1. Introduction phase:The firm should only use equity financing because it needs all theflexibility available to change resources, adapt to market conditions andmeet customer needs. The risk born by all providers of capital would betoo great for any lender to accept. The firm incurs large losses throughoutthe period and no lender would accept that. Only trade financing maybe used as soon as receivables build up.2. Expansion phase:Most financing should be with equity because of the need toaccumulate resources that are to stay permanently in the company. Assoon as the company starts to break-even, short term financing shouldbe used. The profits are not sufficient to pay interest on long term debtand the company is still too risky.3. Maturing phase:The company becomes very profitable. Short term and long term debtare now accessible on good terms. Lenders are attracted by a highgrowth and profitability track record. Still, equity represents a goodportion of capital. Acquisition of smaller firms in the industry uses up freecash and retained earnings.
4. Standardization and obsolescence:As the product market stabilizes, risk diminishes and profitsbecome more steady. Lenders, both short and long term, see thecompany as a good credit risk and the repayments are indeedassured as long as the customers keep buying the products. Thecompany needs to expand its sales, and for that, plant andequipment must be expanded. There are savings in automationto boot. Plant and equipment needs can be financed with longterm debt. The company now follows a very conservativedividend policy that attracts shareholders who prefer income ordefensive type of stocks. Equity as a proportion of total assets isreduced because most of the assets growth is financed by debt.
5. Corporate restructuring and newproducts:A firm will not continue existing with a product that becomes obsolete.The firm would be forced to close down, if it did. All firms must keepseeking new ways to serve their customers. As they do, they enter anew corporate life cycle and this mandates financial restructuring: tomove through a new series of phases. New equity capital will beneeded to pay some of the debt accumulated in the last phase of theprevious cycle.One can naturally imagine companies that go simultaneously throughdifferent phases of corporate cycles while handling products atdifferent stages of maturity. Their needs for borrowing are more of amix; there isnt one optimum capital structure for all firms. One way todetermine if a given company is close to its own optimum is once againby looking at its costs of different sources of funds.
a) Regrouping of business:This involves the firms regrouping their existing business intofewer business units. The management then handles theseslesser number of compact and strategic business units inan easier and better way that ensures the business to earnprofit.b) Downsizing:Often companies may need to retrench the surplusmanpower of the business. For that purpose offeringvoluntary retirement schemes (VRS) is the most useful tooltaken by the firms for downsizing the businesss workforce
c) DecentralizationIn order to enhance the organizational response to thedevelopments in dynamic environment, the firms go fordecentralization. This involves reducing the layers ofmanagement in the business so that the people at lowerhierarchy are benefited.d) OutsourcingOutsourcing is another measure of organizationalrestructuring that reduces the manpower and transfers thefixed costs of the company to variable costs
e) Enterprise Resource PlanningEnterprise resource planning is an integrated managementinformation system that is enterprise-wide and computer-base. This management system enables the businessmanagement to understand any situation in faster andbetter way. The advancement of the informationtechnology enhances the planning of a business.f) Business Process EngineeringIt involves redesigning the business process so that thebusiness maximizes the operation and value addedcontent of the business while minimizing everything else
g) Total Quality ManagementThe businesses now have started to realize that an outsidecertification for the quality of the product helps to get a good will inthe market. Quality improvement is also necessary to improve thecustomer service and reduce the cost of the business. Theperspective of organizational restructuring may be different for theemployees. When a company goes for the organizationalrestructuring, it often leads to reducing the manpower and hencemeaning that people are losing their jobs. This may decrease themorale of employee in a large manner. Hence many firms providestrategies on career transitioning and outplacement support to theirexisting employees for an easy transition to their next job.
1. Align structure to strategyAll restructures must align to strategy. This may seem self-evident, yet a significant number of organisations fail to do so.For example, if local conditions are a predominant factor, thenstress local sales and marketing functions rather than acentralised behemoth that then tries to matrix with localelements.
2. Reduce complexitySimply put, complexity costs. Whether it is a complex organisationalstructure, a complex product offering or complex transactional processes,the added cost of complexity can be a drag on performance.To mitigate complexity, there are three considerations that help withorganisational design: Design structure for strategy before you design for specific personnel.Organisational redesigns which are a compromise between strategicintent and line management preferences inevitably add complexity. So,while internal political intrigue is unavoidable, at least start with a cleanand clear design that matches to strategy. Avoid making leadership roles too complex. Minimise the use of matrices. They introduce measurement overheadand a lack of clear direction to the staff.
3. Focus on core activityRemove noise (inefficiency in processes) and enhance core beforerestructuring roles. This means that you will need to know what people aredoing today by obtaining a detailed understanding of tasks by role. Thisensures that no value-added activities are thrown out when removing a role.Similarly, duplication and redundant activity can be removed at the time ofthe restructure.4. Create feasible rolesDon‟t overload roles – restructures generally leave an organisation withfewer people to do the same amount of work. When restructuring to reduceheadcount, make sure you understand the current workload of employees.This will help to ensure you design roles that are neither too heavily ladennor indeed too light. Furthermore, role design must take into account realisticgroupings of skills. Packing a role with too many distinct skill-sets reducesthe pool of durable candidates.
5. Balance ‘own work’ and ‘supervisory load’ ofmanagersThe case of leadership or “management loading” can be particularlytroublesome in restructures. Often, the inability of managers to focus onleadership tasks due to increased output requirements can createsignificant problems for an organisation. For example, time spentmentoring and coaching staff drops off, staff become disengaged, moreissues arise due to staff errors and managers end up spending more timeresolving them. To ensure management are appropriately loaded, it‟scritical to balance three elements: The number of staff directly managed or supervised. Staff ability to perform work without supervision. The amount of „own work‟ managers have to do on top of theirleadership activity.
6. Implement with clarityOften there is confusion in the first weeks and months after an initial restructure.After all, who is supposed to be responsible for what? The answer is to clarifyroles and responsibilities from the beginning, identify all functions (activities,tasks and decisions) that have to be accomplished for effective operation, clarifywho should be involved and be specific about accountability.7. Maintain flexibilityFinally, it is important not to cut your resources too fine. If the organisationalchange is material, you will need resource flexibility in the first few months. Soeven as you strive to operate more efficiently, be sure to give yourself somewriggle room in your staffing. Flexibility applies not only to staff members, but tostaff capability.Leave yourself and your leadership team some room to respond to capabilitygaps in the new structure.