The aim of all organizational restructuringstrategies is to change the organization andmake it work more effectively, moreefficiently, to be more productive andincrease profits. Whether in the private sectoror in government agencies restructuring is anever ending process. Restructuring strategiesare also used by global organizations toimprove and enhance their businesss position.
Smart-sizing: It is the process of reducing the size of acompany by laying off employees on the basis of incompetenceand inefficiency.Examples1. Acquisitions2. Diversification: Videocon group is diversified into powerprojects, oil exploration and basic telecom services.3. Merger: Asea and Brown Boveri came together to form ABB.4. Strategic alliances: Siemens India has got a Strategicalliance with Bharati Telecom for marketing of its EPABX.5. Expansion: Siemens is expanding its medical electronicsdivision- a new factory for medical electronics is alreadycome up in Goa.
Changes in competitive situation: Because offoreign competition, accelerated rate oftechnological change& competitive pressuresfaced globally. To focus on core competencies bydivesting non-core businesses; these disinvestmentscan have attractive valuations. Changes in capital markets : Abolition ofController of Capital Issues, empowering SEBI,freedom to FIIs to invest in new issues and existingstocks, access to capital globally at cheap rates,scope for private placement, scope for delisting,the emergence of angel investors as well asventure funds, etc., are forcing companies torethink their capital structure.
Changes in Govt. policies :Major changes inMRTP Act, FEMA, Industrial licensing, setting upof Competition Commission of India, etc.; Size nolonger is a constraint; growth strategy is based oncompetencies and not govt. licenses; MNCs cangain control of operations in India. A classicexample is HUL To avoid unsolicited take-overs :As biddersbelieve that the stock prices of some companies donot reflect true values achievable via restructuring ofbusinesses (after acquisition).Going concern valuemay be lower than break-up market value.Therefore, some firms increase debt considerably tobecome unattractive.
To gain long term competitive advantage:Honda Motors India broke up with Kinetic Engineering to set upHMSI Private Ltd.HUL restructured itself via project millennium in 2000. Now afterloosing market share to competitors in 2008-09 it is trying to reinventitself. To enter international markets :This is especially in the face ofquota & other restrictions besides the effects of globalisation.Ranbaxy acquired firms’ abroad to penetrate foreign markets.Infosys reorganised itself as per demands of international stockexchanges and investors.Tata’s acquired Tetley, Chorus and Jaguar Land rover to enterglobal business in tea, steel and automobiles.
New skills and capabilities are needed tomeet current or expected operationalrequirements. Parts of the organization are significantlyover or under staffed. Technology and/or innovation arecreating changes in workflow andproduction processes.
To achieve operational & market related benefits:Restructuring of the appropriate kind can lead to improvedcompetitive position (say via vertical integration), gains in marketshare (by business combinations) and increased productivity (viamodernisation and retraining) To reduce cost: Reducing the cost structure via a host oforganisational, portfolio and financial restructuring is essentialto make firms cost competitive/ profitable. To increase management control: By merger ofinvestment companies, increasing share holding pattern, etc.
By giving proper training and hiring skilledstaff inside and out side the organization. Avoid merging, acquisition,diversification Get new technology and process byhiring consultants and educateemployee inside to avoid reorganization. Retain skilled staff and eliminateunderperformer by 10% every year.