Three Forms of Restructure (Term Paper Sample)

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RESTRUCTURING
The interrelationships between an organization, strategic management, and business environmental factors have been dynamic themes of corporations and management theory mostly in the last five decades and restructuring has developed to be a significant mechanism in the successful adoption of firms to environmental influence. Corporate restructuring is a subject of debate because of the modernity of the concept. Restructuring is a change that seeks to enhance the efficiency and effectiveness of management team performance through considerable changes in organization structure. Azhagaiah and Sathish (58) define restructuring as opportunities for change, improvement in the films, and attaining the benefits of strategic decision making, the benefits of costs reduction, the benefits of communication, and other advantages to the company. Corporate restructuring is a vital change that primarily impacts an organization, and takes place either at the organizational levels or radical reorganizing processes and affiliations at the business unit level. Erkama and Vaara (820) denote that restructuring is an approach through which a firm can change its financial or commercial status.
According to Nippa, Pidun, and Rubner (51), corporate restructuring involves the redesigning one or more aspects of a firm. The path of reorganizing a company may be implemented due to various factors such as surviving current adverse economic conditions, positioning the firm to be more competitive, or establish the organization to deal with a new business line. The central concept behind corporate restructuring is to permit an organization to function after a given adverse condition (Pidun et al. 66). Despite when corporate raiders part ways and leave behind a shell of the original organization, hope still lingers, as the remnant can perform well enough for a new consumer to buy the diminished corporation and return the same to profitability.
Many reasons can lead to a firm to adopt a restructuring strategy. Business plans are there to enhance a company's performance that will finally result in better returns (Ushijima and Iriyama 86). The primary reasons why some of the firms today have adopted the restructuring strategy include:
The core justification as to why firms’ restructure is in response to less than acceptable performance. A company divests organizational assets with the intention of the betterment of company's performance, whether it is their corporate performance regarding rivals, the overall industry, or a predetermined goal (Toms, Wilson and Wright 740).
In some cases, organizations opt for restructuring as a consequence of mimicking the behavior of other agencies that re involved in the divestiture activities. In line with the mimetic isomorphism, this ideology claims that firms, either intentionally or unintentionally, engage in mimicry of organizational patterns of other players in their line of business who are realized to be legitimate. When a competitor firm adopted restructuring and was successful, then an organization is likely to try the same to be at par with its rivals (Koh et al. 23).
In other circumstances, environmental justification can be a ground for restructuring by organizations. Environmental conditions have demanded firms to restructure. Environmental factors such as deregulation. Technology changes, junk bond financing, tax rationales, antitrust policy shifts, and takeovers have necessitated firms to invest in the corporate restructuring (Sengupta and Faccio 127).
Portfolio restructuring
Portfolio restructuring involves the changes made to the capital structure of a firm that is made up debt and equity. It includes increasing/decreasing the ratio of debt to equity of the firm. The major types of portfolio restructuring acquisitions, divestitures, the sale of assets, spin-offs, and liquidation (Choi and Han 4).
Divestitures
Under divestiture, a business decides to sell a division or plant or unit of one to another. Divestiture entails the reduction of business or assets through the sale, exchange, liquidation, closure, or any other means of financial or ethical grounds. The divestiture is the opposite of investment. The divestiture is viewed in two fronts, from the seller standpoint, it is a form of contraction while the purchaser sees it as an expansion strategy. A good example of divestiture in the business world was the Coromandel fertilizer Limited when it retailed its cement unit to India Cement Limited. The scope of the Coromandel fertilizer Limited contracted while that of the India Cement Limited expounded. A divestiture is a vital means of creating value for companies in the acquisition, merger, and consolidation process. The primary reason for divestment is selling off a non-core business line (Bergh, Johnson, and Dewitt 135).
An organization may decide to divest ventures that are not part of their core activity so that that they can focus on the primary business line. In the year 1989, Union Carbide that was notable for chemical and plastics manufacturing opted to spin off its non-core consumer groups. Bankruptcy may also lead to divestiture. General Motors filed for bankruptcy in 2009 that result in 11 of its unwanted affiliates closed. Divestiture occurred in notable organizations like the Saturn and Hummer (Ushijima and Iriyama 71).
Divestiture can be carried out to enhance a firm’s bottom line stability. Back in 2006, Philips decided to divest the NXP semiconductors that were primarily sold as the subsidiary was associated with high volatility and uncertainty (Toms, Wilson and Wright 742).
Demergers
A demerger is a form of portfolio restructuring strategy. Demergers entail the transfer by a firm by one or more of its ventures to another bigger company. The firm that its portfolio is undertaken us called the demerged firm while that firm is taking the portfolio is known as the resulting firm. Demerger comes in two forms, either as a split off or a spin-off. Usually, under the spin-off, there is the establishment of a sovereign firm through the trade of a new share of an existing business. For example, the Information Technology Division of WIPRO Limited underwent spin-off as a separate company back in the late 1980s. In split-offs, it included the reorganization of a current firm’s structure in that the shares of a subsidiary are transferred to the stockholders of the parent company in exchange for stock in the latter. For example, with technological changes in the filming industry, saw the emergence of cable companies offering video on demand, easy video recording, and cheaper DVD retail, Viacom decided to Split off from Blockbuster (Sengupta and Faccio 127).
Financial restructuring
Financial restructuring involves the reorganization of the capital structure of a firm. The capital structure is made up of debt and equity capital. Financial restructuring entails changing the composition of these components by either increasing or decreasing debt or equity of the firm. The process of financial restructuring is frequently linked with corporate restructuring whereby the restructuring involves changing the general function and composition of the firm with the aim of improving the firm’s overall performance even in a depressed environmental conditions (Pidun et al. 72).
Kingfisher Airlines is a good example of a corporation that has deployed financial restructuring strategy to cover their loss margin. In 2011, the firm total losses accrued to $240 million. This enormous loss could be attributed to high fuel cost, competition, and the weak rupee. To Kingfisher Airlines, financial restructuring involves reorganizing the financial assets and liabilities of the firm with the objective of creating the most beneficial financial environment (Sengupta and Faccio 127).
Financial restructuring may be undertaken as a mean of reducing or eliminating forms of wastes within an organization. For instance, there may be two departments within an organization that is having duplicated efforts. Rationally, continued supply of financial resources to both sectors should be stopped, and the combination of both operations seems logical. Such a measures help in cutting operational costs to achieve the same ends promptly (Koh et al. 30).
Financial restructuring is vital when an organization is in financial distress. When the sales volume keeps on decreasing in each turnover with no consistent net profits, financial restructuring is core. Measures include reviewing the costs chained to a particular unit and then coming with ways of reducing them to facilitate profits (Erkama and Vaara 836).
Financial restructuring is of two types, either debt restructuring or equity restructuring. The debt restructuring involves reorganizing the whole debt capital of the organization. This process entails reshuffling the balance sheet liabilities items of the company. The components of the debt restructuring are unsecured long-term (public deposits and unsecured bonds) loans, secured working capital borrowings (overdraft facilities and commercial papers), and others short term borrowing (inter-corporate deposits and clean bills) (Choi and Han 10).
Equity Financial restructuring is also a strategy that seeks to reorganize the cap...