• Thursday, July 25, 2024
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Vision versus people – the art of corporate restructuring

corporate restructuring

I have spent the last 10 years of my life restructuring businesses, both local and international. In a nutshell, restructuring is about reorganising things so they can perform better. In business, the process comes with a battle between the right vision and the people. Restructuring is about drastically eliminating drags and creating superlatives from whatever positives you can find. According to our lexicons, being better is the adjectival superlative of good; same way being faster is the superlative of fast. This is really what it’s all about.

From my experience as a management and corporate restructuring consultant, to get your results you must tweak the system, processes and people.  In these variables, the people give the most headaches, either for their lack of understanding of the objectives and process or for their fear and resistance to change. Regardless, to get the result you either will try to “change the people”, or you “change the people”.  It is also important to decide which to put first between the “where you’re going” (vision) and with “who” (people with you). Like I’ll always ask, which do you think should come first?

Even though the vision remains the baseline, great restructuring starts with defining the quality of the people than even the vision. The truth is, having good people with a bad vision will go farther than having bad people with a good vision. Still on people, you need a good mix of the three categories of people you can find, the dreamers, the thinkers and the doers. Graphically, I’d like you to see restructuring as a process, see it even as a journey via a bus. Your role is to first, get the right people on the bus, get the wrong people off the bus, and with the right people in the right seats (position) you can now decide where it should go.

There is a real case study for this. And it’s that of Fannie Mae and the lead restructurer, David Maxwell. Fannie Mae is one of the largest loans and mortgage firms in the world. When David Maxwell became CEO of Fannie Mae in 1981, the company was losing $1 million every business day, with $56 billion worth of mortgage loans underwater. He came in and recorded one of the greatest corporates come backs of all time. But what did he do right?

To restructure the firm, to save it from collapse and reposition it for the better performance, Maxwell first, interviewed every member of the team. He told each of the discipline and sacrifices needed. Some thought it would be too tough. He asked for cuts on their pay and other benefits. So, 14 of its 26 executives got off the bus. They were replaced by some of the most enthusiastic (dreamers), smartest (thinkers), and hardest-working (doers) executives around. And in a few years, Maxwell turned Fannie Mae from losing $1 million a day at the start of his tenure to earning $4 million a day at the end. To deliver on this, he knew all the intricacies of restructuring. Let me deep dive into its entire framework.

In an ever-changing business climate, restructuring is to suit new business objectives and purposes. It is the act of reorganising either or the legal, ownership, operational or other structures of a company for the purpose of making it more profitable and better organised for its present needs. About 2/3rd of restructuring doesn’t work. And I think that bad strategy; bad implementation or an internal resistance to change is a factor for most of its failures. Corporate restructuring is done with respect to three fundamental part of your business, which includes: People, Processes and Systems.

There are three main categories of Corporate Restructuring. They are portfolio restructuring, financial restructuring and operational restructuring.

Portfolio Restructuring: involves changes in product lines; the configuration of lines of business of a firm through acquisition and divestiture transactions.

Financial Restructuring may come from adjustment of financial positions by equity reconfigurations or taking on high amounts of debt forcing managers to focus on core businesses, eliminate free cash flow and minimise organisational slack to ensure maximum operating efficiency.

Organisational restructuring: involves how an organisation changes its current operating procedures and practices to meet changes in the external environment, designed to retain old and attract new customers. Organisational restructuring is about redesigning the organogram by filling it with better strategic fits of people and process. With enhanced processes delivered through their job descriptions, KPIs and Standard Operating Procedures (SOP) you can drive better productivity.

When activating this, to make it sustainable, ensure that proper control/compliance system is in place. The compliance and control team help to keep track of staff with respect to the company’s objectives and Standard Operating Procedures (SOP). As much as organisational restructuring is about mostly the internal, you need an external check and balances through auditors, consultants and an advisory board. The truth is, none of us is as smart as all of us. To grow with the new structure, you definitely need extra hands. This is why you may need a mastermind, a change management committee and an advisory board that is committed to going all the way with you. Work with the best. This would require you to assemble much higher minds to bring fresh and enhanced insights as part of your new process.

Corporate restructuring is aimed at increasing efficiency, enhancing competitive advantage, achieving synergy and improving firm value.

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As for business line in portfolio restructuring, you are either creating or reducing product lines, by either forward or backward integration. Forward/horizontal integration implies that you are increasing your offering in your industry value chain so as to reach more people and revenue along the horizontals, which we refer to as value chains. On the other hand, backward/vertical integration is an expansion with respect to reducing dependency in the supply chain. Sometimes corporate restructuring in terms of portfolio restructuring shoots off from either backward integration or forward integration. These can be done either by building a whole new product line via creating a start-up from scratch or via mergers and acquisitions.

Mergers and acquisition deals with the buying, selling and the combination of another company that can aid finance or help a growing company in a given industry to grow rapidly without having to create another entity. The main rewards for Mergers and Acquisitions are usually synergy, tax yield, resources re-distribution, increase market share, access to modern technology, diversification and cost saving.

As much as restructuring is about change, there are things we should guide against; rapid and radical change, the soul of the brand. This can either be found or stored in a place I call the “founder’s culture”. Retain the founder’s culture in the corporate culture. This involves transferring the original “DNA” as the founder to the new or evolving team. This involves an intentional move to cascade your core values into the business.

There has to be a culture that invokes the constant inquiry of what can be done better, quicker, faster, cheaper etc. So, everybody should be on the lookout for it as a culture. So, there’s a need to initiate this and grow. Go Further!

Leave good behind, be better!

So, whether you are engaging in restructuring around your firm’s portfolio), finance or operational, be aware that its delicate. Always bear in mind to manage the stakeholders, avoid secrecy in huddling from the top floor. It’s always great to understand the organisational culture and history first. In other words, learn from the past. It’s only after that can you effectively set and follow new standards. Have a concise and effective communication plan that involves and carries along the stakeholders. You’d always need to adjust the people’s formation. When doing this, ensure you are right sizing and not just downsizing.

Also, ensure that you are assertive too; for indecision will cost you more than bad decision ever will. In general, all outcomes whether good or bad are as a result of either having no strategy, bad strategy, good strategy but bad implementation or good strategy and great implementation.

I look forward to working with you on your corporate restructuring.