Restructuring measures for changes in company organization
In a previous post, we touched on restructuring measures. These are all changes that a debtor implements in the functioning of his company. Their purpose is to improve the economic situation of the company.
We can distinguish three basic areas of application of the restructuring measures. These are organizational changes in the scope of conducted business activity, changes in the fixed assets of the debtor and in the area of long-term and short-term financing. In this entry, we will develop the topic of restructuring measures in terms of changes in the organization of the company.
Restructuring proceedings usually result in bigger or smaller organizational changes. This is where there is the biggest room for improvement in the economic situation of the company.
At the same time, before we start introducing such changes, we need to analyze in detail the current structure of the organization. Then we should compare it with the planned strategy. After all, the organizational structure must be adapted to the company’s strategy, which often changes in connection with restructuring.
The changes introduced as part of restructuring measures are expected to result in improved revenues and reduced costs in operating activities. Below are those that lead to increased revenues:
- Business Profile Changes:
This is the most far-reaching organizational change. It does not necessarily have to involve a complete change in industry. Companies usually operate in multiple industries. Restructuring, on the other hand, can consist of abandoning only those industries that are unprofitable or have little future. Another solution may be to use the existing experience and enter a new market. This may involve both geographic expansion and the creation of completely new products or services.
- Changing and rationalizing the portfolio of offered products:
Restructuring provides an opportunity for changes in product or service offerings. These may include the introduction of new products, or modification of the current range. Very often it is justified to reduce the portfolio of offered products. Changes may also relate to pricing policy, including in particular the rules for granting discounts, rebates, bonuses, etc.
- Reducing the scale of operations:
Increasing the size of a company, especially if it took place very dynamically or even in an uncontrolled manner, can lead to a difficult financial situation. Management problems, increased costs or misguided investments occur. The answer to these problems may be to downsize, i.e., to return to a state in which the company functioned efficiently and was profitable.
- Improving sales:
Actions in this area may include making sales targets (and therefore sales forecasts) more realistic, improving the quality of customer service, or introducing a marketing strategy. It is very important to maintain or build an engaged and motivated sales team.
It is also worth paying attention to those changes that will lead to cost reduction. These may relate to the following areas:
In the course of restructuring, you need to audit your existing contracts. This concerns contracts related to the core business. Thhis maybe for example, the supply of materials, semi-finished products and the sale of products and services offered. An audit is also needed of contracts related to operational activities – e.g. utilities, legal services, software licenses, IT support, security, etc. Costs can be reduced by terminating contracts that generate excessive costs. It is also possible to renegotiate their terms, so that they generate lower costs (e.g. as a result of reduced demand resulting from downsizing). A very interesting solution is the possibility to withdraw from an agreement with the consent of the judge-commissioner. However, this tool is only available in sanction proceedings.
- Employment reduction:
The organizational changes being implemented, in particular with regard to the reduction of the scale of operations, result in the necessity to reduce employment. This is true both in the area of core business and broadly defined administration. Obviously, personnel decisions cannot violate labor law regulations, while the sanitation proceedings provide for certain facilitations in this respect.
- Outsourcing of services:
When analyzing the structure of a company, first of all we should consider the possibility of outsourcing less key areas of activity – e.g. legal department, IT department, HR or even accounting. Further, it should be assessed whether such activity will result in cost reduction. It is important, whether its benefits will outweigh the disadvantages of outsourcing a given area of activity.
It is worth stressing that it is important not only to introduce restructuring measures. You should also monitor their effects on an on-going basis and to identify areas in which restructuring measures should be added or modified. Changes cannot be treated as a one-off event. It is a process.
The organisational changes introduced in the course of restructuring may cover each and every area of a company’s operation. Therefore, a proper selection of these measures is crucial.