Management with International Business
Question No. & Title:
To what extent does restructuring transform corporate market and financial performance? Discuss using an extended example.
To what extent does restructuring transform corporate market and financial performance? Discuss using an extended example. Introduction
Globalization coupled with deregulation and technological development over the last two decades has significantly altered the business landscape. One key strategy that companies have employed to respond to these changes and developments is that of restructuring e.g. mergers, acquisitions, alliances, divestures and demergers etc. Over the past two decades, there have been many corporations that have employed restructuring strategies. For example, it is estimated that nearly half of large U.S corporations have restructured in the 1980’s.. A special report on corporate restructuring found that out of the 850 of “North America’s Latest Corporations, “398 (47%) of them restructured. In today’s dynamic business environment there are varying and novel reasons that may serve as an impetus for the company to consider restructuring. It could be competitive pressures, ailing financial health of the company, industrial pressures or demanding shareholders to name a few. Organizations believing that restructuring could help enhance and improve company performance have reorganized or spun off divisions, streamlined operations or even merged with competitors. Corporate Restructuring
Corporate restructuring is defined as actions or a set of actions taken to expand or contract a firm’s basic operations or fundamentally change its asset or financial structure. These activities are broad, and range from reorganizing business units from product lines to divisions to takeovers or joint ventures etc. it may involve taking the company private, selling attractive assets, undertaking a major acquisition, or even liquidating the company There are three modes of restructuring which are as follows: Portfolio Restructuring: Significant changes in the mix of assets owned by a firm or the lines of business in which a firm operates, including liquidations, divestures, asset sales and spin-offs. Financial Restructuring: Significant changes in the capital structure of the firm, including leveraged buyouts, leveraged recapitalizations, and debt for equity swaps. Organizational Restructuring: Significant changes in the organizational structure of the firm, including divisional redesign and employment downsizing. The end result of restructuring is best explained in terms of a series of intermediate effects which may have beneficial or negative outcomes. Restructuring Types
Increased Strategic Focus
Greater Economies of Scope
Cogent Control of Multiple Business Units
Emphasis on Cash Flows
Changes in Managerial Incentives
Greater Employee Satisfaction
Figure 1: Adapted From: Edward H. Bowman, Harbir Singh, Micheal Useem & Raja Bahadury “When Does Restructuring Improve Performance”, California Management Review (1999) Eventually these intermediate effects may impact the financial performance and the corporate market performance of the company. The corporate market performance entails the market performance of the firm such as the impact on the stock and share price after the announcement of the restructuring initiative. Restructuring Types
The following illustration outlays the varying restructuring types.
Motives of Corporate Restructuring
As discussed earlier, corporate restructuring can take different form like financial restructuring, portfolio restructuring etc. There can be various motives behind restructuring. For example, a company that has expanded its business...
Bibliography: Bowman, E., & Singh, H. (1993). Corporate Restructuring: Reconfiguring the Firm. Strategic Management Journal , 5-14.
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Khuen, K. a. (2004). Corporate Restructuring Dynamics:A case study analysis. International Business Conference , 6-7.
Lewis, W. (1990 ). Strategic Restructuring: A Critical Requirement in the Search For Corporate Potential. New York : McGraw-Hill .
Perridon, Steiner. (1999). Finanzwirtschaft der Utrnehmung .
The Wall Street Journal. (1990, August 12). Shifting Strategies: Surge in Restructuring Is Profoundly Altering Much of the U.S Industry. The Wall Steet Journal .
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