Chapter 1

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Process by which a firm does an analysis of itself and alters what it owes and owns, refocuses itself to specific task of performance improvements Involves activities to make more balanced and profitable

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Giving a new structure to rebuild /rearrange.

Thus, Corporate Restructuring is a structured decisionmaking exercise undertaken to evaluate the current endowments of company, and fine tuning the available skills, machinery, and technology to meet the challenges of tomorrow.

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 Renegotiation of labor contracts to reduce overhead Refinancing of corporate debt to reduce interest payments A major public relations campaign to reposition the company with consumers Forfeiture of all or part of the ownership share by pre-restructuring stock holders (if the remainder represents only a fraction of the original firm, it is termed a stub).
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 Retention of corporate management sometimes "stay bonus" payments or equity grants Sale of underutilized assets, such as patents or brands

Outsourcing of operations such as payroll and technical support to a more efficient third party
Moving of operations such as manufacturing to lower - cost locations Reorganization of functions such as sales, marketing and distribution
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Alfred P. Sloan Jr.:

The strategic aim of a business is to earn a return on capital and if in any particular case, the return in the long run is not satisfactory, then the deficiency should be corrected or the activity abandoned for a more favourable one.
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Prof. Bowman and Singh: Restructuring exercises is induced by the simultaneity of changes in the product and the capital markets. Changes in the product markets stem largely from domestic and foreign competition, accelerated technological change, and the competitive pressures faced in the global markets. Changes in capital markets originate from new debt instruments, new tolerance for increased level of debt in the capital structure of the firm, and institutional innovations and aggressiveness.

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Robert K. Muller:

The changing culture and image of the company are the most important rationale influencing restructuring. He also states that human dimension is imperative in any such exercise.

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Gordon Donaldson:

Gas systematically chronicled the instances in corporate America, where takeover bids have forced a company to restructure, in order to ward-off hostile takeover threats.

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Gibbs:

Corporate Restructuring is needed because of three conditions, viz. the presence of free cash flow, ineffective corporate governance, and the threat of takeover.

Bethel and Liebeskind: Shareholders often exert influence over managers and press for restructuring the business.

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Restructuring Models
Some models looked only at the internal factors Others at the external factors Some combine these perspectives Others looked for congruence between various aspects of the organization No certainty on the factors that a company needs to study, one that would position the company effectively..
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Ensure the company has enough liquidity to operate during implementation of a complete restructuring
Produce accurate working capital forecasts Provide open and clear lines of communication with creditors who mostly control the company's ability to raise financing Update detailed business plan and considerations
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Change in fiscal and government policies

Liberalization, Privatization, and Globalization (LPG) Information Technology Revolution Concept of Customer Delight Cost Reduction

Divestment
Improving bottom-line Core Competencies
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Enhancing shareholder value Incompatible company objectives Transfer of Corporate assets Evolving appropriate capital structure Consistent growth and profitability Incompatible company objectives Enhancing shareholder value Resolving conflict Transferring corporate assets Restructuring capital structure Bifurcation of Business
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Inadequate commitment from the Top management Resistance to change Poor communication Absence of requisite skills Scepticism Failure to understand the benefits of restructuring Availability of resources Organizational Workload Non adherence to time schedule Lack of clear and visible leadership

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Customer Focus Core Business Processes Cross functional teams

Information Technology

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Financial Restructuring:
Involves change in the capital structure and capital mix of the company to minimize its cost of capital Also involves infusion of financial resources to facilitate mergers, acquisitions, joint venture, strategic alliances, LBOs, and stock buy-back Depends on availability of free cash flows, takeover threats faced by the company and concentration of equity ownership.
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Generate cash for exploiting available investment opportunities

Ensure effective use of available financial resources Change the existing financial structure, in order to reduce the cost of capital Leveraging the firm Preventing attempts of hostile takeover.
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Involves divesting or acquiring a line of business perceived peripheral to the long term business strategy of the company Represents the companys attempt to respond to the marketing needs without losing sight of its core competencies.
Purpose:
Restructuring as a result of some strategic alliance Responding to shareholders desire to downsize and refocus the companys operations Responding to outside boards suggestion to restructure Responding to strategies adopted as a response to exercising call or put options
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Restructuring strategy designed to increase the efficiency and effectiveness of personnel, through significant changes in the organizational structure Is a response changes in the business and related environments. Takes the form of divestiture and acquisitions.

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Projects difference in terms of work culture and

value system

Standardized restructuring strategy not possible

Includes: Hardware Restructuring Software Restructuring

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The structure of the organization is redefined,

dismantled or modified

Focuses on:
Identifying the core competencies of the business Flattening the organizational layers to improve organizational responsiveness Initiating downsizing to reduce excess workforce reduction in overheads Creating self-directed team Benchmarking against the toughest competitors in order to adopt best practices
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Involves cultural and process changes, in order to establish a collaborative environment that facilitates growth and restructuring. Focuses on:
Adopting an open and transparent communication mechanism Building an environment of guidance and coaching Building an environment of trust Raising the aspiration levels of individuals Empowering people & encouraging decentralized decision making Helping individuals develop foresight, i.e. understanding changes and getting ready for the anticipated changes Training people to accept new ideas and challenging assignments
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Process of eliminating existing inefficiencies

Aims at:
Improving operations Alter the relative strength of the organization to face competition Facilitate creating of competitive advantage Provide better customer satisfaction Generate profits in a free market economy Help the organization differentiate itself from competitors Ensure it delivers value to the customers
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Restructuring Outcomes
Strategy Focus on related or unrelated units
(less total diversification) Innovation

Employee Effects
Trust of management Poor communication Motivation Turnover

Performance (Market)
Generally positive (except when fighting a takeover) Determined by use of funds
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Investors
Represent individuals, institutions and companies that have financial stake in the company Investors concerned about immediate future and long-term returns Restructuring generates severe financial implications and this creates insecurity and uncertainty in the minds of the investors

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Customers Restructuring often results in reallocation of resources, introduction of new products or withdrawal of the existing products, changes in the after sales policy of the company, etc. Often result in erosion of customer base and confidence and adversely affect future business prospects. Focus on the needs and expectations of the customer by providing quality products and reducing the lead time needed
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Management
Restructuring results in changes in business processes, introduction of changes that suit change in processes, changes in systems and in ensuring effective communication with all the stakeholders Helps release financial resources blocked in unproductive assets and low return assets and businesses Diverts core competencies to core areas reducing the risk of failure Provides an opportunity to the management to prove its ability to manage the change

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Employees:
Restructuring impacts them psychologically, culturally and materialistically. Patterned Mindset, makes acceptance of new set of challenges difficult Creates fears in their mind leading to psychological turmoil Involves unlearning old skills and acquiring new skills

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Others Stakeholders:
Reduction in competition as weak and inefficient players exit the market Companies in a better position to seize new opportunities and creating new businesses. Contributes to the growth of the national economy Government may have to provide resources and subsidies to such companies which imposes burden on the national exchequer Leads to lot of social discontent and can create political instability

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Thank you!

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