How to restructure your firm
In the current economic climate restructuring is very likely to be on the agenda as owners readjust to times of economic and competitive adversity.
In some situations, adjusting the number of staff a business employs is sufficient to save money, but other firms require a fundamental overhaul, not only to structure, but also to strategy.
Woolworths, a face on the High Street for all of our lives, regretfully disappeared into a black hole earlier this year. But the wonder of Woollies is probably that it survived so long after having had its market share continually eroded, and having not refreshed its strategy for 20 years. This phenomenon is what is sometimes called "strategic drift", and occurs when the rate of internal change and development in an organisation is less than that of that in the market.
To avoid the same fate as Woollies, underperforming and distressed businesses must restructure, review their strategy and refinance to survive:
1. Diagnose your current strategic and financial position. To what extent is the demise simply down to external conditions or due to you not adapting to changes in the competitive rules of the game? For example Tesco began to lose ground to the discounters Aldi and Netto, and appeared slow to react with their own lower priced special brands.
2. Identify what your cost base really needs to be like and take steps to ensure this doesn't undermine the business in terms of quality, customer satisfaction and employee motivation.
3. Act to mitigate any short term financial bleeding in terms of losses and cash flows. Is there any obvious surgery needed that will not kill off the patient/inhibit long-term recovery prospects?
4. Communicate the situation, and what is being done about it frankly to your organisation. Restructuring requires charismatic leadership, and change management skills.
5. Generate and evaluate strategic options for longer-term turnaround, including reengineering the business model.
6. Visualise how much value will be generated by the changes being put in place.
As restructuring raises complex issues and painful dilemmas, it is crucial to have a decision-making procedure in place to avoid indecision and flawed judgement. This should include explicit criteria for evaluating different structure options. One elementary way of achieving this is to compare the financial attractiveness of a particular option with its implementation difficulty and its acceptability to key stakeholders.
A useful exercise is to ask yourself, if someone totally new to the businesses walked into your firm, what would they think of the current structure? For example, how would they define your employee's roles? Would they out source roles?
Managing a restructuring is thus quite a challenge to many existing senior managers who have grown up in better times than those we face now - unparalleled since the 1930's.
A combination of charismatic leadership, commercial astuteness, influencing skills, communication, innovative thinking, strategic thinking and financial skills are needed. These competences may not always be there in the present management team and it might sometimes be advisable to seek outside help on this - to avoid ending up like a "Woollies".
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Post Date: June 3rd, 2009