To What Extent Does Restructuring Transform Corporate Market and Financial Performance?

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To what extent does restructuring transform corporate market and financial performance? Discuss using an extended example. Restructuring is simply the reorganisation of a company’s structure to combat external or internal forces that hinder the maximisation of shareholder value. The term restructuring is quite broad an is an umbrella term for any action taken by a firm to maximise shareholders wealth (Wright et al) or a company’s reaction when it’s under pressure (Usui and Colignon, 1996). These actions “bracket mergers and acquisitions with much else” (Froud et al., 2002, P.2). This essay should explain in great detail how restructuring can transform corporate market and financial performance. It will focus on financial, portfolio and organisational restructuring and more specifically the following restructuring actions: mergers and acquisition and outsourcing and off-shoring. In addition Marks and Spencer and British Airways would be used interchangeably as extended examples to further illustrate stated points. Restructuring actions usually occur to revive failing businesses. By delayering or merging with another business firms are likely to become more competitive and more profitable. It is also not uncommon for restructuring to be used as a preventative measure to stay ahead of the game and react to competition. If done correctly and when necessary, it should result in economies of scale, decreased operational costs and easier communication. Financial restructuring refers to changes in a company’s financial structure. It involves managing debts, stocks and shareholder payments. Portfolio restructuring on the other hand deals with products, acquisitions and diversification. Finally organisational restructuring is mainly concerned with the human resources in the company. Mergers and Acquisitions are the most common forms of restructuring. "In value terms, the merger of whole companies through (often hostile) takeover continues to be the most important form of restructuring”. (Froud et al P 3). Companies prefer to restructure in this manner as it brings numerous instant benefits and can aid in transforming market and financial performance immediately. Firstly, merging with or acquiring a company gives an instant increase in market share. It is the easiest way to enter into a new market and have a larger customer base overnight. British Airways' recent merger with Iberia has been beneficial to shareholders, employees and customers. According to the airline their corporate market would be transformed as they would be flying to more destinations, own more aircrafts and have more passengers. Thus making it more competitive and strengthening the company's image and brand. In addition, their financial performance would be transformed as they stand to benefit from a significant decrease in costs and benefit from economies of scale the merger is bound to provide. These costs savings can be then passed on to the customer and might enable British Airways to be competitive on price; a luxury it might have not been able to afford prior to the merger. The merger might also help British Airways break into the South American market; a market in which it had no prior expertise or significant market share in. In addition to an increased market share, Kotler’s 8 C framework details how a firm’s market power could be increased through mergers and acquisitions (Kotler et al 2005). Firms gain greater control of every aspect of their products, greater efficiency, greater control of customer experiences and increased buying power if they have links with their competitors, challengers, collaborators, commodities, components, customers or consumers. Despite aiding in transforming corporate market and financial performance to some extent, mergers and acquisitions aren't exempt from critique. This form of restructuring despite being the most common is also the most critiqued. Firstly, there is the issue of Monopoly and fair competition. The...
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