Sometimes, your company needs to change to stay on course. These changes might be for growth or because you face challenging times and need swift intervention.
In such cases, corporate restructuring can be a practical solution. But what does restructuring a company mean?
This involves modifying your company’s operations, processes, or structure to address difficulties and improve performance. Depending on your goals and the specific challenges you face, you might choose operational restructuring, organizational restructuring, financial restructuring, or a combination of strategies.
This guide offers an in-depth look at operational restructuring, including how it works, the general process, and how to manage the changes that accompany it effectively.
Key takeaways
- Operational Restructuring aims to enhance efficiency by identifying underperforming areas and streamlining processes to improve overall performance.
- Different restructuring strategies, including operational, organizational, and financial, depending on the company's specific challenges and goals.
- Companies restructure for several reasons, including cutting costs, eliminating redundancies, optimizing operations, addressing financial decline, and preparing for mergers and acquisitions.
- If implemented successfully, it can improve agility, restore liquidity, reduce debt, increase efficiency, and enhance shareholder value.
- Real-world cases (e.g., Bolt, TikTok, Salesforce) show that restructuring can involve workforce adjustments, new technologies, or strategic expansions to drive growth and efficiency.
What is operational restructuring?
Operational restructuring is a corporate action that helps you streamline processes in your company by identifying areas that are underperforming and need improvement.
Challenges such as declining profits or excessive debt may force you to consider restructuring. In these situations, restructuring can help you improve liquidity, reduce costs, and regain financial stability.
Operational restructuring often involves developing strategies for optimizing internal processes and structures, redesigning workflows, or eliminating redundancies. This process may lead to rightsizing or downsizing the workforce through layoffs, early retirements, asset sales, cost reductions, and merging teams.
This further covers ways to return your business to profitability by improving operations, including your product and service offerings and how you manage day-to-day activities.
Written by Omoruyi Edoigiawerie, a seasoned startup attorney with over a decade of experience. Learn more.
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Often, restructuring creates anxiety among employees due to historical outcomes like layoffs, reduced pay, or early retirement. To manage this effectively, clear communication and support can help mitigate fear and resistance. For example, if you introduce new technology, effective change management can help your team adapt easily to the new system.
Operational restructuring usually focuses on the following:
- Products, services, and markets
- Costs against revenues and profits, recommending cost reductions
- Improving business efficiency
- Core business and exiting underperforming regions
- Identifying skills or resource gaps in the management team
Why do companies undergo operational restructuring?
There are several reasons you may want to consider operational restructuring, including:
- Cut costs
- Eliminate redundant processes
- Consolidate debt
- Streamline and optimize routine operations
- Prepare for an acquisition or merger
- Stay competitive and profitable
- Address declining finances and poor earnings performance
- Achieve specific goals—for example, successfully launching a new product or service
What are the key benefits of operational restructuring?
If successfully carried out, some of the benefits include
- Make your company more agile and competitive.
- Restore liquidity, reduce debt, and enhance financial stability.
- Create a platform for strategic growth initiatives.
- Reallocate resources more efficiently.
- Increase shareholder value by improving financial performance and market perception.
Types of restructuring strategies
When restructuring an organization, you can use different strategies depending on your goals. Here are some key approaches to consider:
Organisational restructuring
In organizational restructuring, the internal structure and hierarchy of the organization are changed. This could mean modifying some roles, merging departments, creating new roles, or even laying off certain positions. The aim is to enhance productivity, improve efficiency, streamline communication, or better align with strategic objectives.
Operational restructuring
When you focus on operational restructuring, you target core processes and eliminate redundant ones to boost productivity. To achieve these goals, you might modify your asset structure, acquire new technology or businesses to strengthen operations, outsource tasks, form partnerships, or reduce your workforce.
Financial restructuring
Financial restructuring could be the right approach if you need to improve your company’s financial health and restore liquidity. You can consolidate debt, issue new equity to raise capital, or exchange equity for debt reduction. This strategy may also involve renegotiating debt terms, adjusting your capital structure, seeking bankruptcy protection, or securing new financing to ensure long-term stability.
If your organization is experiencing financial distress, consider financial restructuring. This approach allows you to combine multiple strategies for a faster and more effective recovery.
Other restructuring strategies include:
- Divestiture: Sell off unprofitable or underperforming assets, business units, or subsidiaries.
- Mergers or Acquisitions (M&A): Merge two companies into one or acquire another company to gain control over its operations.
- Spin-offs and Carve-outs: Create an independent entity from your existing business.
- Joint Ventures and Strategic Alliances: Form partnerships to share resources and technology.
- Legal Restructuring: Change your business’s legal structure to comply with regulations, manage liabilities better, or streamline operations.
- Bankruptcy: In extreme cases of financial distress, you can file for bankruptcy to protect your organization. A Chapter 11 bankruptcy helps you restructure and stabilize your business operations, while a Chapter 7 bankruptcy involves liquidating assets to repay creditors, potentially leading to closure or acquisition.
Operational restructuring: How it works
Operational restructuring isn’t a quick fix. It involves careful, step-by-step planning to achieve the desired result and may take several months. If your company is considering an operational restructuring, follow this guide to ensure a thorough and effective process. The actual process can be complex, but this guide simplifies the steps.
Identifying your objectives
Don’t initiate a restructuring just because you feel it’s needed. Before you take your company through this process, clearly articulate the reasons for the restructuring. While restructuring offers various benefits, you should identify specific objectives or outcomes you want to achieve. Be as precise as possible by stating numbers or targets. Break down these objectives into smaller, achievable goals.
Articulating your reasons for restructuring helps employees and investors understand why the change is necessary. Once you know what you want to accomplish, you can plan the process.
Planning the process
Planning is where you decide on the strategy that best aligns with your objectives. Next, outline the actions or roadmap to help you achieve your goals using this strategy.
For example, if you’re divesting, list the assets you want to sell and potential buyers. Ensure your strategy complies with the regulations in the region where your company operates. Also, consider how the restructuring will affect various departments in your organization. Clearly outline each phase of the restructuring and the key actions from start to finish.
Consider the adoption curve and how employees will use or adapt to the new system when a new technology is involved.
Implementing your plan and tracking progress
Once you have a detailed plan, implement it by following the roadmap. However, don’t follow the plan blindly. Regularly assess the outcome of each step to ensure it aligns with your targets. Be open to making adjustments to stay on track with your goals.
Examples of operational restructuring
Here are some notable real-life corporate restructuring examples. These examples of organizational restructuring give you an overview of how companies have approached restructuring to achieve specific results.
In 2023, Bolt, the ride-hailing platform, laid off 17 out of 70 employees in Nigeria. The company informed the affected employees that it was due to operational restructuring. However, while some employees were laid off, the company also planned to recruit 326 staff globally and invest $500 million in Africa.
As part of the change management process, Bolt offered each worker severance pay based on their length of service. For example, if an employee had worked for a year, they received one month's severance pay; those with two years received two months' severance pay. Employees with less than a year of service received half a month’s salary.
Additionally, Bolt provided the affected employees with three months of health insurance, psychological support, and access to a career coach.
In 2024, TikTok carried out restructuring as it reviewed its operations. The process involved laying off over 100 employees in its African team, affecting roles in marketing, content operations, and trust and safety.
Another example is Wakanow, a travel tech company, restructured in 2023 to operate as a group entity. The company adjusted its internal hierarchy, appointed new executives, and positioned its subsidiaries to explore new markets and improve its product experience and solutions. This restructuring aimed to expand into new African verticals and countries and seize new business opportunities.
Salesforce, a cloud-based software provider, reduced its workforce by up to 300 employees. The company streamlined its operations to optimize its structure and drive growth. Salesforce regularly assesses its structure to ensure it serves customers and supports growth areas. As part of this process, it may eliminate roles if necessary.
Operational restructuring doesn’t always involve layoffs or shutting down parts of a business. Sometimes, it means exiting a market, as MTN did with MTN Guinea-Bissau, or entering a new one like inDrive did when it launched in Lusaka, Zambia. Restructuring can also involve introducing new technology to improve internal performance or enhance the user experience. Implementing new technology for internal processes often leads to efficiencies and cost savings.
Lessons learned from operational restructuring examples
1. Layoffs can be part of operational restructuring, but it is not always.
2. Restructuring can serve as a strategic move for growth.
3. Operational restructuring should not just focus on cutting costs but also drive strategic growth.
4. You can use market entry and exit as forms of operational restructuring.
5. Communicate the restructuring plans clearly and transparently.
6. Offer support to affected employees.
7. Change management plays an important role.
Key importance of change management
When handling operational restructuring, implementation can be challenging. This is why change management is essential.
- Change management helps you keep the restructuring process aligned with your strategic goals at every stage.
- It helps you minimize employee resistance and guide employees through the transition more smoothly.
- Change management promotes clear communication and enhances transparency.
- It helps retained employees adjust to new roles or systems and stay productive.
- It also anticipates potential problems and provides solutions in advance.
Challenges and considerations in operational restructuring
Employee resistance can negatively affect morale and productivity. To address this, you should communicate clearly with employees and provide training and support to help them adapt to new roles and responsibilities.
Integrating new systems, processes, and cultures can be complex and difficult to manage smoothly. This may result in inefficiencies, errors, and decreased productivity. To address this, develop a comprehensive integration plan with clear timelines. Offer training and support to ensure employees understand the new systems and processes.
Operational restructuring can cause short-term losses, such as decreased revenue, which may affect the organization's financial stability. Before initiating restructuring, create a financial plan and budget.
Communicate clearly and transparently with stakeholders, including employees, customers, and investors, about the expected short-term losses and long-term benefits.
You should also plan how to handle media or external communications to prevent fear and uncertainty among customers or users.
If your organization is considering restructuring, work with experienced legal counsel to assess risks and navigate legal and regulatory requirements to avoid complications.
For a successful restructuring, focus on key factors such as setting realistic goals, communicating openly with stakeholders, ensuring adequate resource allocation, and maintaining flexibility to address unexpected challenges.
FAQs about operational restructuring
What is the purpose of operational restructuring?
You carry out operational restructuring to enhance efficiency. It is done to identify and address unnecessary expenditures to reduce costs. The goal is to improve overall performance, boost competitiveness, and drive sustainable growth.
How long does operational restructuring typically take?
The duration for a complete operational restructuring depends on the organization's size and complexity.
For small-scale restructuring, it typically takes a few months. Medium-scale restructuring may take six to 12 months. Large-scale efforts, like company-wide transformations or mergers and acquisitions, can last between one and two years.
Is operational restructuring only for large companies?
No, operational restructuring applies to companies of all sizes. However, your strategies and approaches may vary depending on your goals, resources, operational scale, and industry.
Does restructuring mean layoffs?
Operational restructuring can sometimes involve layoffs. Downsizing might mean eliminating roles and merging others, or new roles might be introduced.
How many times can a company restructure?
A company can restructure as many times as it deems necessary. However, you should approach operational restructuring with careful planning and clear goals, as it is not a decision to be taken lightly.
Conclusion
In this guide, we’ve explored operational restructuring: how it works, the processes involved, and other strategies companies can adopt aside from operational restructuring.
Operational restructuring enhances efficiency by streamlining processes and identifying areas for improvement. If you’re considering this approach, set clear objectives from the outset. Although companies of all sizes can undertake operational restructuring, only do so when necessary. Thorough planning will help guide the process effectively and prevent unintended disruptions. Continuously assess your progress to see if it aligns with your target and to stay on track and adapt as needed.
Restructuring is a significant decision, but it can position your company for long-term success and resilience when approached intentionally and strategically.
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