Business Restructuring: The Pros and Cons

In the first part of this series, we started a discussion on Business Restructuring. We defined the concept and highlighted some reasons why a business may need restructuring.

We also noted that it can be a turbulent time for an organization if the accompanying change is not properly managed. However, with proper change management, an organization is bound to become more effective and efficient in its operations which will yield productivity economically.

Today, we’ll dive a little deeper to explore the pros and cons of Business Restructuring.

Pros of Business Restructuring

John Ferraro, the former COO of Ernst & Young, said, “Every company today is being disrupted and so must frequently reorganize to keep up with the incredible pace of change. Those that can do this well will thrive in the current environment and be tomorrow’s winners.”

In the same way that there are many reasons companies might restructure, it follows that there should be many benefits of restructuring. Below are few of the benefits

1.   Performance Optimization

Business restructuring helps to identify and eliminate under-performance in the system. Restructuring involves rebuilding the structure of operations from the ground up. This readily exposes unbalanced work load and inefficiencies in the business processes. The result is a stable and effective framework that enhances overall performance.

2.   Smoother Operations

Oftentimes, because of the number of years a process has been done without review, it becomes redundant and inefficient.

When a business eliminates layers of unnecessary bureaucracy during its restructuring, it significantly improves communication and decision-making. Simplifying management reorders the organizational hierarchy of a company, opening the lines of communication and removing barriers to productivity.

Why go through 9 steps when 4 will effectively and efficiently accomplish the same purpose?!

Note however, that in removing redundancies and bureaucracies, Control andAccountability must never be jeopardized…as this will only create chaos and defeat the purpose of the restructuring. So, there has to be a balance.

3.   Financial Advancement

A primary purpose of any business venture is to make profit, and in the event of a successful business restructuring, this will be the case. Recall that one of the reasons many businesses may opt for restructuring is because they have run into financial distress. Business Process Redesign helps to eliminate waste, reduce operating costs, increase revenue and increase profit. Thus, the declining business is revived and the company’s value is increased.

4.   Competitive Advantage

A properly implemented business restructuring reinvents the organization and places it at an advantaged position above peers (even if it’s only for a short time…if it does not keep improving). This can strategically position the organization for growth, allow for the addition of new accounts or enable expansion into other locations.

5.   Employee Satisfaction

When employees are informed of an upcoming restructuring, they may worry about the safety of their jobs or what the change would mean for their current roles. These are valid concerns, and sadly some may have to leave, but it does not always have to end up that way.

Asides the overall satisfaction that comes with getting work done efficiently, companies could offer bonuses or other perks to their employees to encourage their buy-in and participation in the change process. Some may go further and offer shares in the business. All these help to increase employee loyalty and satisfaction.

Two words sum up the overall benefits of business restructuring: Thrive and Success.

Cons of Business Restructuring

While the restructure will help the company move forward and improve business, the process comes with some fallout for both the company and the employees.

1.   Re-training

Restructuring requires that staff be trained on the changing processes and/or new processes/methods. It is also expected that there may be a momentary drop in productivity as staff try to find their footing while going through the change curve. They also need to learn to use and get used to any new technology introduced.

2.   Skill and Knowledge Loss

In a case where some employees have to leave or be laid off post-restructuring, the company may lose some customer and business information/knowledge that is resident with such employees. Problem solving methods, customer preferences, operational approaches and company history are some of the information areas that may be lost during company restructuring.

Although the effect of this is significantly reduced if the company has well-documented business processes.

Restructuring a company doesn’t just reflect the current position of the company but could serve as a Launchpad for the business to reposition itself as a sustainable and productive brand.

No business opportunities are risk-free and any change to the structure of a business is likely to have its consequences. Nevertheless, a business restructure is more likely to be a success if you involve experts and together, take the time to fully plan each step.

For assistance with business restructuring and personalized guidance for your company’s reorganization and business process design, you can contact us.

Previous Business Restructuring: What & Why

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