Impact on Corporate Restructuring Finance - Essay Example

Corporate Restructuring: Impact on Market, Productiveness and Financial Performance In effect, corporate restructuring enables strategically powerfulalternatives for companies to adopt and adapt measures for resolution of financial and operational issues. This restructuring emphasizes on the actual and potentially weak points in managerial and operational domains. It helps the company to steer through troubled situations that it might confront. From legal and financial advisors to noticing agents, restructuring process can be exercised that has a sole purpose to streamline the organizational behavior. There are five elements of corporate restructuring. First is being smart by going through an exhaustive analysis of what reforms might constructively enhance the efficiency and affectivity of the organization. Many organizations hire services of specialized professionals for this task. Second is being quick which calls for expeditious consummation and well negotiated transaction of the process that culminates in emergence. Third is remaining prepared well before time. This aspect of restructuring is actually the data on which whole restructuring is based. These preparations might include employees, vendors, contracts, financial statements, real estate deeds, retiree listings etc. Fourth aspect is transparency. It not only builds confidence in the market but also helps sharing of information and conveyance of true colors of a corporate organization. It informs vendors, financial managers, media and investors. Fifth and last element or aspect of restructuring is being sensitive and responsive to variety of vulnerabilities, financial insecurities and stakeholders. This aspect actually provides assurance that the matter under reorganization is one of the significant things and is among the priority during the whole process. Restructuring actually breaks off the physical and psychological barriers that limit affectivity and efficiency of a flow. Thus keeping in view restructuring process can be divided into three types namely; Organization-and-Management-Restructuring, Capital-Restructuring and Portfolio-and-assets-Restructuring. A brief about each of the following is important before citation of a case study and impact analysis. First type of restructuring involves the product products, asset base or service. Here the controls and powers vested to departments are reassigned. The restructuring involves enhancement of specialization and departmentalization so that revenues can be increased. Several approaches are used in this type of restructuring. It includes Amalgamation and mergers, Divestitures, Acquisitions and Joint Ventures. These terms are self-evident as they involve inter and intra-departmental takeovers, conglomerates, horizontal and vertical mergers, Spin offs and splits. Second type of restructuring is capital restructuring. In capital restructuring the assets which are material or cash assets are utilized/ converted into such assets that might improve their liquidity and thus strengthen the monetary position. The aging assets or less profit bearing assets are sold out to get new and more profitable ones. Benefits of capital restructuring are greater financial powers, better reach to technologies and concentration on core competencies. By Capital restructuring risk factor and loss of control over the assets can be reduced. It also lower the capital cost and improves liquidity and share value. The last and most important aspect of corporate restructuring is organizational restructuring. It transforms organizational design in such a way that the hierarchy becomes affective by redefining flow of information, management practices and style and decision making procedures. The starting point in this restructuring is CEO and usually involves whole hierarchy. This is the concept that comes in contact with employees and is first to impacts the organization. It involves centralization or the decentralization of units and functions. Culture of an organization is transformed into a standardized corporate edifice. Redeployments, transfers and trainings are effective in meaningful restructuring. Policies related to HR are also scrutinized and rationalized pay structure is established (Rao, 2011). There are symptoms that ask for restructuring in all three domains. Also that there are benefits and issues that need to considered before commencing restructuring. However it has now been established that corporate restructuring has revitalized many an ailing organization. From recent history examples like privatization of organization could have not impacted their productivity more than corporate restructuring. Oversized, sluggish mammoth organizations have been made smart and profitable more than general perceptions. The privatization of AT&T USA is one such example. The privatization process was followed by restructuring that totally changed the fortunes of this huge state owned enterprise. Similarly Etisalat Dubai has acquired many Asian telecommunication companies and have started restructuring them. One such example is PTCL in South Asia. This organization once held monopoly with only landline telephony service to offer to its customers. In 2005 privatization plunged they organization into serious financial crises. Later McKenzie International was hired and corporate restructuring was embraces. The above mentioned domains of restructuring were implemented in PTCL (Ketkar, 2012). It can be seen that PTCL now has launched more than half a dozen services including video telephony, broadband over landline, 3G wireless internet, database services, SIP powered Next Generation Services. The impact of this restructuring has made more than 15 million people to avail themselves with advance telecommunication services. Whereas, before restructuring total number of users were not more than 2% of the above mentioned consumers. This is one such example of restructuring. Case of Lucent Technologies is another glaring example. The case of Lucent is an example that needs to be investigated thoroughly. AT&T before 1996 had been a state owned enterprise. It consisted of Lucent Technologies, Western Electric and Bells Lab. In telecommunication industry the input and advances owe a great deal of debt to the research and development work by these companies. In 1996 AT&T decided to restructure itself into three separate companies. Lucent Technologies, NCR Computer Company, and AT&T were the proposed legs of the original telecommunication giant. Lucent technologies USA had a variety of products that occupied AT&T product-lines. The telecommunication equipment that was developed by Lucent was conventional landline based. In the start of 1990 the wire-line communication network started facing wireless technologies. Yet higher management in Lucent was not interested in venturing out with second generation technologies. IT boom that encircles 2000 was the next destination of telecommunication. This IT-Telecom integration was underestimated by Lucent due its vast product line. By the end of 1996 it was clear that Lucent technologies is facing growth challenge and will not survive this competitive environment unless it starts restructuring. Still redefinition and reorientation of the organization was not felt important by the mangers. Soon the financial burden started to mount due to uneasy customer base and less market occupation in wake of emergence of IT and Wireless telecom giants. The product line overlapped with AT&T and NCR. Portfolio and Asset Restructuring was important in order to reduce the burden on company finances. Major portion of finances was spent in development of lagging technologies. At that time Lucent saw greatest brain drain. Another issue that engulfed Lucent Technologies was its truncated structure. 138,000 employees were a huge burden keeping in view productivity of Lucent Technologies. In 1999 McGinn was commissioned to head the organization with a new idea. The strategy that was followed was to extensively work on newer technology. It did not work either. It was because the new head integrated many sub-organizations with different cultures into a single entity in desperate attempt for revival. The total neglect of management and organization restructuring caused HR crisis and again efficiency suffered that plunged Lucent Technologies into further financial problems. In 2001, Lucent Technologies embraced for restructuring. The plan was to reduce workface, elimination of product-lines, reduction in working capital and significant cost cutting. The restructuring activities that started were systematic and aimed at Lucent Technologies’ core competencies. The restructuring activities started off with the commissioning of service delivery project team. Main objective of the team was standardization o HR policies. It was implemented on global level so that organizational and management similarities might not hinder HR management procedures. Entire transformation occurred keeping in view that no interruption shall occur (Lazonick, 2011). Next year after organizational and Management transformation, six HR professionals were chosen who were sanctioned with the task for HR restructuring. The road map was how Lucent Technologies shall meet the financial issues. This so called Tiger Team, without interrupting daily works restructured the business activities. Improvement in processes was sought which made HR activities efficient and included automation and other such improvements. A specialized team with Hewitt Associates was formed and was entrusted to implement the plan. This team was named Project Management Office (PMO). Financial challenges that were due to oversized work force, non-IT based solutions and obsolete product line were met effectively. Focus on IT was implanted and IT platform was provided in order to integrate National and Global operations and Management. The business was enhanced by improving and advancing the telecommunication equipment product line. During early 2000 and 2002 the work force pf approximately 135,000 employees was rearranged and it was deduced that the total workforce Lucent Technologies could be in need of would not exceed 45,000 employees. This was done by outsourcing, laying off, spin offs and other such means. The service delivery model was also redefined. The staffing, consultancy, talent management and strategies were integrated in HR management. Effects of this restructuring steered Lucent Technologies away from such a big financial crunch later in 2006, 2007. The chief impact of corporate restructuring was the paradigm shift that transformed Lucent Technologies into IT based industry. Focus on IT in organizational and management procedures improved HR functions. Workforce cost was reduced and manual interfaces were reduced due to integrated communication platform for horizontal and vertical communication. Online training programs were introduced that not only started employees taking them but also improved the workability through advance level of training. HR business partners were helped to realign their work closer to managers. Decision making process became much easier and same vision was shared that was to support leadership and clear simple step communication. The financial spending was limited and highly specialized departments were established to maximize productivity for specific product-line. It is now established that success of restructuring of Lucent Technologies was due to first three months rigorous strategy setting phase. It helped in formation of foundation of long-term goals and HR vision. The service delivery model that matured in these three months was a detailed HR organization structure. Implementation of the reforms was all-inclusive that consulted all employees. Therefore the changes made were acceptable to all employees. Similarly another attribute of success was expeditious decision making process. The management flows were so designed that they should yield quick implementation of plans. HR activities were realigned in order to achieve strategic business goals. The standardization of HR policies were implemented at a global level which helped in lateral inductions and transferring of professionals. The management positions which were of strategic importance were filled by receptive individuals. Further the HR functions were explicit and were implemented in segments. Main problem with Lucent Technologies was the product-line. The product-line lost its scope due to transformation of the market. The higher management remained inactive to the changing demands of the market. This led other players of IT-Telecom industry to capture market in delivering new services and products. Chronic problems were affectively removed and financial issues were overcome in a very span of time. The loss of market is attributed to the type and time of business that never showed up at the time of need. Departments that worked on microelectronic systems were shut down to focus on service based industry. This decision came very late, however helped Lucent Technologies to keep herself away from terminal exit. It can be concluded from this discussion that participation not resistance to transformation could help in capitalization of core competencies. The case of Lucent Technologies is judged with two measures. First is the market performance while the second is the accounting performance. The organization was subjected to restructuring which involved Portfolio, Organizational and Financial aspects of the organization. The percentage performance was improvement in financial position of the organization. Second to this was portfolio restructuring, and the last one was organizational restructuring. An average impact of restructuring can be quoted to have about 37.5% improvement in finances and 5.6 % improvement in portfolio performance. Thus it is evident from the facts that timely decision on restructuring leads to assured results (Bowman, 1999). Work Cited Bowman, E. 1999. When does Restructuring improves economic performance. [online] Available at: http://leadership.wharton.upenn.edu/l_change/publications/singhh.pdf [Accessed: 15 Mar 2014]. Ketkar, S. 2012. Innovative Financing for Development. [online] Available at: https://openknowledge.worldbank.org/bitstream/handle/10986/6549/456450PUB0978010ONLY10Sept030102008.pdf?sequence=1 [Accessed: 15 Mar 2014]. Lazonick, W. 2011. The Rise and Demise of Lucent Technologies. [online] Available at: http://www.thebhc.org/publications/BEHonline/2011/lazonickandmarch.pdf [Accessed: 15 Mar 2014]. Rao, S. 2011. CORPORATE RESTRUCTURING - Meaning and Mode Restructuring through takeovers and mergers and amalgamation. [online] Available at: https://www.icsi.edu/portals/70/241120121.pdf [Accessed: 15 Mar 2014]. Read More