Critical Factors Every Leader Must Know Before Restructuring Their Business

Honestly speaking, business restructuring must appear frightening. Restructuring your business the way it operates is one of the largest decisions you will ever have to make as a leader. Right restructuring of collapsing businesses rejuvenates them, eliminates inefficiencies, and prepares them to be successful in the long-run. When poorly executed it hastens instead of inverts decline, expels talent, destroys morale and creates havoc. A well-planned and well-implemented “restructuring my business” process can be the difference between a successful restructuring and one that is disastrous. Most executives are headlong into restructuring without first successfully understanding the implications, consequences and key aspects that should be addressed. Take a moment to reflect on these very essential elements that make the difference between successful transformations and expensive failures before you start to redefine the organizational elements.

• Understanding the True Root Causes

Restructuring should be based on specific, clear-cut problems and not as a broad-based remedy to a problem. Most businesses restructure towards the wrong reasons which include following their competitors, trends or simply giving in to pressure without knowing their real issues. You should take time to find out the real underlying causes of your problems before making any changes. Are you experiencing a lack of leadership, execution problems or cultural dysfunction that can not be solved by restructuring or are you actually in structural problems? The root cause of the problems that appear to be associated with the organizational structure may be sometimes uncertainty in strategy, poor communication, inadequate processes, or lack of talent. Reorganization simply transfers symptoms; it is not a cure of diseases. In order to know what is really broken, make honest evaluations considering different perspectives.

• Impact on Employees and Company Culture

Restructuring greatly affects those that manage your company. Job security, insecurity regarding new duties, frustration with the new relationships, and distrust of the leadership goals are prevalent among the employees. Most of the time, leaders do not understand the intensity and the duration of these emotional responses despite the fact that they are common and predictable. Consider the effects that the restructuring would have on informal networks of people, career paths, team relationships, reporting links, and daily work experiences of people. Necessarily or not, restructuring disrupts established patterns, and culture is a mirror of the way work is really done in your company. The desired culture cannot be declared because it comes about as a result of structures, procedures and leadership behaviors. Certain elements of the culture must remain the same though some have to vary.

• Financial Implications and Budget Realities

The financial cost of restructuring is unexpected to unprepared firms and can be very high at times. Prepare funds to cover severance benefits in the case of a downsizing, relocation costs in the case of a merger, technology investments in new processes, training costs in new positions, and consulting expenses in the case of an outsourcing, and lost productivity in between. Besides, most projects involving restructuring require short term investments that cannot return until they have taken a long period of time, and unless well planned may create some cash flow problems. Conduct a candid evaluation of the overall financial consequences, including the hidden costs like loss of income in the event of poor customer services during transition and poor productivity in the event of transition. Ensure that you have sufficient finances to complete restructuring properly and not to run out of funds half way and come back to your company in a worse position than you started.

• Legal and Regulatory Compliance Requirements

Depending on your sector, region, and the type of adjustments you’re making, restructuring entails a number of regulatory requirements.  Changes to employment, headcount reduction, compensation, and working conditions are governed by employment laws.  Before making changes to the workforce, several jurisdictions need consultation periods, prior notification, or particular protocols.  Additional levels of restrictions and regulations are added by union agreements. Contracts with partners, suppliers and customers may include clauses that are subject to business restructuring and these may give such parties the right to restructure arrangements or terminate them. Some of these structural changes can be subject to notification or permission of the regulatory bodies governing your company, particularly those that are excessively regulated such as the utilities, healthcare, or finance sectors. Questions regarding corporate governance, privacy of data, as well as intellectual property are also applicable.

• Communication Strategy Throughout the Process

Whatever you say about restructuring is as vital as the changes themselves. Rumors, opposition, cynicism and anxiety caused by poor communication are spoilers of even well-thought-over reorganization. Develop an effective communication strategy which covers who will be communicated with, what to communicate, when to communicate and how to communicate. Varied stakeholders need various communication strategies. As an example, customers require guarantees of future service, investors require the confidence in the strategic direction of the company, partners require to know the implication of their relationships and employees require to know the effects of changes on them individually. Be transparent about the reasons for the reorganization process, honest about the challenges that will emerge in the future, and honest about the outcomes that may be expected. 

• Timeline and Phasing Considerations

Results are greatly impacted by restructuring pace. If you go too fast, you’ll make mistakes, cause confusion, and cause chaos. In transition states, if you move too slowly, you waste resources, lose momentum, and increase uncertainty. Think about whether you should apply your reorganization gradually or all at once. While incremental techniques allow for learning and adjustment but prolong transition periods, simultaneous adjustments cause short-term disturbance but reach the final state more quickly. Your timeframe should strike a balance between urgency and the practicality of how quickly individuals can actually adjust to new working methods. Take into account the impact on customers, significant projects or commitments, cyclical business cycles, and real-world limitations related to technology adoption, training, and physical modifications. Include milestones to evaluate progress, spot issues early, and make the required corrections.

• Technology and Systems Alignment

Connectivity between supporting technology and organizational structure is essential. Information systems, communication tools, process automation, reporting systems, and data access frequently need to be modified in tandem with restructuring. Determine whether the technical infrastructure you already have facilitates or hinders your new structure. In your reorganized company, take into account communication tools, project management systems, CRM platforms, financial systems, and other technology that facilitates work. While technological investments occasionally open up new organizational opportunities, other times they limit structure options. To support your new structure, budget for system changes, data migration, integration difficulties, and user training. Timelines for technology and organizations should be properly coordinated because new developments bring their own set of challenges and learning curves.

Conclusion

Business restructuring may be a very effective tool for improving a business, but only if it is planned and carried out properly. These factors offer a framework for organizing restructuring that doesn’t exacerbate issues instead of resolving them. Here, seeking the help of M&A strategy consulting services can be valuable. They can help you to give each aspect careful thought, including the appropriate individuals in the planning process, and resolve to see restructuring through to the end rather than giving up when challenges arise.