A company may need to reorganize its organizational structure to remain competitive, particularly if it needs to hold onto its advantage in the face of changes in the market. Understanding the fundamentals of restructuring will enable you to carry out a restructuring successfully and meet your goals. This post defines organizational restructuring, discusses its causes, and offers advice on implementing it in your company.

What is an Organizational restructuring?

Organizational restructuring is a strategic process that businesses use to adjust to internal requirements, shifting market dynamics, and changing environments. This complex issue entails changing the roles, procedures, structure, and, frequently, even an organisation’s culture. Restructuring is motivated by various factors, such as expansion plans, changes in the market, mergers and acquisitions, cost-cutting objectives, and technological advances. Some examples of restructuring include creating cross-functional teams, changing roles and responsibilities, or moving from traditional hierarchies to more flexible and decentralised structures.

What Is Restructuring?

Restructuring is how a business drastically changes its operational and financial aspects. It typically happens when the company is under financial strain. Restructuring is a type of corporate action wherein a company modifies its debt, operations, or structure in a significant way to improve its business and limit financial harm. 

Department managers may also reorganize roles, priorities, and department budgets as part of a smaller-scale restructuring process.

Why do organizations need restructuring?

Businesses must take organisational restructuring as a critical step to guarantee efficiency and success. If an organization’s current structure can no longer help it achieve its goals or objectives, it may be necessary to restructure.

Restructuring an organization has many advantages. For example, it can assist companies in becoming more productive, efficient, and customer-focused as well as cost- and agility-efficient.

What Are the Different Types of Restructuring?

Restructuring a business can take many different forms. Legal restructuring, turnaround restructuring, cost restructuring, spin-off, divestment, repositioning restructuring, and mergers and acquisitions are various forms of restructuring.

Here are some instances of various restructuring kinds, along with the times they happen:

#1. Legal restructuring

When business executives choose to establish a company as its legal entity, they employ a sort of restructuring known as legal restructuring. In business, assessing a company’s ethical policies and processes and establishing a legal framework to guarantee that every division abides by the law are further goals of legal restructuring.

#2. Turnaround restructuring

Turnaround restructuring” refers to any restructuring efforts that target organisational structures, product lines, business models, cultures, and other aspects of an organization’s operations that aren’t productive for the company. For example, when company executives decide to discontinue a well-liked product due to low sales and waning consumer interest. They can use this information to develop a new product or series of products that meet the evolving needs of their industry’s clientele.

#3. Cost restructuring

Companies use cost restructuring to maintain operations before or during economic downturns. It means restructuring department budgets, enacting furloughs or layoffs and other cost-saving measures.

#4. Repositioning restructuring

Repositioning is a specific kind of restructuring businesses employ when they wish to alter their business model and refocus their attention. An illustration of this would be if a large clothes retailer added home furnishings and decor to their line of business.

#5. Spin-off restructuring

The process by which a company creates one or more branch locations or company sectors into their business entities is known as “spin-off restructuring.” It raises the company’s worth and enables it to function as a parent company.

#6. Divestment

When businesses close branches, divisions, or other business units due to changing demands or profitability projections, this is known as divestiture. For instance, a company might abolish its department dedicated to community engagement and reassign staff to the marketing division.

#7. Mergers and acquisitions

Mergers and acquisitions refer to a type of restructuring in business where a company consolidates branch locations or appoints one person as the head of multiple departments.

What are the six steps to a successful restructuring?

A business may encounter difficult times throughout its life cycle. You may need to act quickly and make difficult decisions to survive these situations. Restructuring a company effectively is a practical way for businesses to adapt to a changing environment. Restructuring a business can be done for various reasons, and the concept is flexible.

#1. Decide what you are trying to achieve with the restructure

Several situations may prompt a business to consider restructuring. These include:

• Downsizing or expansion
• Relocation
• Management changes
• Ownership changes
• Raising funding
• Planning business closure or exit from the market.

These adjustments can be successfully implemented through organisational, asset, or financial restructuring, boosting a company’s productivity and profitability. Before starting any restructuring, it is crucial to consider the intended result and its implications.

#2. Understand your finances and where you are right now

Restructuring your company is an excellent way to strengthen its position if its finances are problematic. 

The business’s financial situation will influence the reorganization’s path of choice. You should determine what your essential and non-essential costs are by taking into account your business overheads. It’s advisable to consider the resources your company possesses. You should consider outsourcing if your company is downsizing. Consider renting a smaller space. To make adjustments to the workforce, you might reevaluate your staff organogram. Of course, legal considerations for every redundancy process will come with their expenses and complexities.

When done strategically and legally, restructuring a business can be an effective means of streamlining.

#3. Seek the input of key staff and stakeholders

Communication is the key, and it is essential to have an effective consultation process with those impacted. 

Group and one-on-one discussions with management and shareholders may fall under this category. If you’re considering making layoffs, you must talk to every other employee who might be impacted similarly. You must interact with the union if your company is recognised by one, mainly if collective bargaining agreements are in force. Additionally, the number of employees impacted by the reorganisation could set off designated consultation periods. The opinions and information provided by those affected may be valuable to consider.

#4. Decide the new structure

Remembering the information above should help you determine the precise restructuring of your company and the best course of action. Generally speaking, any modifications to a business will need advice from corporate, commercial, and employment lawyers. These professionals will give you the tools to accomplish your goals and weigh the pros and cons of any new organisational structure. Financial advisors should be consulted as well, if necessary.

#5. Communicate the plan internally and externally

A successful restructuring depends on effective communication. Communicating honestly and openly with employees will help prevent future issues from developing. When dealing with redundancy, there are several steps to take. These consist of choosing, conferring with, and considering appropriate substitute work. It is best practice to consider these even during a complete business closure. Penalties may result from a failure to consult collectively for larger-scale redundancies. Since this is a delicate and complicated process, we strongly advise that a business obtain competent legal counsel. 

It is imperative to consider external communication, mainly when many redundancies occur. If you don’t, you might receive negative publicity and a loss of business.

#6. Monitor and be prepared to adjust

Building trust in your company and the procedure will come from keeping lines of communication open with impacted employees and keeping an eye on the situation as it develops. You have to be ready to be adaptable and make adjustments as needed, be open to all possibilities, and anticipate some resistance to change. Future opportunities for the business and its employees may arise if the restructuring process is handled with appropriate consideration for all parties involved and all of the previously mentioned steps are followed. 

What is an example of a restructuring strategy?

Operational restructuring includes adjustments to an organization’s organizational structure, such as lowering the hierarchy level, changing job roles, reducing the workforce, and altering reporting relationships. To maintain the company’s operations, a reorganisation like this would reduce costs and pay off debt.

What are the disadvantages of restructuring?

Restructuring has drawbacks that should be carefully considered, just like any other business decision. The possible disadvantages for your company are frequently more significant than the benefits when contemplating a drastic step like restructuring.

Loss of critical skilled workers

Productivity could decline as a result of this. Transferring the workload to a different employee may result in work of a lesser calibre and additional costs for that worker’s training.

Drop in morale

Employees experience uncertainty during downsizing. When employees’ jobs are at stake, your company may experience a decline in employee morale and an increase in stress levels. Which together create an unproductive workplace that may affect clients. 

Re-training

Restructuring because of new technologies might mean paying more for staff training and seeing a decrease in output while employees adjust to the latest tools. 

Organizational restructuring process 

When employed in a management or leadership role, professionals need to be able to help their employees adapt to changes in the workplace. Company restructuring occurs when businesses identify a need to make changes to maintain or enhance company success. By understanding restructuring and how to prepare your team, you can ensure a smooth transition and continued productivity.

What are the benefits of restructuring?

These are some examples of potential benefits that companies use to guide restructuring activities:

Levels businesses with competitors:

Companies can strengthen their organisational structure, improve their finances, or adjust to changes in the industry by restructuring. As a result, businesses can maintain a strong corporate entity while competing on an even playing field with rivals in the industry.

Enhances communication:

When company executives reorganise organisational components or business operations, they may also improve departmental or branch location communication. It affects how divisions cooperate and work towards shared objectives within the organisation.

Increases employee productivity:

Leaders of companies can reorganise departments or the entire organisation to better serve employees by rearranging roles and business operations. It entails assigning workers to new teams or roles and implementing workflow-improving systems.

Maintains or improves company finances:

Companies benefit from financial restructuring efforts, whether their executives’ goals are to minimise debt, increase revenue, or keep the business running during recessions.

Provides opportunities for business growth:

Companies can grow and expand operations to different locations or product markets by restructuring financial operations or organisational components.

How Many Times Can a Company Restructure?

A company can restructure as many times as necessary without violating any laws. A business may alter its operations as often as it thinks fit to reduce expenses and increase efficiency. Restructuring is a complex process that needs careful planning and execution; as such, it should be undertaken thoughtfully and frequently.

Tips for managing a team during restructuring activities

Examine these pointers to help direct your management tactics when engaging in restructuring:

Maintain transparency throughout the process

You can assist your team in adapting to new ideas regarding their roles or organisational procedures and helping them prepare for changes by keeping lines of communication open about the restructuring process and how it may affect them.

Make yourself available for employee discussions.

Emphasise your office hours and communication methods before and during any department or company restructuring to help your team feel more at ease. Employees can voice concerns about impending changes while also receiving confirmation that you value their ideas and opinions.

Highlight the end goals of restructuring activities.

By highlighting the possible advantages and ultimate objectives of the changes, you can encourage your team to adopt a positive attitude when you announce restructuring activities. Ensure you highlight benefits to staff members during departmental or company changes. It will help them stay focused on their work and remember that the changes they are experiencing can lead to a better workplace. 

Offer training courses to employees.

Giving employees the training and tools they need to adapt and keep doing well at your business should be a top priority if restructuring activities force them to take on new responsibilities or use new technologies. You can preserve worker productivity and satisfaction by doing this.

Show support for your employee’s health and happiness

Demonstrating to staff members your concern for their welfare can facilitate the transition during the reorganization process. You can do this by encouraging staff members to take personal days to support their mental health or by purchasing breakfast or lunch as a thank you for their hard work.

Monitor employee performance during and after restructuring

You must monitor employee performance during and after restructuring to ensure your employees adapt well to changes. If you notice lower productivity or another performance indicator, you can communicate with them and give them the support they need to adapt to changes. 

FAQ

What are the factors of organizational restructuring?

It includes factors like adjustments to the operations, procedures, culture, organizational structure, and resource implications. When restructuring an organization, job design and talent selection are essential considerations that must be made because they both significantly impact the process’s outcome. 

What are the objectives of organizational restructuring?

Restructuring the organization aims to achieve several strategic goals, such as increasing profits, redirecting efforts towards new markets and strategic directions, incorporating new products, services, and production facilities, accommodating new growth areas and opportunities, and improving communication.

What are the problems with restructuring?

Workers often become anxious during restructuring and worry about how the changes will impact their ability to keep their jobs. Some workers might start looking for other jobs once word spreads that the company is restructuring. 

How does restructuring affect a company?

The restructuring process changes the strategy or direction of the business. Unfortunately, for many companies, this often means downsizing and dismissing in-house staff in favour of cheaper labour like outsourcing. 

Why do restructures fail?

One of the most frequent root causes of restructures hurting an organization’s performance is a misalignment between the workforce’s culture and the prevailing core values.

What are the risks of restructuring?

Restructuring plans carry both risks and opportunities. Risks include decreased employee morale, operational disruptions, financial costs, reputation damage, legal issues, and loss of talent. 

Conclusion

Organizational restructuring is a complex process that requires careful planning, communication, and implementation. By following strategies like treating employees with respect, providing support, offering fair severance packages, open communication, and focusing on the future, you can ensure a successful transition that minimises disruption and maximizes benefits for your company and employees. Approaching change with empathy, clarity, and purpose can help your team navigate challenges and opportunities.

Related Articles

• The Process of Planning Resource in Business
• Best Strategies for Avoiding Business Bankruptcy

References

• Investopedia
• Real Business Rescue