What is Corporate Restructuring & How Can You Achieve It?

Posted on 31 January 2024 by IRIS FMP

Categories: Growth Strategy

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Corporate restructuring involves initiating changes that strengthen an organization’s financial position and improve its performance. The strategy is typically used when an organization requires effective solutions to ongoing financial challenges.

There are many forms of corporate restructuring including debt restructuring, management reshuffles, operational streamlining, and ownership changes. The primary aim of any corporate restructure is to deliver financial stability while maintaining or improving business efficiency and profitability, as well as enhancing its ability to respond to difficult market conditions.

This blog will examine the multiple processes involved with corporate restructuring and how organizations go about achieving it.

What is corporate restructuring?

The term ‘corporate restructuring’ often has negative connotations of mass redundancies, financial difficulties, and even bankruptcy. In this sense, corporate restructuring typically involves the reorganization of debt, significant workforce changes, and multiple staff payoffs so that the business can keep operating and trading while paying off creditors.

While many corporate restructures occur during times of economic difficulty, internal reorganizations often happen for a variety of reasons such as streamlining outdated processes. Typically, this might result in changes at boardroom and management level, staff movements, and a fresh approach to operations procedures. Ultimately, organizations undergo a corporate restructure to improve their performance and competitiveness by cutting costs and enhancing efficiency in order to increase profits and respond to market changes.

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What are the different types of corporate restructuring?

Corporate restructuring can be approached in many ways. The route taken will depend on the specific needs, requirements, and goals of each individual organization.

A corporate restructure isn’t always a final attempt to save a company from bankruptcy by taking drastic measures such as slashing costs and laying off staff. It can also be an effective strategy for maximizing performance and increasing profitability.

There are several approaches an organization can take when carrying out a corporate restructure:

1. Organizational restructuring

One of the most far-reaching tactics used in organizational restructuring is changing the make-up of a company’s hierarchy and workforce. This could include staff redundancies, mass layoffs, and the merging of roles. It may also involve the creation of new jobs and departments, while eliminating others.

Though an organizational restructure may have a negative effect on working relationships, the changes implemented are aimed at improving productivity, communication, and efficiency within the business.

Facilitating a corporate restructure is complex and can stir emotions among a workforce, leading to dissatisfaction and unrest. Therefore, driving a successful corporate restructure requires expert knowledge and leadership from HR professionals when implementing these transformative measures.

2. Operational restructuring

The streamlining of routine processes within an organization is known as operational restructuring. It may involve introducing new technology, adopting automation, or replacing redundant procedures with more efficient working methods.

An operational restructure may typically involve outsourcing HR functions to an outside provider, or making other decisions aimed at cost-cutting to allow the company to focus on other core processes within the organization’s structure.

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3. Joint business ventures

Despite similarities with mergers and acquisitions, joint business ventures and strategic alliances are very different. No actual sale of a company takes place, and no two businesses merge to create a new organization. Rather, a partnership is formed between two or more businesses with the agreed aim of sharing resources to achieve aligned business goals.

4. Divestitures

When companies divest, they get rid of failing or underperforming teams, divisions, subsidiaries, and other non-core assets. This can be a key element of any corporate restructuring, and could involve the sale of real estate, machinery, and even intellectual property to raise money.

Similarly, companies operating in several markets may decide to split their product offerings to focus on their core business. This could mean a food and drinks business setting up a separate drinks company to provide maximum operational efficiency.

5. Mergers and acquisitions (M&A)

Mergers and acquisitions typically involves the consolidation of businesses or their assets through financial agreements between those companies. For instance, a company may purchase and absorb another company in order to create a new business which may involve acquiring some or all of its assets and stock. Alternatively, a merger may also involve two companies of similar size that join forces to become a completely new business entity, known as a merger of equals. When companies merge in this way, they often enlist mergers and acquisitions consulting specialists to lead the process.

This could result in departments being merged, reduced, or disbanded, and roles being streamlined to avoid duplication. For instance, the new company is unlikely to need every member of the communications teams from both organizations it has absorbed. For this reason, organizations may reshuffle their workforce structure and combine departments once a merger and acquisition are complete.

6. Financial restructuring

Companies often seek to improve their finances by restructuring. This could mean debt restructuring where a company looks to consolidate debts or work towards lower interest payments. It could also refer to equity swaps where a company sells some of its equity to a creditor in exchange for a reduction in debt or improved repayment terms.

Another form of financial restructuring is equity financing, where a company issues new equity, generally in the form of shares, with a view to raising capital and securing fresh cash investment. This way, a company can receive the cash it requires, and the investor will own a share of the company and ultimately benefit from any future success.

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What are the benefits of corporate restructuring?

There are many benefits to a proactive corporate restructure when undertaken strategically and effectively. Depending on the reasons behind a restructure, the advantages could include:

  • Reduced operational costs: Where the workforce has shrunk due to a corporate restructure there is likely to be fewer payroll expenses going forward. Not only that, but outsourcing labor can also be cheaper than the cost of employing in-house teams.
  • Improved efficiency: The process of restructuring can help to identify any surplus and non-essential elements in the management pyramid, providing scope for organizational cost savings.
  • Operational opportunities: New technologies often form a part of corporate restructures as old systems are replaced with the latest, streamlined software. This can lead to improvements in standard working practices such as payroll and data storage.

Are you looking for help with your corporate restructuring strategies?

Corporate restructuring requires careful planning, effective communication, and skilled execution for it to be successful. Its why companies seek guidance from experts like IRIS FMP to navigate their way through a complex restructuring. Contact us today.