be successful. The advantages of corporate restructuring are as follows. If the company management add a division in the company for adding value in the company processes then it would increase the revenue of the company. If the company layoff some workers or wind off a division then it may increase the efficiency of the organization, and the costs may be decreased (Eekhoff, 2004, p.84). The convertible debt option will decrease the liability of the company (Schoutens, Spiegeleer and Jabre, 2011, p.72). The outsourcing of some activities of the company will add quality in the product of the company and thus increase the value of the product. The merger allowed the two companies to share the expertise of one another and thus it would also increase the customer base of the newly formed entity. The management also become strong as the management of two companies are collaborating (Gaughan, 2010, p.136-137). The company may implement effective policies if the newly formed management team can work without any major conflict between them. Merger also allow tax optimization and the newly formed legal entity can have tax advantages in the future. The acquisition made by a company management will increase the customer base; help them to diversify the product range, the product quality like the mergers (Brewer, Brenton and Boyd, 2002, p.105). The spin off and split up of the company will separate the company in two or more legal entities. The separation may give the newly formed company the opportunity to focus on their objective only. Pharma AG, a Germany based pharmaceutical stock exchange listed company, had two business units. One business unit provided the diseases treatment products which generate 70% revenue and the other unit was for diagnosis of the disease pattern which generates 30% revenue for the company. The company faced some crisis in the business process. The company could not enter the high product price market, failed to develop new business divisions, their financing was through the short term loan. The company also have structural problems (unprofitable customers, inadequate management strength) as well as the company was operationally inefficient (sales performance down, increasing overhead cost). For increase the level of diversification the company has developed some new activities. For achieving this, the company invest in the acquiring the companies and the developmental activities in-house which had a little effect. The production equipment of the company became obsolete for which the company was unable to market the high price product. The operational cash flow of the company was not enough for the investment requirements so the outside capital was also needed for the company. In this situation the company has obtained some management restructuring process. The company integrate the subsidiaries, centralize the logistics, reduce the process complexity, manage the working capital more effectively and enforce new product licensing. The company also change the financial structure of the company. They convert some operational material loans in the long term loans; add fresh money in the company (Blatz, Kraus and haghani, 2006, p.107-117). For effectively implementing the management restructuring (financial and non financial) the company was able to regain the market share in the pharmaceutical industry. Disadvantages of Restructuring When a company has failed to use the restructuring process effectively then the organization losses ultimately rather than gaining profit. They have to take the steps for restructuring by taking the factors related in consideration. The disadvantages that can happen for an organization for don’t using the restructuring process effectively are as follows The job cutting plan taken by the company should be taken after considering various factors. The existing employees can also get de motivated by the job cutting (effect on the employees) and the employee turnover can get high because of this (Folsom and Boulware, 2004, p.78-79). If the existing employees get a better offer from the competitors then they can leave the company and this is the loss of the company. The management structure should be changed efficiently. Wrong person in the wrong designation can hamper the working process of the organization. The outsourcing of the activities can increase the manufacturing cost for the company (Schniederjans, Schniederjans and Schniederjans, 2005, p.21-23). The convertible debt option for the creditors may affect the earning per share of the company, the EPS decreases if the creditors accept this. If the EPS decreases it is a negative sign for the company to the investors (Shim and Siegel, 2008, p.326). The merger of two firms can increase the product quality of the newly formed entity, but there may be conflict between the management of the two companies. The culture of the two companies may not be matched. The employee efficiency can be down. It is the responsibility of the management of the newly formed entity to ensure that such conflict doesn’t take place in the company and the employee productivity level remains high. The customers also get affected as they are not getting the right quality of the product (McLaughlin, 2010, p.78). The acquisition of a company may cause the employee dissatisfaction of the acquired company; the employee efficiency level of the acquired company may be down (Brewer, Brenton and Boyd, 2002, p.106). The demerger strategy of a company separate in two or more legal entities which able the company to go for more focused objective but this will put pressure on the company management as they have to do all the work which take place in the organization (Cook and Farquharson, 2009, p.561). Some of the works was not handled by them when they were under the parent organization. The research papers have been published analyzing the need for effective restructuring decision which depends on many factors including the current economic situation. The situation was that Portugal was lagging behind the OECD countries in terms of GDP. The performance and the activities of the Portuguese companies were analyzed. The attention of the research was on the restructuring done by the Portuguese manufacturing companies (whether internal or external). At the period considered for the research (1990s) the productivity growth of the company was decreasing. The study was conducted on the existing as well as the entering firms of the country. After studying the Portuguese firms’ approach at that time and analyzed the firms’ performance the researcher has taken the decision that the internal restructuring is predominant in the time of expansion and the external restructuring should be applied in the time of recession (Carreira and Teixeira, 2007, p.2-22). Recommendation As the management restructuring is also facing some major disadvantages the researchers have suggested some process that should be considered by the company management. The researchers have suggested a system dynamics model for overcome the disadvantages. The researchers have argued that the restructuring process would be simplified using that model (Kemper and Khuen, n.d., p.4). The researchers also suggest that improve the people as they are most important parts of the organization. The new markets should be developed before the job cutting; a solid planning should be done before the restructuring (Cascio, 2005, p.44-45). The researcher in this paper has taken the disadvantages of merger for making some suggestion so that the company management can correct the disadvantages. When a company management has taken a decision to do merging with some company for improving the product quality or the customer service then a disadvantage comes in front of the management of the newly formed entity. The culture of the two companies would surely be different. When the two companies merged then the employees of the organization have conflict because of the matter. The top management of the newly formed company would find difficulties to manage the organization effectively. The employees also can be de motivated and the productivity of them become lower. The profit of the company will get hampered (MidAtlantic Farm Credit, n.d., p.12-13). The management of the organization should take some measures so that they can avoid the situation. The researcher has provided some suggestions for avoiding the situation. These are as follows Before merging the two companies the top management should consider the culture of the two companies, they have to consider how different that is. If the culture differed majorly then there is no need to do the merging process. After merging the two companies the company management should use the tools like balance scorecard for controlling the performance of the employees as well as the organization day to day activities and evaluating and measuring the feedback of the employees. The management of the two companies should formulate the policies in the new company combining the both companies’ policy. Conclusion In the report the researcher has analyzed the corporate restructuring process, why the firm use the restructuring process, the advantages and disadvantages of the restructuring process. The researcher also recommended some policies that the companies should adapt to correct the disadvantages of the process. The firms mainly do the restructuring process to add value in the products, to improve the quality of the product and for diversifying the product range. On the other hand they may take the restructuring decision for increasing the effectiveness of the company so they can take the downsizing decision. The companies get advantage for the decision if they do the process after considering the underlying factors. They can increase their revenue. But if their plan gets unsuccessful then they can incur loss. 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