What and Why of Organizational Restructuring

Posted by Jim Connolly on 7 July, 2009  Email This Post -  Print This Post

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.