Corporate Restructuring Increasing your

Business Efficiency
by Baker Tilly on Tuesday, Sep 25th, 2012
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Corporate Restructuring increasing your business efficiency

To be successful on a long term basis it is essential that companies can respond to fluctuations in
the economy and endure dips in income. In some instances, companies may need to change their
business processes and working methods in order to operate as efficiently as possible. Corporate
restructuring enables businesses to do this, reduce costs, increase profits and allow companies to
avoid closure and insolvency in some instances.
Unfortunately, there are a number of factors than can have a negative effect on a business and
subsequently reduce income. An increase in tax liability, recession, negative media attention and
increased competition are just some of the factors that can reduce a companys cash flow. Ideally,
companies are able to survive temporary cash flow reductions but this is not always possible.
Issues such as, a floundering economy or an unavoidable increase in production costs can leave
businesses facing long term income loss which can have a profoundly negative and sometimes
catastrophic effect on the business. It is essential that businesses react quickly and effectively to
such issues. By undergoing corporate restructuring they ensure the business is equipped to
survive such changes and can increase profits in both the short and long term or return the
business to profitability.
The options available to businesses considering corporate restructuring are vast and very much
dependent on the industry, nature of the business and specific issues the company is facing. The
merging of departments, disposal of company assets or reduction in workforce may be necessary
step to keep a company functioning and can all be conducted during a period of corporate
restructuring.
By accessing the services of corporate restructuring specialists, businesses can seek advice
regarding how best to restructure the company. In addition to providing a range of viable options
and calculating the associated risks, corporate restructuring experts can assist with the
implementation of changes to the business and provide additional resources to staff during the
period of corporate restructuring.
Its even possible for businesses to begin a cycle of corporate restructuring before any income is
lost or before damage occurs to the business. For example, if upcoming legislative changes are

going to place additional burdens on the company and ultimately reduce income or increase
costs, a strategic corporate restructuring plan can enable the business to implement changes prior
to the enactment of new regulations and avoid any loss or harm to the business. The quicker a
business responds to unwanted or enforced change, the more chance it has of surviving and
increasing profits as it does so.
Whilst many companies undergo corporate restructuring following a period of reduced trading or
income, business also often seek to the assistance of corporate restructuring specialists during
time of growth or expansion. Even before trading begins, many business owners plan for
projected growth and assess potential routes for expansion. When growth occurs, the original
business structure may not cope with increased production and require remodelling. The use of
corporate restructuring services can enable the business to assess all viable options and
implement the changes in an effective and efficient manner.
As businesses are constantly subject to external and internal change, it is essential that they are
adaptable in order to survive on a long term basis. Whether the business is expanding or
economising, corporate restructuring allows a business to respond accordingly and become as
profitable as the market allows. Although some corporate restructuring methods, such as
downsizing or reducing workforce, can be difficult, they are sometimes the only method of
ensuring the business is able to continue to function and return to profitability. It is essential that
businesses welcome corporate restructuring methods both in times of difficulty and prosperity in
order to function at their optimum level and maximise economic success.

Restructuring is the corporate management term for the act of reorganizing the legal,
ownership, operational, or other structures of a company for the purpose of making it more
profitable, or better organized for its present needs.

1. Smart-sizing: It is the process of reducing the size of a company by laying off employees on
the basis of incompetence and inefficiency.
Some Examples

Acquisitions: HLL took over TOMCO.

Diversification: Videocon group is diversified into power projects, oil exploration and
basic telecom services.

Merger: Asea and Brown Boveri came together to form ABB.

Strategic alliances: Siemens India has got a Strategic alliance with Bharati Telecom for
marketing of its EPABX.

Expansion: Siemens is expanding its medical electronics division- a new factory for
medical electronics is already come up in Goa.

2. Networking: It refers to the process of breaking companies into smaller independant business
units for significant improvement in productivity and flexibility. The phenomenon is
predominant in South Korea, where big companies like Samsung, Hyundai and Daewoo are
breaking themselves up into smaller units. These firms convert their managers into
entrepreneurs.
3. Virtual Corporation: It is a company that has taken steps to turn itself inside out. Rather than
having managers and staff sitting INSIDE in their offices moving papers from in basket to out
basket, a virtual corporation kicks the employees outside, sending them to work in customer's
offices and plants, determining what the customer needs and wants, then reshaping the corporate
products and services to the customer's exact needs. This is a futuristic concept wherein
companies will be edgeless, adaptable and perpetually changing. The centrepiece of the business
revolution is a new kind of product called a "Virtual Product" Some of the these products already
exist, camcorders create instant movies, personal computers and laser printers have made instant
desktop publishing a reality. And for all these we can obtain cash instantly at ATMs.
4. Verticalization: It refers to regrouping of management functions for particular functions for a
particular product range to achieve higher accountability and transparency. Siemens in 1990
moved from a "function-oriented" structure to a vertical "entrepreneur-oriented" structure
embracing size business and three support divisions.
5. Delayering- Flat organization: In the post world war period the demand for goods was ever
increasing. Main objective of the corporations was production and capacity build up to meet the
demand. The classical, pyramidal structure was well suited to this high growth environment. This
structure was scalable and the corporations could immediately translate their growth plans into
action by adding workers at the bottom layer and filling in the management layers. But the price
paid in the whole process was much higher. The overall process became complicated; number of
middle managers and functional managers grew making the coordination of various functions
complex. Senior/top management was alienated from the front-line people as well as the end
users of the product or service. Decision-making became slower. Hence, a need is felt to attack
the unproductive, bulky and sluggish network of white-collar staff. A powerful strategy would be
to remove the layers of senior and middle management i.e. making the organization structure flat.
6. Business Process Reengineering: The Business Process Reengineering
method (BPR) is defined by Hammer and Champy as 'the fundamental
reconsideration and radical redesign of organizational processes, in order to achieve
drastic improvement of current performance in cost, service and speed'. Value
creation for the customer is the leading factor for BPR and information technology
often plays an important enabling role. Business process reengineering is also
known as BPR, Business Process Redesign, Business Transformation, or Business
Process Change Management.

2.4 Hurdles of Business Restructuring

Restructuring is not as simple as "Making the mission statement in the morning, assessing the
corporate strengths and weaknesses in the afternoon and articulating the strategies by evening".
Some of these are discussed below:
Culture: Culture is an important intermediary which determines whether the strategy will or will
not be successfully implemented. Culture either helps or hinders an organization as it seeks to
achieve competitive advantage. The right culture for an organization is the one that best supports
its strategic objectives. The challenge for an organization is thus to assess the fit between the
current culture and the culture required to implement the chosen strategy successfully and to take
steps to change the organization's culture to better align it with what is required.
Inadequate focus and commitment of top management towards change program: Any
change program will be successful only if it gets adequate support and commitment of the top
management. If the top management themselves are not focused or committed the restructuring
will be a failure.
"What is in it for me" attitude: Say in case of a merger or an acquisition, if each party is
concerned only about itself rather than the organization as a whole, the restructuring would not
be effective nor successful i.e. if each party tries to gain benefits for itself at the cost of the
others, the new organization would fail.
Mind set/resistance to change: Any restructuring activity involves some amount of change. Be
it a merger or a joint venture or a takeover, the management as well as the employees require to
align themselves the new structure. If they are not willing to change their mindset, the
restructuring will not be successful.
Lack of involvement of employees: A restructuring activity requires a lot of change: change in
the mindset, change in the working, change in the reporting, a change in the structure, etc. Since
human tendency is to resist change, the best way to incorporate any change is to involve people
in the formation of this change. Failure to do so would invite resistance from them which in turn
will affect a successful restructuring.
Poor planning: As goes the phrase "Well started is half done". If your planning stage itself is
faulty, the whole activity would be affected.
Resource Availability: Resource availability could be another constraint. Lack of availability of
adequate resources could affect the working of the business and affect the restructuring activity
as a whole.
Cost and time: The cost and time involved for the gains to seep through into the organization
may at times make the firm retreat from the process of restructuring.
Poor communication: At times, due to poor communication, the need and benefits of the
restructuring activity has not been percolated to the lower levels of the organization. This in turn

would affect the effective working of the employees and their performance. Unstructured
communication flow, unclear reporting structures, etc, after a restructuring activity, could also
affect the efficient working of the organization.

3.1 Restructuring At Lucent Technologies (A Success Story)

Lucent Technologies was a technology company composed of what was formerly AT&T
Technologies, which included Western Electric and Bell Labs. It was spun-off from AT&T on
September 30, 1996.
About Lucent Technologies
In September 1995, the US based telecom giant AT&T announced that it
would be restructuring itself into three separate companies- a services
company(AT&T), a products and systems company (Lucent technologies) and
a computer company (NCR).
In February 1996, AT&T divested Lucent off into a separate company

At the time it was spun off, Lucent was already a major player in many
business-mobility, data, optical and voice networking technologies,
professional network designs and consulting services, web-based enterprise
solutions which linked public and private networks and optoelectronics and
communications semiconductors

By 1997, Lucent was the leading telecom equipment maker and was lauded
as one of the biggest success stories of the 1990s.

Lucent had acquired many technology companies in the late 1990s.

Surfacing of the Problems

In the late 1990s, as the internet and data traffic businesses gained ground,
Lucent lost its competitive advantage in its core business of telecom
equipment.
Though Lucent invested in a few Internet and wireless companies after 1996,
the company focused more on its core competencies and failed to evolve in
line with the changing market dynamics towards convergence of voice, data
and internet.

With the growing popularity of wireless technologies, Lucent began to lag

behind its competitors, who were quick to recognize the potential of Internet.

Compared to its competitors, Lucent had been very slow to respond to it

customers? need for higher-speed optical networking equipment which
resulted in a severe blow to its revenue as well as its market reputation

By late 1999, Lucent's high priced acquisitions were not earning reasonable
profits and the company was also unable to integrate the operations of the

acquired companies effectively, leading to problems on the corporate culture

front.

The poor integration of corporate cultures led to a major exodus of talent

from the acquired companies, as a result of which, Lucent could not launch
new technologies to match its competitors

Besides, Lucent had diversified workforce of over 1,38,000 people across its
businesses, and the workforce at each business unit had its own unique
culture. Lucent became a hub of diversified cultures and varied service
delivery models. This made it difficult for the HR staff to integrate the HR
functions across the business units and to develop and implement efficient
retention strategies.

In 1997, Lucent launched a major strategic initiative called "GROWS" an

acronym for its key elements - Global, Results, Obsessed, Workplace and
Speed. This initiative promoted an open supportive and diverse workplace at
the company. However, by late 1999, under McGinn's leadership, Lucent's
focus on HR diminished.

When Lucent had increased its sales to customers, many of them defaulted
on their payments as the technology and telecom industry reeled under an
unprecedented slump in 2000, which threw Lucent into a deep financial crisis.

Analysts and industry observers attributed Lucent's miserable performance to

the wrong strategies and mis-execution by the top management.

In 2001, Lucent announced a new restructuring plan. The plan concentrated on the following
things:

Elimination of product lines

Significant cost cuts to the extent of $2bn a year

Workforce reduction by 10,000 jobs

Reduction in working capital

Restructuring Activity

In 2001, Lucent came up with the Service Delivery Project Team. The major objective of this
team was to simplify and standardize global HR policies and processes, in order to improve
efficiency throughout the organization, giving HR management a position of strategic
importance in the entire transformation process.
Tiger Team

In Feb 2002, Lucent selected six HR leaders from its domestic and global operations to serve
full-time for six weeks on HR restructuring exercise. The major objective of this team was to
create a road map indicating how the company could meet the financial challenges of its various
businesses, without disrupting the company's day-to-day Hr operations. The Tiger Team

undertook an analysis of Hr operations. The team also studied the possibilities of making HR
activities more efficient through policy changes, automation and process improvements.
Expert Help

Lucent established a Project Management Office to oversee the implementation of findings and
suggestions of the Tiger Team. During the implementation period, the PMO was assisted by
Hewitt Associates.
Focus on IT

Lucent also focused on IT to save on the costs and time consumed in transactional and repetitive
HR activities by transferring them to global IT platforms and regional HR operating centres.
Workforce Reduction

Between 2000 and 2002, Lucent resorted to workforce reduction By early 2003, Lucent had cut
its workforce from 1,35,000 in late 2000 to 45,000 through various means like outsourcing,
spinoffs and lay offs.
Service Delivery Model

Lucent consulted the experts in compensation strategies and policies, staffing and talent
management and also other companies which had been through similar organizational
transformations. Lucent then went through a rigorous strategy setting phase, which helped it to
lay the foundation for its long-term HR vision.
Effects of Restructuring

1. Since the function of the HR organisational segments were clearly defined the decision
making process became very easy and quick.
2. The focus on IT, enabled the company to:

Manage HR functions efficiently.

Reduce workforce costs

Drastically reduced the need for manual interfaces.

Encouraged employees to take advantage of various online training programs

offered by the company.

Helped HR business partners to align their working closely with senior

managers.

3. A strong shared vision, leadership support and clear communication was responsible for the
success Lucent

4. Lucent not only met cost reduction target but also exceeded its targets through its cost-cutting
initiatives.
Analysis

Proper planning phase: As goes the phrase "Well started is half done" - Lucent went through a
rigorous three-month strategy setting phase, which helped it to lay the foundation for its longterm HR vision. Because of this Lucent could develop a detailed HR organization structure i.e.
the "service delivery model" which led to its success.
Proper Implementation: Implementation was done only after communicating the changes to the
workforce and in consultation with the employees. This enabled the employees to accept the
change easily.
Strong shared vision and full support of their top management greatly expedited the decision
making process.
Aligned Hr activities to Strategic Business Goals: Lucent tried to standardize global HR
policies and processes, to align it with strategic business goals thus giving HR management a
position of strategic importance in the entire transformation process.
Clear definition of functions: Since, function of the HR organisational segments were clearly
defined, the decision making process became very easy and quick.
3.2 Restructuring At Hewlett Packard

The Hewlett-Packard Company, commonly referred to as HP, is an American information

technology corporation, specializing in personal computers, notebook computers, servers,
printers, digital cameras, and calculators, network management software, among other
technology related products.
Stanford University classmates Bill Hewlett and Dave Packard founded HP in 1939. The
company's first product, built in a Palo Alto garage, was an audio oscillatoran electronic test
instrument used by sound engineers. One of HP's first customers was Walt Disney Studios,
which purchased eight oscillators to develop and test an innovative sound system for the movie
Fantasia.
Surfacing of the Problems
Notwithstanding the efforts made by the top management to generate
synergies across divisions, the decentralized structure that HP had, till the
1980s, created major problems for the company.
HP began to be perceived by users as three or four companies, with little coordination between them.

In 1990s, HP found that its elaborate network of committees was slowing

down its ability to take quick decisions - slow decision-making. To solve this
problem, the then CEO John Young, dismantled the committee network and

also cut a layer of management from the hierarchy. He further decentralized

decision-making and divided the computer business into two primary groups.
One group was made responsible for PCs, printers and other products sold
through dealers and the other for work stations and minicomputers sold to
large customers.

With the growth in size of operations - 83 different product divisions, the

bureaucracy had increased significantly. This bureaucracy was hindering
innovation as well.

The company's stagnant revenues and the declining profit growth rate in
1998 compounded its problems.

HP's culture, which emphasized teamwork and respect for co-workers, had
over the years translated into a consensus-style culture that was proving to
be a sharp disadvantage in the fast growing Internet business era.

Restructuring Activity by the New Ceo .Carleton S. Fiorina

Fiorina began by demanding regular updates on key units. She also injected
the much-needed discipline into HP's computer sales force.
Sales compensation was tied to performance and the bonus period was
changed from once a year to every six months.

To boost innovation and new product development, Fiorina increased focus on

"breakthrough" projects. She started an incentive program that paid
researchers for each patent filing.

Fiorina developed a multiyear plan to transform HP from a "strictly hardware

company" to a Web services powerhouse. To achieve this plan, Fiorina
dismantled the decentralized organization structure.

Fiorina reorganized the units into six centralized divisions. She expected the
new structure to strengthen the collaboration, between sales & marketing
executives and product development engineers thus helping to solve the
customer problems faster. This was the first time a company with thousands
of product lines and scores of businesses had attempted a front-back
approach, a strategy that required laser focus and superb coordination.

Negative Repercussions

1. Earlier HP's product chiefs had run their own operations from designing of the product to
providing sales and support. In the new set-up, they had a very limited role.
2. In the new structure, the back end product designers would not be able to stay close enough to
the customers to deliver products as per their requirements.
3. While productivity linked commissions to the sales force were intended to boost revenues and
profitability, they only helped in raising sales for low margin products that did little for corporate
profits.
4. The new structure did not clearly assign responsibility for profits and losses. There was less
financial control and more disorder.
5. With employees in 120 countries, redrawing the lines of communication and getting personnel

from different divisions to work together was proving very troublesome.

6. The front back reorganization had created confusion internally.
7. These changes had affected employee morale. Many employees had lost faith in Fiorina?s
ability to execute her restructuring plans.
Analysis

What went wrong at HP?

Improper Implementation of Restructuring Strategies - Sweeping changes were initiated in a
very short span of time without allowing employees time to understand the changes in the spirit
in which they were introduced & adjust to the same.
Improper Allocation of Authority & Lack of Coordination - This can be substantiated by the
following reasons:

With no authority to set sales forecast, back-end managers were unable to

allocate the R&D funds effectively.
At the same time, if the back-end colleagues came up with the wrong
products - because of their lack of close association with the customers - the
front-end sales representatives had trouble meeting their forecast, thereby
not being able to contribute positively to the corporate financial objectives.

Top down Management Approach & Autocratic style of Leadership by C. FIORINA According to some analysts, the major reason for the shortfall in HP's revenues was Fiorina's
aggressive management restructuring.
Improper Timing: The time chosen for initiating Business Restructuring was inappropriate as
there was a global slowdown in the technology sector.
Lack of Prioritization - Fiorina was accused of being over-ambitious and trying to tackle all of
HP?s problems together at the same time.
Improper Timing: The time chosen for initiating Business Restructuring was inappropriate as
there was a global slowdown in the technology sector.
.3 Comparative Analysis
Lucent Technologies

HP

Employee Involvement in Implementation

enabled the employees to accept the
change easily. It ensured greater
cooperation to the management from the
employees.

Sweeping changes were initiated in a very

short span of time without allowing
employees time to understand the
changes in the spirit in which they were
introduced & adjust to the same.

Decision making process became very

easy and quick.

Decision making though extremely quick

was highly efficient but hardly effective in

the long run.

Prioritized the need to restructure HR
activities first

Lack of Prioritization

Participative Management restructuring

Aggressive Management restructuring

Aligned their working closely with senior

managers

Front Back reorganization made work

together was proving very troublesome

So what should an ideal restructure take care of?

An ideal restructuring initiative should take care of the following points:

1. Appropriate Timing based on prevailing socio-economic and technological conditions.
2. Functional Integration to create Synergy.
3. Employees' and Internal Customers' involvement in the Restructuring Initiative.
4. Prioritizing activities.
5. Pre-planning the revised organization structure and design and working toward this goal in a
systematic manner.
Conclusion

The Indian industry is on the threshold of drastic overhaul, which will have implications on even
the most fundamental aspects of business. We can expect to see overwhelming changes occurring
in a dramatically short period of time.
In such a scenario, it is imperative on Indian Industry to capitalize on the changes in policy in
order to survive in a competitive environment. Interestingly, the change will be both policy
driven and at the same time business-driven. This is where "Restructuring" comes into play as it
offers avenues to adapt to turbulent times competitively.
In most situations human and social capital, or, to put it simple, the way company treats workers
and community, become important sources of competitive advantage. Of course, even the most
socially sensitive companies go through restructuring when they have to. Very often, the purpose
of restructuring is not only financial and economic improvement of enterprise performance, but
also the very enterprise survival. We are far from saying that the companies could and should not
go through restructuring. In many cases, restructuring is the only solution. However, we believe
that restructuring could be carried out in a socially sensitive way. In other words, companies
could try to maximize economic benefits through restructuring and, at the same time, address the
needs of employees and communities.