Corporate restructuring is a legal maneuver employed by a company with too much debt and not enough income or a business model that is proving unsuccessful. The effects of restructuring are varied and range from nervous nail-biting from shareholders to employees wondering about job security. A corporation with a well-honed restructuring strategy can mitigate these initial worries and emerge a leaner company with a profitable business plan.
Find the Specific Problem
A corporate restructuring strategy must determine and effectively target the specific challenge or problem the corporation is facing. This allows the corporation's rebuilding efforts the best chance for success without hindering any parts of the company that are currently working well. At its best, a restructuring is a highly targeted surgical strike that fixes the problem without dismantling the whole company to do it. A restructuring strategy that lacks direction can often cause more harm for a corporation by worsening an existing problem and weakening functioning departments or business strategies.
All levels of management must have an understanding of the corporation's overall restructuring strategy. This allows managers to prepare employees for possible changes within departments, and to develop new operational strategies to meet shifting corporate priorities. Managers may also have to prepare for the possibility of difficult business decisions resulting from corporation restructuring. Department sizes many shrink, causing employee layoffs along with pay cuts for managers. Departments may also merge with other departments in a corporation as a result of the restructuring. Managers must understand how the corporation's new leadership structure operates in order to ensure that productivity stays at a high level.
Effects on Investors
Corporate restructuring makes investors nervous. This can cause a stock sell-off that decreases the overall value of the corporation and exacerbates the underlying reason for the restructuring. A corporation undergoing a restructuring must develop a proactive strategy to communicate to investors all the positives that will come with reorganization. Investor funds are a key component in the restructuring process. If a corporation loses a large number of investors, it may experience difficulty raising capital needed to bring its restructuring plan to fruition.
Improving Organizational Direction
A company emerging from a successful restructuring should have an improved organizational direction with increased focus and streamlined operational costs. The company's new direction should revolve around a set of specific business goals identified in the very beginning stages of restructuring. Business goals could be as simple as turning a profit, or as complex as dividing the corporation into several new companies, all with specific business models and different product offerings.
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