Archive for July, 2009

What and Why of Organizational Restructuring

Organizational Restructuring - Defined 

Organizational restructuring is the reorganizing of a company’s structures (legal, ownership, operational, etc.) for the purpose of making it more profitable and better positioning it for the market’s changing needs.  Notice that there are two goals for an organizational restructuring.  First is the short-term goal of reducing the cost structure of the company down to the point so that revenues outpace expenses.  Secondly, critical to the company’s future, is positioning the company to adjust to the market’s changing needs. 

Why does organizational restructuring become necessary? 

In most cases, restructuring becomes necessary because shareholders and business leaders take the current situation for granted.  When things are going well, there is a human behavior tendency to prefer the status quo even when there are indications that potential trouble is looming.  As one CEO client of mine put it, “we got fat, dumb and happy.”

Sometimes restructuring becomes necessary because of external factors.  Case in point is the current global recession.  Companies that were weak succumbed more quickly to the pressures of the economic collapse.  The choice at that point is to restructure operations,  declare bankruptcy or close the doors.   Everyday there are reports about companies being affected by the economic collapse. 

However, even strong companies have been forever affected by this economic recession.  Many companies with strong financial and operational structures thought they would ride out this recession just like they did during the last recession.  But, this “recession” is turning out to be different.  Steve Ballmer, CEO of Microsoft has said several times in the past few months that we are not experiencing an economic recession.  Rather, Ballmer says, we are experiencing an economic reset. 

If this is true, what we are experiencing today is the new “normal.”  Our economy and our businesses will grow again, but not from where we were eighteen months ago.  We will grow from where we are today.  This new reality causes even financially strong companies to consider restructuring operations because their customer’s needs will be forever different.  Relying on the “rainy day” fund to get through the temporary economic slump won’t work if the “slump” isn’t temporary.  

Whether your organization is financially and operationally strong or weak, today’s circumstances may, in fact, be the new “normal.”  If that’s the case, what steps will you take to position your company for a strong operational and financial performance?

For more insights on organizational performance, check out our other free articles here.

More Trouble Ahead For Struggling Companies

Over the past four weeks, I’ve heard the same disturbing comment from at least six different people in different industries.  I’m hearing that companies that have been relying on their “rainy day fund” (i.e. savings and/or line of credit) to get them through the recession are reaching the end of the line with no end in sight for the recession.  Are you hearing the same thing?  Are you experiencing the same thing?

If this is true, we are in for another round of companies faced with dire options. 

I can’t effectively give consulting advice in a blog post, but if you are faced with this situation, I have three suggestions:

• Get help sooner rather than later.  You’ll need a proactive banker, a proactive CPA and a proactive business attorney.  If any of these three people have not been helping you proactively, replace them.  One client facing possible collapse was told by their CPA to make sure they got their statements out on time and to watch their accounts receivable balance.  That’s crap advice given by a so called professional only interested in collecting their hourly fee from a safe distance without any accountability for results!  Fire them as an advisor!
• If you’re faced with layoffs, cash flow problems or the prospect of closing the doors, get the help of an organizational restructuring or turnaround consultant.  But, be careful.  Find a person with the temperament that you are looking for.  Some aggressive turnaround consultants will come in and leave a wake of blood and broken glass that only makes the situation worse, not better.
• As much as you will focus on surviving day to day, focus on deciding which parts of the company are performing well.  What do you do well, provides the customer lots of value and is not easy for competitors to copy?  If something meets all three criteria, it’s called a strategic competency and it is the “secret sauce” that is unique to your company.  Maybe you’ll decide to discontinue products or services that don’t meet that criteria.  If that’s the case, at least you won’t be cutting the parts that can be a strong foundation for your company’s recovery.

These are very challenging times.  There are dire consequences and opportunities along the path.  All the best at negotiating the terrain ahead.

Personal Note: If I can be of assistance to any organization faced with this situation, please don’t hesitate to contact me for a confidential, no cost and no obligation phone call to discuss the challenges you’re facing.  

Jim Connolly
(309) 828-9060