Business restructuring

economic-dictionary

A business restructuring is the process by which a company is transformed, adapting to a new business model, previously unknown to it. The objective of the restructuring is to generate greater competitiveness, as well as to guarantee future operation.

A corporate restructuring is a process that companies undertake. Through restructuring, a company adopts a new business model, which is different from the one it previously presented. Among the objectives of business restructuring is to increase competitiveness in the market, as well as to guarantee the present. At the same time that, on the other hand, guarantee that the company will continue with its operation in the future.

Restructuring always tends to go hand in hand with complicated processes for the company. Given that, if a restructuring is required, the company must be going through a complicated scenario that leads it to undertake such a process.

Types of business restructuring

A business restructuring, as we said, is a process carried out by the company to adopt a new business model in the face of a scenario in which the current one does not work, or it is expected that it will not work at its maximum performance in the future.

However, when we undertake a corporate restructuring it does not mean that we should change everything. In other words, despite the fact that a restructuring refers to major changes, these changes can occur at specific points that are considered strategic to adopt a new business model.

That is why we can classify business restructuring, depending on the point affected.

Thus, we can classify it as follows:

  • Internal restructuring: In order to generate greater efficiency in the operation of the departments.
  • Technological restructuring: In order to adapt to the new advances that occur in the sector.
  • Financial restructuring: One of the most common. It is done in order to adapt the company from a financial point of view, restructuring all the company's accounts.

Causes to carry out a business restructuring

There are many reasons why our company may need to restructure. Whether due to internal or external causes, we must be very attentive to the indicators shown by our company, since adaptation is key in business management.

That is why the company may need to restructure for two reasons:

  • External causes: Economic, legal, sociological, competitive and technological.
  • Internal causes: Equipment, structure, adaptability, confidence, rigidity.

For this reason, we can find ourselves among the internal and external causes that could generate the need to undertake a restructuring.

  • Change in consumer trends.
  • Predominance of our competition in the market.
  • Entry of new competitors.
  • Loss of market positioning.
  • Bad evolution of the company's results.
  • Lack of profitability in the business.
  • Financing difficulties.
  • Obsolescence of our product or service.
  • Global economic crisis.
  • Economic crisis in the sector.

Among others, these are some of the reasons that may generate the need to undertake a restructuring in our company.

Phases of a restructuring process

Among the phases that a restructuring process requires, we can find 3 consecutive steps. However, there are other experts who consider that the steps to follow to complete a restructuring are 5. On the sidelines, in Economipedia, we have collected the 3 fundamental processes that, as many experts consider, are the ones that we must follow to undertake said process.

For this reason, the 3 phases that we must follow to undertake a restructuring in our company are:

  1. Diagnosis of the situation: Know well the problem of the company, as well as develop a relationship of those weak points of the company and the means to correct the situation.
  2. Treatment of the problem: It is the most difficult part, as well as the longest of all. Once the problems have been identified, it is when we proceed to treat and correct them. This process is long, as it is time to put into practice the selected strategies to correct the situation.
  3. Recovery and growth: This is the last stage. It is the goal, but getting here is difficult. And it is difficult due to the fact that we are only considered to be at this stage when the strategies adopted have been successful. If it has been done well and we have managed to correct the situation, it is in this phase that we evaluate the situation again, developing metrics and control systems to manage change and control its evolution.

Advantages and disadvantages of business restructuring

Restructuring the company is a complicated process. For this reason, a restructuring always carries with it advantages and disadvantages that could alter our decision when undertaking this process. However, it must be said that a restructuring always carries more advantages than disadvantages, since the adaptation of the company is vital to avoid stagnation.

Thus, the advantages and disadvantages of a restructuring are:

Advantage

  • Company survival.
  • Competitiveness against competitors.
  • Cost reduction.
  • Optimization of processes.
  • Greater effectiveness in decision making.
  • Preservation of the company's assets.
  • Constant improvement of the team and the company.

Disadvantages

  • Very complicated process.
  • Risks associated with restructuring.
  • Large starting investments.
  • Legal framework that could make the process difficult.

Thus, business restructuring, as we said, has many advantages and disadvantages, but we must know that the adaptation of our company to the environment is vital to guarantee its survival.

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