Restructuring as a Strategy
Business restructuring is a process where a company makes significant changes to its structure, operations, or strategy to adapt to new market conditions, address financial issues, improve operational efficiency, or drive growth. These changes can include departmental reorganization, cost reduction, mergers and acquisitions, leadership changes, or asset sales.
Proactively addressing business restructuring involves identifying and resolving potential problems before they become critical situations.
Common Reasons
In a corporate context, business restructuring involves adopting innovative practices and new policies, analyzing the performance of employees, studying the market, and evaluating the possibilities of exploring different segments.
Business restructuring becomes necessary when certain perceptible “symptoms” occur, such as:
- Decline in financial results: falling revenues or profit margins, rising operational or financial expenses, cash flow problems, or difficulties in meeting financial obligations.
- Operational inefficiency: low productivity, outdated or ineffective operational processes, lack of alignment between different business areas.
- Aggressive competition: losing customers to competitors, changes in consumer preferences, or market trends negatively affecting company performance.
- Excessive debt: high levels of debt or financial pressure due to loan or high-interest payments, inability to obtain additional financing due to high financial leverage.
- Ineffective leadership: lack of leadership or ability to make strategic decisions.
- Organizational structure changes: unsuccessful mergers, acquisitions, or expansions, resulting in role duplication or internal conflicts.
- Legal risks: pending litigation or legal threats, changes in legislation or regulations requiring adaptations or additional investments.
- Dysfunctional organizational culture: high employee turnover, lack of alignment with company values and goals.
These signs are evident in both small and large companies. Highlighted examples in history show that dramatic moments in company trajectories do not necessarily mean their disappearance. Investing in innovation and new markets is often the solution.
Apple
The pioneer of personal computers faced significant difficulties in the 1990s. After founder Steve Jobs first left APPLE, the products developed by the company, such as the Apple Newton, were not accepted in the market.
In the early 2000s, Steve Jobs returned to APPLE as CEO. Quickly, with the introduction of the iMac (which was a moderate success), he secured a controversial investment from Microsoft and focused on innovations. Shortly after, the iPod was introduced, transforming APPLE in the eyes of consumers and elevating it to one of the world’s largest companies.
Crisis resolved, the company later developed the iPhone in 2007, a device that led APPLE to become the world’s most valuable company. Today, the company is worth over $1 trillion and has been led by Tim Cook, Steve Jobs’ successor, for nearly a decade.
NOKIA
A restructuring in progress! Nokia once dominated the mobile phone market like no other company. The Finnish company controlled up to 80% of the market, having created some of the first smartphones and even hybrid products (such as the Ngage).
The first sign of decline came with Blackberry, which showed that a mobile phone could do more than Nokia‘s phones. Then came Apple with the iPhone, decimating Nokia’s phones. The company tried to survive but chose Windows Mobile (which lost to iOS and Android), and its mobile division was bought by Microsoft for a fraction of its previous value.
Nokia now focuses on technology solutions, researching 5G applicable to mobile phones, and can receive about €2.30 per smartphone from any brand using its technology. Additionally, the company is preparing a new mobile phone division, now betting on the Android operating system.
Benefits of Preventive Restructuring
Identifying the main reasons that can lead to business restructuring, it’s essential to understand the benefits of taking a preventive approach to business challenges before they become crises. The main benefits of a preventive approach include:
- Cost reduction: companies can avoid additional costs associated with resolving emergency situations. This includes expenses with restructuring, contract terminations, financial penalties, and revenue losses.
- Preservation of the company’s reputation: avoiding crises means preventing damage to the company’s reputation. A proactive approach helps maintain the trust of customers, investors, and stakeholders, protecting the company’s image and credibility in the market.
- Maintenance of financial stability: preserving financial stability and avoiding negative impacts on cash flow, finances, and the overall financial health of the organization.
- Operational efficiency improvement: identifying and correcting operational inefficiencies, improving process efficiency, reducing waste, and optimizing resources.
- Promotion of innovation and growth: a proactive approach encourages a culture of innovation and continuous improvement within the company. By resolving problems before they become crises, organizations can free up resources and energy to invest in growth and expansion initiatives.
- Increased resilience and flexibility: by anticipating and quickly resolving problems, companies become more resilient and adaptable to changes in the business environment. This allows them to adjust quickly to new conditions and challenges, staying competitive in the market.
- Strengthening organizational culture: a proactive approach to dealing with challenges demonstrates the company’s commitment to the well-being of its employees and long-term success. This can strengthen morale, cohesion, and team connection.
- Compliance with regulatory and legal requirements: avoiding fines, litigation, or regulatory sanctions.
Recognizing the “symptoms” and proactively addressing business challenges offer a range of benefits that can positively impact the financial health, reputation, and growth of an organization. It is an essential strategy to ensure long-term sustainability and business success.
Business Restructuring: Preventive Strategies
Preventive strategies aim to anticipate and avoid potential problems. Some strategies that entrepreneurs can take include:
- Analysis and early planning: proactively identifying the company’s weaknesses, challenges, and potential threats. Developing a comprehensive strategic plan to address identified problems and anticipate future needs (Business Plan).
- Solid financial management: maintaining prudent financial management, with regular monitoring of the company’s financial performance. Establishing adequate financial reserves to face periods of uncertainty or difficulties.
- Transparent communication: establishing an organizational culture based on open and transparent communication at all levels of the company.
- Talent and leadership development: investing in the development of leaders and talent within the company to ensure strong and effective leadership.
- Revenue source diversification: exploring new business opportunities and diversifying the company’s revenue sources to reduce dependence on a single market or product. Adapting to changes in market trends and customer preferences.
- Innovation and technological adaptation: investing in innovation and technology to improve operational efficiency, competitiveness, and responsiveness to changes in the business environment. Adopting emerging technologies to boost productivity and innovation in business processes.
