Potential Benefits and Challenges of Restructuring - Coursework Example

RESTRUCTURING Name: Course: Instructor’s name: Institution: Date: Introduction Increasing sales so as to maximize profits as well as realizing sustainability in competitive advantage is the goal in any organization. And as such organizations employ restructuring and strategic management as a key driver to achieve their objectives. Strategic management is the identification of a single or more competitive advantage that a company or organization has in the market where it offers services or intends to extend its services as well as appropriation of resources. Restructuring on the other hand is a substantial modification which is made to the operations, structure or debt of an organization (DePamphilis, 2008). This sort of corporate activity is normally made in the event that there are substantial challenges in the organization, which are leading to some type of financial harm to and generally jeopardizing the overall business. This paper thus represents three forms of restructuring, potential benefits and challenges of restructuring. Relationship between strategic marketing and restructuring In restructuring, the marketing strategy forms the base (Cinque, 2006). Strategic marketing forms the main connection between the company and the market. In other words understanding the strategic marketing implies success in business restructuring. Further, strategic marketing assists management to track the right direction through the restructuring process as well as in determining the actions that need to be performed and through what order to do them. By this the need to do restructuring is identified early and thus the owners or management will be in a position to offer amicable actions to the challenge. In addition strategic marketing not only forms the basis for successful short term restructuring of a business but also forms the long term growth and survival of the business (Mooradian, Matzler and Ring, 2012). In the absence of marketing strategy, opportunistic decisions may be taken by the management and they will be tempted to panic which may result to quick fix decisions. They put their focus on technical solutions that are partial and that rather worsen the situation. Downsizing and purpose Downsizing is the reduction in the number or level of the labor force of a company. Rather than firing the employees, though, the employer permanently eliminates the positions to shrink the payroll (Pandey and Quick, 2012). This approach is used by companies that seek to cut costs during difficult economic times or to improve performance and efficiency. Some employers may also attempt to reduce workers hours or instituting vacation days that are unpaid. The purpose of downsizing is to improve efficiency of operation as well as increasing the net profits downsizing helps to cut expenses. It also assist investors have the hope that the company’s stock prices might rise in the future due to the improving bottom line results. Some management also downsize in order to cope up with the business conditions that are changing. Further companies that are trying different markets or consumers downsize specialists or departments if the skills of the employees are perceived as obsolete. By this they may be forced to recruit new employees to implement the new strategy in business. A good example of the downsizing is the HSBC Holdings. As per the website of the Business Insider, HSBC Holdings, which is an international banking and financial services, in 2011 lay off 5000 workers and has plans of laying off a further 25000. It has already closed its operations in Poland and Russia, as noted by the site and closed branches totaling to 195, many of which are located in New York. Down scoping and its purpose Down scoping is employed when eliminating businesses which are not related to the core business of the company. In other terms it represents establishment of a focus on the major businesses of the company. Whereas down scoping often includes downsizing, the initial is aimed in order that the company loses not the central workers from major businesses as such losses may result into loss of competencies that are core to the company. This is usually realized by decreasing horizontal and vertical integration. It entails two main processes, first is to reduce the level of diversification in the businesses which are not core to the organization. Secondly, selective removal of some units of the workforce and operations that are not related to the main business. The overall purpose of down scoping is to enable the top level management to effectively manage the organization since the company is not diversified much due to down scoping. The second purpose is to enable the top level management to better understand the related and core businesses of the company. In addition companies use this strategy of restructuring to improve their performance. In a nutshell the major aim of down scoping is to enable the top managers of a company to get control in terms of strategy of the operations of the company; in essence it refocuses the company on its core businesses. For instance the TATA group restructured its business in order to keep 91 out of its 250 business units. The Tata Company has attempted to construct an approach that is more focused without actually doing away with the beast manufacturing processes of the past. Leveraged Buyouts and purpose This is a restructuring action in which the managers of the company with or without an external party purchases all the business assets, which to a larger extent are bought by debt, and hence takes the company private. Mostly Leveraged Buyouts are employed as a strategy of restructuring in order to correct for mistakes on the managerial side or as a result of the managers creating decisions which major favor their personal interest instead of those of the stakeholders (Leveraged buyouts, 2009). In other terms, a few owners spending a substantial quantity of debt buy a company and the stock of the company is no more traded in the company. The purpose of Leveraged Buyouts is to increase financial returns to. The Leveraged Buyouts debt has an apparent cost of capital that if fixed, hence any excess return of this cost flows to the investor of the equity (Hill et al., 2012). Further the purpose for this is to create the shield of tax benefit, thus resulting into higher valuation. An example of the Leveraged Buyouts is the First Data Corp which is still one of the largest private equity technology deals. A provision, referred to “go- shop period”, being attached with the deal, the deal was executed which permitted the company to seek other proposals for 50 days period. The deal worth USD 29 billion consisted costs of shares that were restricted, debts and stock options. Kohlberg Roberts and CO in 2014 assisted the company concerned with payment to minimize its burden in terms of debt by a USD 3.5 billion private placement. Pitfalls of the above three types of restructure Leveraged Buyouts often get to the spotlight since the buyer take huge risks and look to make serious money. In as much as Leveraged Buyouts present chances to create money, greed may work against the investor. It is evident that deals do not always sail through, or even in the cases where they do, the outcomes are not always suitable to the ones investing (Olivares-Caminal, Douglas and Guynn, 2011). Therefore if anyone is thinking of investing in Leveraged Buyouts, then he or she needs to study the essential analysis and as well take time to do properly learn it or otherwise leave that to the experts. Downsizing has its pitfalls. First it leads to disruption of both formal and informal communication networks. This is due to the fact that the employees who are downsized are no more part of the part of the process of the company communication. It leads to knowledge and skill loss because the employees who are eliminated retain the knowhow which is often lost during downsizing (Pandey and Quick, 2012). It also contributes to stress on the worker as downsizing eliminates the positions of the employees but the amount of work remains constant. It also generally creates a negative image to the company as the layoff may paint an ill image of the company to potential employees or consumers. For Example Motorola failed in restructuring and as a result it inquired huge losses. Benefits of the three types of restructure Downsizing in the long run enables in saving money as it helps one to stop wasting money on the non- essentials. It reduces repetition and thus making the company more efficient as well as saving money in jobs that are closely related. Downsizing also helps the management and staff alike to be creative and come up with processes that will ensure that the goals of the company continue to be met. Consequently, Leveraged Buyouts hold the management at a standard that is higher and has to operate in smaller sizes in order to lower rates of risk hence increasing productivity. The benefit of down scoping is that it refocuses a company on its core business thus enabling the management to gain control of the operation strategy. For example, the success of the Hilton hotels is as a direct result of leveraged buyouts. Conclusion Restructuring is a critical component for any company with the aim of gaining competitive advantage, increasing profits, sustainable growth, minimizing loses or which is about to collapse. References Cinque, G., 2006. Restructuring and functional heads. Oxford: Oxford University Press. DePamphilis, D., 2008. Mergers, acquisitions, and other restructuring activities. Amsterdam: Elservier/Academic Press. Hill, Charles W.L., Gareth R. Jones, 2012. Strategic Management Theory: An Integrated Approach, Cengage Learning, 10th edition Leveraged buyouts. 2009. [Mosman]: iMinds. Mooradian, T., Matzler, K. and Ring, L. 2012. Strategic marketing. Boston, MA: Pearson Prentice Hall. Olivares-Caminal, R., Douglas, J. and Guynn, R. 2011. Debt Restructuring. Oxford: Oxford University Press. Pandey, A. and Quick, J. 2012. Downsizing. Cambridge University Press Textbooks. Read More