Restructuring: Definition & 7 Steps to Implement (2024)

What Is Restructuring?

When a company chooses to make significant changes to their organizational structure, operations or financial framework, the process of making those changes is referred to as restructuring. It involves revamping various elements of a company to adapt to internal and/or external changes. The ultimate goal of a company restructure is to improve their efficiency and profitability.

Why Is Restructuring Beneficial?

Depending on an organization’s specific goals and circ*mstances, restructuring can bring several benefits. Some key benefits are:

• Improved efficiency. Optimization is the name of the restructuring game! Walking through a restructure allows a company to optimize its operations and processes. Fat is trimmed, redundancies are eliminated and workflows become streamlined. Overall, this pushes the organization into more smooth and effective operations.
• Cost reduction. A large part of restructuring involves a thorough evaluation of current costs to see what is necessary and what is not. During this process, nonessentials are cut, costly processes are re-evaluated and improved and contracts are renegotiated. These changes contribute to improved financial performance and profitability.
• Enhanced flexibility and adaptability. As the saying goes, growth doesn’t happen in a vacuum. With ever-changing market conditions and industry standards, restructuring empowers organizations to move with changing conditions to better respond to whatever they may bring. This proactive approach takes an organization out of emergency reaction mode focused on damage control to intentional response mode where the company is agile and moves with unavoidable changes.
• Increased employee quality of life. Restructuring can increase retention, as it presents an opportunity to improve many aspects of the employee experience. Job security and retention improve with the organization’s financial stability, and new and better career advancement opportunities come about with organizational growth and responsibilities. Restructuring with a focus on efficiency can vastly reduce overwhelming employee workloads as the company utilizes optimization of processes and automation where possible.

Reasons for Restructuring

There are many circ*mstances in which restructuring can be an invaluable tool. Depending on the situation, it may be the best solution to overhaul the existing systems and rebuild them from the ground up. Some examples where restructuring may be ideal include:

• Financial distress. During times of financial distress, a company may choose to utilize financial restructuring to minimize monetary losses and financial harm.
• Company merger or split. When two companies merge or when a company splits into two companies, it often becomes necessary to restructure on multiple fronts. This may involve consolidating departments and working to harmonize company cultures to achieve unity and efficiency.
• Response to a crisis. Economic downturns, natural disasters and industry disruptions (oh my!). In times of crisis, realigning operations is a must to curb loss of productivity and adapt to new circ*mstances this crisis may bring.
• Rapid growth. This is a good problem to have, but can require restructuring to support scaling efforts. The goal of restructuring in this case is to ensure that the company can effectively manage increased demands by implementing scalable processes and systems, as well as enhance organizational structure by adding new teams as needed.

Types of Restructuring

Now that we’ve specified some potential causes for a restructure, we can get into some of the forms restructuring can take. Rarely will a company choose one avenue to restructure. Typically, a company uses a combination of different types of restructuring efforts to achieve their ultimate goals.

Organizational

This type of restructuring entails a complete revision of the corporate role structure. To put it simply, it’s the tearing down and rebuilding of the hierarchy and responsibilities within the company. This could look like downsizing, reassigning employees, creating or merging departments and eliminating or creating new roles.

Operational

Restructuring operations focuses on business procedures and the way business is handled internally. This encompasses workflows and supply chains with the focus on optimizing business processes. Enhancing efficiency and reducing costs is typically the focus of this type of restructuring. It may involve outsourcing certain functions or adopting new technologies to accomplish those goals.

Financial

Financial restructuring redefines the management of money flow. Specifically this can include refinancing debt, renegotiating loans, raising capital, renegotiating pay structure or implementing various cost-cutting measures.

Strategic

Yes, all forms of restructuring should be carried out with thorough planning and tactful goals. But that is not the meaning of a strategic restructure. This refers to a business restructuring their overall approach to business and the direction of the company as a whole. This is the big-picture reassessment and revamp of the organization’s purpose, mission, and goals. What this looks like varies. It typically involves changing the direction of the products or offerings to break into new markets, splitting from or merging with other businesses, changing the mission statement or overhauling current marketing and sales strategies.

How to Develop and Implement a Restructuring Plan

Effective restructuring begins with a carefully laid out plan and precise execution. Putting together such a plan may seem daunting, but breaking it down into manageable steps is the key to success.

Step 1: Identify the Need and Set Clear Objectives

The first step is to identify the need for restructuring. Determine what areas need to be restructured by conducting a thorough assessment of the company’s current state. See Types of Restructuring above as an outline of what areas to look into. Some data to consider gathering is:

• Financial statements. These include income statements, revenue streams, costs, expenses, balance sheets, cash flow statements and profitability ratios.
• Operational information. Assess operational metrics and performance indicators to evaluate the efficiency and effectiveness of various processes within the organization. This may include data on production volumes, delivery times, customer satisfaction, employee productivity and quality control.
• Market. Analyze market trends, competitive landscape, customer preferences and industry dynamics.
• Employee. Evaluate employee-related data, such as workforce composition, skills inventory, turnover rates, employee satisfaction surveys and performance evaluations.
• Customer. This will include customer profiles, purchasing behavior, satisfaction surveys and client retention rates.
• Industry and economic. Look into external macroeconomic factors such as industry trends, technological advancements and regulatory trends that impact the organization’s operations.
• Organizational structure and governance. Assess the current organizational structure, reporting lines, decision-making processes and governance mechanisms. Understand the roles and responsibilities of key personnel and evaluate the effectiveness of the existing structure in supporting the organization's goals.

With this data, determine the specific challenges or opportunities that each area may present during the restructuring process. Proactively anticipating areas of resistance enables you to better structure your plan to encompass potential speedbumps.

Step 2: Set Objectives

Clearly define what results you want to see from restructuring. Set SMART goals (specific, measurable, attainable, relevant and time-bound) that align with areas of improvement you identified in the first step.

Step 3: Analyze Options

With your objectives, analyze your options for restructuring. For example, if you determine a need for financial restructuring specifically surrounding payroll, some potential options might be changing pay frequency from biweekly to weekly, implementing a new compensation model or even outsourcing payroll duties to a third-party payroll service. Each option offers pros and cons to different components of the payroll process. Once you lay out what options might be effective, work with department heads and trusted managers to determine what option would be the best fit.

Step 4: Create the Roadmap

Now that you have specific options selected, it’s time to lay out the specifics, such as timeline for implementation, specific actions needed, delegated responsibilities, and required resources.

Step 5: Build a Team and Inform Stakeholders

Restructuring is not a one-man show. It necessitates the participation of everyone involved. Clearly communicate the reasons for restructuring to stakeholders, involve them in the decision-making process, outline the objectives and delegate responsibilities to trusted parties. For larger and more complex restructuring instances, it’s wise to build a restructuring team. Here you can divy out roles within the team and outline specific responsibilities that fit their role. What roles needed will vary, but some general roles include:

• Restructuring Lead
• Project Manager
• Financial Analyst
• Legal Counsel
• Change Leader (or Communication Coordinator)
• Change Manager

Ensure concerns are quickly addressed and support is readily provided for all involved. Clear communication is a must for every aspect of restructuring, and engaging stakeholders is no exception. Utilize the most effective communication methods to outline the details and count down until implementation.

Step 6: Implement

The foundation has been laid; now it’s time to execute. Follow through on the predetermined actions. Close monitoring should be your primary focus to ensure that each piece moves into place at the appropriate time. Watch key performance indicators and make adjustments along the way.

Step 7: Evaluate and Improve

Continue monitoring after implementation is complete to determine the effectiveness in light of your original objectives. Did it meet every aspect of your goals? If not, what can be changed to address this? Identify any gaps and unexpected consequences regularly and update the restructuring plan as needed. The best restructuring plans aren’t rock solid, but fluid to evolve with the changing needs of the organization.

Best Practices for Restructuring

When planning your restructure, there are some additional considerations to keep in mind. Here are some best practices to consult during the process.

Keep the Timeline Realistic

What does realistic mean? The timeline for restructuring is contingent on many specifics, such as the size of the organization and the complexity of the restructure. It is important to strike a balance between a tight timeline without wiggle room during implementation, and one that drags on with unnecessary delays. Momentum is hard to gain and easy to lose. A restructuring process that is too lengthy will lose steam and potentially cause more problems. A restructuring timeline that is too short creates undue pressure on the ones heading the change and leaves little to no room for adjusting and addressing concerns or unforeseen issues. A few months to a year is a common timeframe for a comprehensive restructuring plan. However, tailor your timeline to the specific circ*mstances and needs of your company. Action Step: List out each of these factors and assess how much additional time each factor may add to the restructuring process:

• Complexity of restructuring
• Size of organization
• Resource availability
• Legal and regulatory considerations
• Employee impact and transition support
• Change management measures

Have Clear and Consistent Communication

Communication during such a radical change must be clear, concise and consistent, not something covered and dropped in one meeting. Regular engagement with stakeholders is a must to keep everyone on the same page and address concerns as quickly as they arise. Action step: Develop a communication plan that outlines key messages, target audiences, communication channels and a timeline for delivering updates.

Don’t Do It Alone

You can’t make this kind of change alone, so identify and involve trusted leaders within the organization. These individuals can act as change agents by providing guidance and expertise as well as acting as additional channels for effective communication to address questions and concerns within their team. Their involvement also helps maintain employee morale and confidence during a time of change. Action step: Brainstorm a list of trusted leaders within your organization who can help build the restructuring plan and spearhead the change.

Stay Flexible

It’s impossible to account for 100% of the challenges that will arise during restructuring, so keep your plan fluid to accommodate the unexpected. Remain open to adjusting the plan as new information emerges or as the needs of the company evolve. Action step: Set a reassessment schedule to regularly determine the effectiveness of the restructuring efforts. Have a prepared list of modifications that you’re ready to make to cut down on planning time involved in making quick changes.

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