Meta: Why is restructuring often feared by both businesses and employees? It is a transformation that aims to improve operations and efficiency.
What is restructuring, and why do most people perceive it as a nightmare? The reason is that structural changes often come with workforce reductions, employee layoffs, and financial crises within companies.
However, these are only some of the possible negative aspects. When viewed from a broader perspective, restructuring enables businesses to seize opportunities in the era of global integration. Let’s explore the true nature of restructuring with KMC to move beyond the common misconceptions.
What is restructuring?
Simply put, restructuring is the process of reorganizing and rearranging a company’s operations to overcome weaknesses and optimize performance. The primary goal is to enhance efficiency, improve competitiveness, and achieve business objectives.
Restructuring can be applied flexibly, either across the entire company or in specific areas such as human resources, operational processes, business strategy, or financial systems. It’s similar to tidying up and reorganizing a house—sometimes, you only need to clean one corner, but in other cases, a full renovation is necessary to create a better living space.
For example, if a company’s HR department is facing challenges while other functions remain stable, a restructuring effort may focus only on human resource management. On the other hand, if a company is experiencing a financial crisis, it may need to reorganize its debts, sell off non-essential assets, and restructure cash flow to maintain operations.
Beyond fixing problems, restructuring also presents opportunities for renewal. Businesses can use this process to redefine their long-term strategies, ensuring they adapt effectively to an evolving market.
Three Levels of Business Restructuring You Need to Know
Business restructuring can occur at different levels depending on a company’s needs and circumstances. Below are three key levels of corporate restructuring that every business should understand.
Departmental Revamp
This level focuses on reorganizing specific teams within the company. Businesses clarify responsibilities and authority within each department, assigning tasks in a structured manner to enhance accountability. By improving the efficiency of individual teams without overhauling the entire corporate structure, companies can optimize operations with minimal disruption.
System Overhaul
A system overhaul takes restructuring a step further by establishing a comprehensive management framework. This involves implementing clear policies, procedures, standards, and workflows to ensure consistency and efficiency in daily operations.
After launching the new system, companies must continuously monitor and assess its effectiveness. Regular improvements and adaptations are necessary to keep up with evolving business environments and market demands.
Comprehensive Transformation
This is the most extensive form of restructuring, requiring fundamental changes—sometimes even a complete shift in the company’s core business model. Comprehensive transformation is a bold move, often undertaken when businesses must adapt to new markets or overcome major crises. Instead of making incremental adjustments, companies at this level redefine their entire approach to operations, positioning themselves for long-term success.
Why do 70% of businesses fail when restructuring?
Restructuring offers numerous benefits when executed successfully. However, it also carries significant risks and challenges. According to McKinsey’s study “The Realities of Organizational Restructuring Revealed”, a staggering 70% of businesses fail in their restructuring efforts. Here’s why:
Lack of Clear Vision and Goals
Restructuring requires a well-thought-out plan, covering timelines, resources, and risk management. Yet, many companies rush into restructuring without defining clear objectives or a strategic vision. Without these guiding principles, efforts become fragmented and directionless.
Ineffective Leadership
Successful restructuring demands strong leadership capable of managing change. Without experienced and visionary leaders, the entire process can derail, leading to chaos instead of progress.
Resistance to Change
Employees often resist restructuring due to fear of the unknown or attachment to old workflows. This resistance can slow down or even undermine the entire restructuring effort.
Poor Communication
As restructuring can create uncertainty among employees, failing to communicate the reasons for change, implementation process, and expected outcomes can increase anxiety and resistance, leading to decreased morale.
Lack of Continuous Monitoring
Restructuring is not a one-time event but an ongoing process. Without consistent tracking and adjustments, any initial success can quickly fade, rendering the effort ineffective.
Understanding these pitfalls can help businesses navigate restructuring more effectively and increase their chances of long-term success.
A 5-Step Process for Successful Restructuring of FDI Enterprises
To avoid common restructuring pitfalls, FDI enterprises must adopt a methodical and strategic approach. Below is a recommended five-step process to achieve effective transformation:
Step 1: Assess the Current State to Identify Issues
Restructuring a business is akin to diagnosing and treating an illness. Before prescribing any remedies, it’s essential to evaluate the “health” of the organization. This assessment reveals how the company is operating—highlighting inefficient departments, underperforming functions, and areas where controls are weak and need tightening.
A thorough diagnosis allows the enterprise to determine whether minor adjustments (e.g., in staffing or processes) will suffice, or if a full-scale overhaul is necessary. With this clarity, businesses can establish an overarching goal and define specific objectives for individual teams and departments.
Step 2: Develop a Detailed Plan
Why is detailed planning critical to restructuring? Think of the process as embarking on a journey to unfamiliar terrain—without a map, the risk of losing direction is high. In this context, the restructuring plan acts as your roadmap, your compass, and your guide, steering the organization toward its intended destination.
Since it’s impractical to tackle everything simultaneously, prioritization is key. Address urgent matters first—for example, if the business is burdened with debt, debt restructuring should be the immediate focus.
Step 3: Choose the Right Strategic Approach
Depending on the company’s specific circumstances and goals, several restructuring strategies can be considered:
- Hybrid Restructuring: Combines cost rationalization with organizational streamlining to improve operational efficiency.
- Strategic Alliances or Joint Ventures: Involves collaboration with partners to share resources, expertise, and market access.
- Mergers and Acquisitions (M&A): Offers a rapid route to expansion through acquisition or integration of other entities.
- Technology Transfer: Enhances competitiveness by integrating advanced technologies into core operations.
- New Development Pathways: Involves redefining the business model entirely—from products to market focus.
It’s vital to assess the current organizational landscape before committing to a particular strategy. Given that restructuring is inherently a long-term endeavor, break the process into manageable tasks and address each component systematically.
Step 4: Execute the Plan
This is the phase where planning transitions into action. The first step is to establish a restructuring task force, which will act as the command center throughout the initiative. This team will break down the plan into specific tasks, assign responsibilities to departments and individuals, and ensure alignment with strategic goals.
Upon completion of each task or milestone, it’s crucial to assess its effectiveness. For instance, if a production process has been streamlined, evaluate whether costs have decreased, timelines shortened, or if new challenges have arisen. The task force should make adjustments where necessary to optimize results.
Step 5: Operate the New System
Now is the time to fully implement and operate the restructured system. However, expecting it to run flawlessly from day one is unrealistic. Adjustments—both minor and significant—will likely be required.
Just as importantly, don’t overlook the employees who will be operating this “new engine.” Comprehensive training is essential to ensure that staff understand and can effectively use the new systems and procedures.
Effective Tools for Business Restructuring
Restructuring requires the right tools to ensure efficiency and success. Here are three powerful frameworks to support the process:
SWOT Analysis 4.0 – The Strategic Magnifier
SWOT analysis functions like a magnifying glass, helping you clearly identify strengths, weaknesses, opportunities, and threats. This allows businesses to make informed restructuring decisions. For example, if your weakness is “slow processes” and your opportunity is “new technology,” you can integrate AI to handle repetitive tasks, freeing employees to focus on creative work.
- S (Strengths): What competitive advantages does your business have?
- W (Weaknesses): What obstacles are hindering business growth?
- O (Opportunities): What market trends can benefit your company?
- T (Threats): What external factors pose challenges to your business?
McKinsey’s 7S Framework – The Team Playbook
Think of your organization as a football team—success requires seamless coordination among players. McKinsey’s 7S Model helps evaluate alignment across critical business components:
- Strategy: What is your restructuring plan?
- Structure: How is your company organized? Who reports to whom?
- Systems: What processes and tools ensure smooth operations?
- Shared Values: What core beliefs drive your organization?
- Skills: What are your team’s strengths? What additional training is needed?
- Style: How do leaders manage the team—strict or flexible?
- Staff: Are employees in the right roles based on their expertise?
By addressing these seven elements, businesses can ensure a well-coordinated and effective restructuring process.
Balanced Scorecard (BSC) – The Performance Tracker
BSC provides a structured approach to setting goals and measuring restructuring success from four perspectives:
- Financial: Does restructuring boost profits and reduce costs? For instance, does it help you achieve a “10% revenue increase” goal?
- Customer: How do customers benefit? You can track satisfaction levels or count new customers.
- Internal Processes: Are operations running smoother? For example, have you successfully shortened order processing time from 5 to 3 days?
- Learning & Growth: Is your team improving? Measure training sessions completed and new skills acquired.
By leveraging these three tools, businesses can make data-driven decisions and maximize the success of their restructuring efforts.
Case Study: The Restructuring Journeys of L&T Ltd and JSR
L&T Ltd: Unlocking Potential Through Smart Restructuring
- Strategic Move: L&T chose to separate its cement division into a standalone entity, Ultratech Cement Ltd., transferring ownership to Grasim Industries, a subsidiary of the Aditya Birla Group. This decision proved mutually beneficial.
- Win-Win Outcome: By offloading its cement business, L&T not only monetized its assets but also sharpened its focus on its core strengths—engineering and construction. Meanwhile, Grasim Industries scaled up its cement operations without having to build from scratch.
JIC’s Acquisition of JSR: Strengthening Japan’s Semiconductor Supply Chain
- Action Taken: In 2023, JIC (Japan Investment Corporation), a government-backed fund, acquired JSR, aiming to restructure the semiconductor materials industry.
- Results: With JIC’s financial backing, JSR redirected resources toward enhancing semiconductor material quality. Even before the acquisition was formally announced, market speculation drove JSR’s stock price up 21.64% to 3,934 yen, demonstrating investor confidence in the deal.
Measuring Restructuring Success: The ROI Benchmark
To assess the effectiveness of a restructuring initiative, businesses can use the Return on Investment (ROI) formula:
ROI=(Net ProfitInvestment Cost)×100%ROI = \left(\frac{\text{Net Profit}}{\text{Investment Cost}}\right) \times 100\%ROI=(Investment CostNet Profit)×100%
Where:
- Net Profit = Revenue after deducting all restructuring-related costs.
- Investment Cost = The total expenditure on restructuring efforts.
A high ROI indicates a successful restructuring, confirming that every dollar spent generates the expected returns.
Legal Considerations for FDI Enterprises in Vietnam
Foreign-invested enterprises (FDI) undergoing restructuring in Vietnam must comply with local regulations:
- Corporate and Investment Laws: Understand regulations on M&A, foreign ownership limits, and international commitments.
- Procedural Compliance: Ensure proper documentation, such as business license amendments and regulatory filings.
- Fair & Voluntary Agreements: All parties must consent freely to restructuring, avoiding coercion to uphold legal and ethical business practices.
The Need for Continuous Adaptation
In a rapidly evolving global economy, businesses must constantly innovate and restructure to stay competitive. Failing to do so risks falling behind and losing relevance. Understanding restructuring and applying it strategically can ensure sustainable growth and long-term success.
