Year: 2020

Companies occasionally encounter financial and operational difficulties that could lead to their demise. One way corporations avoid a total shutdown is through a restructuring, which reduces the level and severity of financial losses. A restructuring involves negotiating the different positions taken by investors and owners who hold the equity and lenders and creditors who control the debt. The final result generally provides a peaceful resolution to a stressed condition.

A restructuring involves radically changing a company’s organizational, financial and operating structure to permanently and swiftly address serious financial and operational issues that could lead to a corporation’s shutdown or liquidation.

With a restructuring, companies change contractual relationships with debt holders and creditors, shareholders, employees and other stakeholders. Restructuring essentially acts as an in-depth reorganization conducted for the primary purpose of returning a corporation to profitability and productivity. As Stuart Gilson from the Harvard Business School points out, companies restructuring because of financial distress may have more financing options made available to them.

Financial Restructuring: Debt Swap

When corporations use a financial restructuring strategy, they change the company’s capital structure. They may replace debt with equity. When a company swaps out its debt, it eliminates existing shareholders. In lieu of a liquidation or bankruptcy, the debt holders take over the company’s assets and obtain a claim on future earnings in the form of newly issued shares. Debt holders often accept this arrangement when the elimination of the interest and principal payments significantly strengthens the company’s financial position. Shareholders typically receive nothing.

Financial Restructuring: Debt Loading

Alternatively, a corporation may load the balance sheet with debt to finance the buyout of existing shareholders. This debt loading strategy often is referred to as a leveraged buyout. Companies use the debt loading strategy to enable one founder to buy out the shares of his co-founders. The corporation repurchases and retires the shares and then uses its cash flow to pay down the debt. Of course, incurring additional debt has other consequences. As noted in a Brookings article, the more debt a company has, the higher the cost of additional debt will be.

Organizational Restructuring

An organizational restructuring strategy involves redesigning operations and management reporting structures to address and correct the operational issues that led to a company’s distressed position. A restructuring organization uses downsizing to eliminate costly overhead and enable a company to return to profitability. Layoffs of nonessential personnel, process redesign, location closures and renegotiation of existing contracts all result from this strategy. To further reduce costs, corporations may restructure compensation and benefit packages for employees who remain.

Portfolio Restructuring

A divestiture strategy is a type of portfolio restructuring strategy. Companies sell, shut down or spin off unprofitable, money-losing divisions and subsidiaries or those that no longer fit its strategy. Portfolio restructuring allows a corporation to refocus on its core activities and raise much needed capital. It can use the proceeds of these transactions to strengthen its core business or acquire other businesses that closely fit its strategy and contribute to a profitable bottom line.

The 7 principles of a successful restructure

Chances are, you’ve had to make some changes to your company’s internal structure in response to the economic downturn (and in preparation for the slow recovery). As with everything in business, restructures can be done well and they can be done poorly. Here are seven principles to help you avoid unnecessary complications.

Even as the economic outlook appears to brighten, the fact remains that many organizations can no longer operate as they had been. A key feature of this changing landscape is the need for organizations to restructure.

Here are seven broad restructuring principles to help make any restructure a successful one.

1. Align structure to strategy

All restructures must align to strategy. This may seem self-evident, yet a significant number of organisations fail to do so. For example, if local conditions are a predominant factor, then stress local sales and marketing functions rather than a centralised behemoth that then tries to matrix with local elements.

2. Reduce complexity

Simply put, complexity costs. Whether it is a complex organisational structure, a complex product offering or complex transactional processes, the added cost of complexity can be a drag on performance.

To mitigate complexity, there are three considerations that help with organisational design:

• Design structure for strategy before you design for specific personnel. Organisational redesigns which are a compromise between strategic intent and line management preferences inevitably add complexity. So, while internal political intrigue is unavoidable, at least start with a clean and clear design that matches to strategy.
• Avoid making leadership roles too complex (see principle #5).
• Minimise the use of matrices. They introduce measurement overhead and a lack of clear direction to the staff.

3. Focus on core activity

Remove noise (inefficiency in processes) and enhance core before restructuring roles. This means that you will need to know what people are doing today by obtaining a detailed understanding of tasks by role. This ensures that no value-added activities are thrown out when removing a role. Similarly, duplication and redundant activity can be removed at the time of the restructure.

4. Create feasible roles

Don’t overload roles restructures generally leave an organisation with fewer people to do the same amount of work. When restructuring to reduce headcount, make sure you understand the current workload of employees.

This will help to ensure you design roles that are neither too heavily laden nor indeed too light. Furthermore, role design must take into account realistic groupings of skills. Packing a role with too many distinct skill-sets reduces the pool of durable candidates.

5. Balance ‘own work’ and ‘supervisory load’ of managers

The case of leadership or “management loading” can be particularly troublesome in restructures. Often, the inability of managers to focus on leadership tasks due to increased output requirements can create significant problems for an organisation. For example, time spent mentoring and coaching staff drops off, staff become disengaged, more issues arise due to staff errors and managers end up spending more time resolving them. To ensure management are appropriately loaded, it’s critical to balance three elements:

• The number of staff directly managed or supervised.
• Staff ability to perform work without supervision.
• The amount of ‘own work’ managers have to do on top of their leadership activity.

6. Implement with clarity

Often there is confusion in the first weeks and months after an initial restructure. After all, who is supposed to be responsible for what? The answer is to clarify roles and responsibilities from the beginning, identify all functions (activities, tasks and decisions) that have to be accomplished for effective operation, clarify who should be involved and be specific about accountability.

7. Maintain flexibility

Finally, it is important not to cut your resources too fine. If the organisational change is material, you will need resource flexibility in the first few months. So even as you strive to operate more efficiently, be sure to give yourself some wriggle room in your staffing. Flexibility applies not only to staff members, but to staff capability.

Leave yourself and your leadership team some room to respond to capability gaps in the new structure.

Common ways to do this include: a staged transition so there are fewer capability gaps to manage at a point in time, and a temporary use of contract resources until in-house staff become familiar with their roles.

The planning and carrying out of operations and activities should be in such a way that they are conducted under specified operating conditions. Operational controls may be documented through the use of work instructions, operational procedures or manual codes.

Examples of operational controls for handling, storage & disposal of Hazardous waste.

Procedure for establishing Operational Control

• The list of Significant Impacts / Risks becomes the major input for the setting of operational control procedures. All significant impacts / Risks are considered for conducting a study on the establishment of objectives and operational control procedures. CFT members carry out this study.
• For all those activities calling for an operational control procedure, the respective operational team members ensure that the operational control procedures are prepared and followed at the area of the significant impact/risk.
• Operational control procedures are also made for activities significantly interacting with the environment/safety eg: G sets, Hazardous waste handling & disposal, etc.
• These procedures include instructions for controlling Environmental Aspects / OH&S Hazards relating to the operations carried out at XXX.
• These procedures are also applicable to sub-contractors/suppliers at XXX where their absence could lead to deviation from EHS objectives and targets.
• These operational control procedures are prepared to carry out the operations associated with the Significant Impact/ Risk in a controlled manner.
• The Dept HODs approves operational controls. The details of operation Control Instructions / Work Instructions are available with respective departments. A Master List of Operation Control procedure is available with EHS MR.
• Operational controls are also established wherever hazards & risks associated with changes.
• Controls related to purchased goods, types of equipment & services including contractors & visitors related to the workplace. Environmental aspects & OH&S Hazards will be identified by CFT for the purchase of goods & services. For significant, control methods will be established and the same will be communicated to concerned suppliers. At security Information on EOH&S system will be given for the visitors and the supplier visiting XXX for the compliance with EHS management system.

Communication of Operational Controls to Employees

The respective Implementation team members shall identify the employees who undertake the activities and operations associated with the operational controls and ensure that the requirements and operating criteria are communicated to and understood by them. For employees, this may be undertaken by including the operational controls in the training needs analysis or communication programs.

Communication of Operational Controls to Suppliers

The respective team members shall identify the contractors, suppliers, members of the regulated community, and other members of the public who undertake activities associated with the operational controls.  Requirements for these suppliers shall be communicated. For suppliers who are members of the regulated community, requirements may be communicated through letters / verbal mode wherever required.

Factors Affecting Control

Strategic control can be affected by external factors and external data. Operational control is concerned with internal operating factors. The environment and the market have a lot more to do with strategic control, whereas operating control deals with everyday issues that may arise, such as personnel problems or technological meltdowns.

1. Time Frame

The time frame element in the two types of control is very different. Strategic control deals with a process over time, looking at the different steps to evaluate how effective they are and where changes could be made. The process could take weeks or months to finish, yet strategic control lasts longer than that. Once the process is completed, the evaluation continues. Operational control takes place on a day-to-day basis, examining everyday problems that arise and working on improving them on the spot.

2. Corrections

Correcting mistakes or taking action to fix problems is more effective in operational control because it happens right away. With strategic control a problem may be found, but with evaluation and analysis having to be done regarding what brought on the problem in the first place, it takes a lot more time. With operational control, problems are addressed immediately to ensure the organization can continue running effectively.

3. Reporting Intervals

Much like corrective actions, reporting intervals in strategic control take time over a period of months, whereas operational control has reports compiled daily and weekly. Strategic control looks at bigger organizational issues, such as a new market to break into, so it takes longer to collect research and make reports. Operational control looks at production numbers, sales figures and daily operations. These numbers present themselves much more easily and therefore can be reported quickly and more efficiently.

The company is not alone in its business environment. It is surrounded by and operates in a larger context. This context is called the Macro Environment. It consists of all the forces that shape opportunities, but also pose threats to the company.

The Macro Environment consists of 6 different forces. These are: Demographic, Economic, Political, Ecological, Socio-Cultural, and Technological forces. This can easily be remembered: the DESTEP model, also called DEPEST model, helps to consider the different factors of the Macro Environment.

Demographic Forces in the Macro Environment

Demographic forces relate to people. The name refers to the term Demography. The latter refers to the study of human populations. This includes size, density, age, gender, occupation and other statistics. Why are people important? Because, on the whole, their needs is the reason for businesses to exist. In other words, people are the driving force for the development of markets. The large and diverse demographics both offer opportunities but also challenges for businesses. Especially in times of rapid world population growth, and overall demographic changes, the study of people is crucial for marketers. The reason is that changing demographics mean changing markets. Further, changing markets mean a need for adjusted marketing strategies.

Therefore, marketers should keep a close eye on demographics. This may include all kinds of characteristics of the population, such as size, growth, density, age- and gender structure, and so on. Some of the most important demographic trends that affect markets are:

• World population growth: The world population is growing at an explosive rate. Already in 2011, it reached 7 billion, while being expected to reach 8 billion by the year 2030. By the end of the century, it is likely to double. However, the strongest growth occurs where wealth and stability is mostly absent. More than 70% of the expected world population growth in the next 40 years is expected to take place outside of the 20 richest nations on earth. This changes requirements for effective marketing strategies and should be kept in mind.
• Changing age structure: The changing age structure of world population is another critical factor influencing marketing. In the future, there will be countries with far more favourable age structures than others. For example, India has one of the youngest populations on earth and is expected to keep that status. By 2020, the median age in India will be 28 years. In contrast, the countries of the European Union and the USA have to face an aging population already today. This may lead to harmful reductions in dynamism and challenges regarding the supply of young workers who, at the same time, have to support a growing population of elderly people.
• Changing family structures: Also, families are changing which means that the marketing strategies aimed at them must undergo an adjustment. For example, new household formats start emerging in many countries. While in traditional western countries a typical household consisted of husband, wife and children, nowadays there are more married couples without children, as well as single parent and single households. Another factor comes from the growing number of women working full time, particularly in European nations. Together with further forces, changing family structures require the marketing strategy to be changed.

Geographical

One and the most important element of geographic shifts is migration. By 2050, global migration is expected to double. This has a major impact on both the location and the nature of demand for products and services. The reason is that the place people can be reached has changed, as have their needs because of the new situations. Other important factors are the ethnic diversity that provides new opportunities, as well as urbanisation.

Economic forces

The Economic forces relate to factors that affect consumer purchasing power and spending patterns. For instance, a company should never start exporting to a country before having examined how much people will be able to spend. Important criteria are: GDP, GDP real growth rate, GNI, Import Duty rate and sales tax/ VAT, Unemployment, Inflation, Disposable personal income, and Spending patterns.

Socio-Cultural forces in the Macro Environment

The Socio-Cultural forces link to factors that affect society’s basic values, preferences and behavior. The basis for these factors is formed by the fact that people are part of a society and cultural group that shape their beliefs and values. Many cultural blunders occur due to the failure of businesses in understanding foreign cultures. For instance, symbols may carry a negative meaning in another culture. To understand these forces, Hofstede’s cultural dimensions can be used: Power Distance, Individualism versus Collectivism, Masculinity versus Femininity, Uncertainty Avoidance etc.

Technological forces

Technological forces form a crucial influence in the Macro Environment. They relate to factors that create new technologies and thereby create new product and market opportunities.

A technological force everybody can think of nowadays is the development of wireless communication techniques, smartphones, tablets and so further. This may mean the emerge of opportunities for a business, but watch out: every new technology replaces an older one. Thus, marketers must watch the technological environment closely and adapt in order to keep up. Otherwise, the products will soon be outdated, and the company will miss new product and market opportunities.

Ecological forces

Ecological, or natural forces in the Macro Environment are important since they are about the natural resources which are needed as inputs by marketers or which are affected by their marketing activities. Also, environmental concerns have grown strongly in recent years, which makes the ecological force a crucial factor to consider. For instance, world, air and water pollution are headlines every marketer should be aware of. In other words, you should keep track of the trends in the ecological environment.

Important trends in the ecological environment are the growing shortage of raw materials and the care for renewable resources. In addition, increased pollution, but also increased intervention of government in natural resource management is an issue.

Because of all these concerns and the increased involvement of society in ecological issues, companies more than ever before need to consider and implement environmental sustainability. This means that they should contribute to supporting the environment, for instance by using renewable energy sources. Thereby, businesses do not only support the maintenance of a green planet, but also respond to consumer demands for environmentally friendly and responsible products.

Political forces

Every business is limited by the political environment. This involves laws, government agencies and pressure groups. These influence and restrict organisations and individuals in a society. Therefore, marketing decisions are strongly influenced and affected by developments in the political environment.

Before entering a new market in a foreign country, the company should know everything about the legal and political environment. How will the legislation affect the business? What rules does it need to obey? What laws may limit the company’s ability to be successful? For example, laws covering issues such as environmental protection, product safety regulations, competition, pricing etc. might require the firm to adapt certain aspects and strategies to the new market.

As we have seen, the company is surrounded by a complex environment. The Macro Environment consists of a large variety of different forces. All of these may shape opportunities for the company, but could also pose threats. Therefore, it is of critical importance that marketers understand and have an eye on development in the Macro Environment, to make their business grow in the long term.

Company may be visualized as an institution in society surrounded by environment i.e., various external forces influencing its functioning. It is said that business is a product of environment OR Business is the creation of its environment.

1. The nature of business,
2. Location of a business enterprise,
3. The product to be manufactured or service to be rendered by the business unit,
4. Size and volume of operations of the firm
5. Price to be fixed for the product, etc., are determined by the environment within which the business operates.

The business firm consists of a set of internal factors and is confronted with a set of external factors (i.e., environment). This is the relation between a firm and its environment. The internal factors are regarded as controllable factors, as the firm has got control over these factors.

The firm can alter or modify internal factors to its advantage. The examples of internal factors are nature and number of personnel, physical facilities, organisation and functional means, such as marketing mix, to suit the environment.

The external or environmental factors are beyond the control of the business firm and the success of the firm will depend to a very large extent on its adaptability to the environment (factors) i.e., its ability to properly design and adjust the internal factors/variables to take advantage of the opportunities and to combat the threats of the environment.

The environment, if poses threats to a firm, it offers immense opportunities also for exploitation. Both these situations depend upon the environmental factors influencing the firm.

Relationship between an Organization and its Environment

The environment of a business has a great impact on the functioning of the firm. It offers opportunities and threats along with limitations and pressures influencing the structure and functioning of the business.

Exchanging Information

An organization and its environment exchange information between themselves. Organizations need information about the external environment for planning, decision-making and control purposes. Hence, they analyze the environment’s variables along with studying their behavior and changes.

Further, the information generated by this analysis helps the organization handle the problems of uncertainty and complexity of the business environment. Therefore, firms try to gather information pertaining to market conditions, economic activity, technological developments, demographic factors, socio-political changes, competition activities, etc.

Also, the organization also transmits information to external agencies. It does so, either voluntarily or inadvertently. Therefore, the exchange of information is an important interaction between an organization and its environment forming the basis of their relationship.

1. Exchanging Resources

Apart from exchanging information, an organization and its environment also exchange resources. A firm needs inputs like finance, manpower, equipment, etc. from its environment. Typically, the resources required by an organization are categorized into 5 M’s:

• Men or Manpower
• Money
• Method
• Machine
• Material

An organization uses these inputs to produce goods or services or both. Acquisition of these inputs usually requires an interaction between the firm and the markets. This interaction can be in the form of competition or collaboration. Nevertheless, the purpose is to ensure a constant supply of inputs.

On the other hand, the organization depends on its environment for the sale of its goods and services. This process also requires interaction between the firm and its environment. Further, the firm must

Perceive the needs of the environment and develop products or services to meet those needs.

Satisfy the demands and expectations of the clientele groups. These groups are:

• Consumers
• Employees
• Shareholders
• Creditors
• Suppliers
• Local Community
• The general public, etc.

2. Exchanging Influence and Power

The third important interaction between an organization and its environment is the exchange of influence and power. By now, we understand that the external environment holds considerable power over a firm due to the following reasons:

• The business environment is inclusive
• It has a command over the resources, information, etc. which the firm requires
• It offers opportunities for growth on one hand and threats and constraints on the other

Hence, the environment can impose its will on the organization. On the other hand, there are times and scenarios when an organization holds a position wherein it can wield considerable power and influence over some aspects of the external environment. This usually happens when the firm has command over resources and information.

An organization with a higher degree of power over its environment has more autonomy and freedom of action. Also, the firm can dictate terms to its environment and mold them to its will.

An Organization’s Response to its Environment

In order for an organization to respond well to its environment, it must be able to monitor and make sense of its environment and have an internal capacity to develop effective responses. An organization’s response to its environment can be of the following three types:

• Administrative: These are either proactive or reactive responses to specific environments leading to forming or redefining the organization’s purpose and key tasks.
• Competitive: A change in the competitive environment can force an organization to respond with actions that can help it gain a competitive advantage over its rivals.
• Collective: Many organizations cope with environmental dependence problems through strategic collective responses including methods like co-opting, bargaining, alliances, etc.

Strategic management, especially when done well, is important for a business’ long-term success. When we say that a business is carrying out strategic management, what is meant is that “strategic management” defines a strategy for its business activities, with clear, well-defined goals. The business will then create clear, well-defined plans that it will then put in action to achieve its goals and to align its business activities, so that the business will be in harmony with those goals. It also will allocate all of the necessary resources to achieve those goals.

A good strategic management plan goes beyond the improving a business’ bottom line. A good plan also gives the company a valid social license for operations. In today’s environment, this is becoming an ever-more important aspect for each business, because businesses have multiple internal and external stakeholders. For example, consumers are seeing an increase in their awareness of their products being sold by companies. They’re also becoming increasingly more interested, not only in the products a business produces, but also in the way that a company conducts its business activities. This includes operations from an environmental standpoint as well as from an ethical one. All of these aspects should be considered in strategic management and should be included in the business’ plans, which should ensure that the business will survive in the long run.

Need of Strategic Management for an Organization

1. Increasing Rate of Changes

The environment in which the business operates’ is fast, changing.

A business concern which does not keep its policies up-to-date, cannot survive for a long time in the market. In turn, the effective strategy optimises profits over a long run.

2. Higher Motivation of Employees

The employees (human resources) are assigned clear cut duties by the top management viz. what is to be done, who is to do it, how to do it and when to do it. ? When strategic management is followed in any organisation, employees become loyal, sincere and goal oriented and their efficiency is also increased.

They also get rewards and promotions resulting in higher motivation for the employees. A strategy must respect human values and duly consider the aspirations of individual members.

3. Strategic Decision-Making

Under strategic planning, the first step is to set the goals or objectives of a business concern. Strategic decisions taken under strategic management help the smooth sailing of an enterprise. Strategic planning is the overall planning of operations for effective implementation of policies.

4. Optimization of Profits

An effective strategy should develop from policies of a concern. It takes into account actions of competitors. It considers future operations in respect of market area and opportunity, executive competence, available resources and limitations imposed by the Government. An effective strategy should optimise profits over the long run.

5. Miscellaneous

Mr. H.N Broom in his book on ‘Business Policy and Strategic Action’ has mentioned that a strategy has a primary concern with the following:

(a) Marketing opportunity: Products, prices, sales potential and sales promotion.

(b) Available distribution channel and costs

(c) The scale of company operations.

(d) The manufacturing process required to implement their scale of operations (with an optimal production cost)

(e) The research and innovation programme.

(f) The type of organisation.

(g) The amounts and proportions of equity and credit capital available to the firm and their combined adequacy.

(h) The planned rate of growth

Thus, strategy is important because it makes possible the implementation of policies and long range plans for attaining company goals, creation of effective business strategy requires a basic knowledge of economic theory, management principles, accounting, statistics, finance and administrative practice.

Skills Required for Strategic Management

Strategic management is a multi-faceted operation that requires lots of different skills in business and in leadership. For example, strategic management requires the manager be highly analytical and to have refined analytical skills.

Leaders who develop the strategies that drive a business are also required to have a bird’s eye view of the company, as well as an intimate understanding of how everything in the business is interconnected. They need to understand such things as the expectations of the stakeholders, the needs of the customers, the competitive landscape, the global trends, the environment within which the business operates and so on.

For strategic management to be successful, it needs to start with an understanding of the internal factors as well as the external factors that determine the success of the company, whether short term or long term. That understanding needs to be both honest and clear.

The relevance of strategic management is all about strategy, and so it will require strategy. The manager must have the ability to be abstract in the theoretical world of business analysis and also to be practical in business strategy. Business managers should be able to look at the business analysis, so that can identify the opportunities that the analysis reveals. They should then be able to choose the opportunities that they will follow, so that they can then develop a unique strategy, which defines how the business will leverage the opportunities, so that he will become successful.

Also, strategic management is all about leadership and, as such, it will require leadership skills of the strategic manager. The manager should be a strong enough leader to be able to implement the business strategy that’s been set out in the strategic-management arm of the business. These managers need to engage with the stakeholders of the company, both internally and externally, and be aware of the challenges that face strategic implementation. Additionally, they should be skilled enough leaders to overcome those challenges.

Training Required for Strategic Management

In theory, at least, it is possible to master all of the skills that strategic management requires, simply by gaining experience on the job. However, this is impractical and slow, at best. It is important to develop a training program for strategic management so that it is faster to attain the abilities that strategic management requires. This training should also be conducted under the guidance of a strategic management expert.

There are many institutions out there that offer courses in business development and management. When picking a college to go to, look for a course that is practical and takes you along the tricky path from business analysis to business strategy. That said, there are quite a few advantages to a good strategic management training program:

(i) Understanding

When you take a good strategic management course, you gain an intimate understanding of the way the business environment today is both interconnected and global.

(ii) Development

When you take a good strategic management course, you get the opportunity to develop your strategic thinking skills, especially in relation to the way your business operates within its immediate and greater environment.

(iii) Identification

Good training in strategic management will give you the ability to quickly and easily identify opportunities for your company in its immediate as well as greater business environment.

(iv) Creation

A good strategic management course will teach you how to create strategies that are both effective and efficient in the leveraging of the opportunities which you identify for your business.

(v) Management

As would be expected, good training in strategic management will give you the ability to manage both your team and the organization as a whole, as it moves forward to achieve the goals of your strategic plan.

The best kind of training in strategic management will give you the ability to work directly on the issues that affect your business. You will analyze the challenges faced by your business and provide support for your business as you develop a strategy for it. Good training will also provide you with the necessary leadership skills that will help you execute your business strategies.