Business

3 Types of Organizational Restructuring

Business organizations undergo various forms of organizational rearrangement. Changes in departments, reporting relationships, and personnel may be necessary to better serve a rapidly growing market. Other changes involve downsizing or eliminating departments.

Many companies undergo a corporate rearrangement as the new owners try to replicate their business model. If you’re uncertain about choosing between restructuring and reconfiguring, continue to read this article on the Harvard Business Review as it is a comprehensive guide on the subject. There are various options to consider, so let’s get into the subject.

1. Mergers

Mergers are a business transfer where the assets of the merging companies are vested in a single entity. While the new entity does not necessarily share the same identity as the merging companies, the shareholders of each entity become shareholders of the new entity.

The process of merging companies is said to be a merger when an internal rearrangement of group companies is needed to alleviate the administrative and compliance burden. A merger can take many forms. Some M&A is between companies of the same industry. Other types of mergers and acquisitions involve companies with overlapping operations. Some companies may be too large to function as separate entities.

However, they often result in the creation of new divisions, reporting managers, and business styles. Mergers are not the only means to achieve organizational restructuring. They can also involve acquisitions between companies of different sectors, or between companies of the same industry.

2. Acquisitions

Often, an acquisition will accompany plant closures, layoffs, or other organizational rearrangement measures. In such cases, the new owner will share the potential synergies and pay a high premium for the company.

Acquisitions may also serve as a means to reduce debt and pay down excessive expansion debts. Acquisitions are also known as takeovers (www.wikipedia.org/wiki/Takeover) but that’s a rather abrasive term, if you ask me. Although the economic and financial aspects of acquisitions are closely related, the two concepts have slightly different meanings. If two CEOs agree to merge their companies, the deal will be a merger.

In contrast, hostile takeovers are always an acquisition. When deciding between mergers and acquisitions, you should determine whether you will use the term merger or acquisition in the announcement. To avoid the ambiguity of the terms, consider the following three examples of mergers and acquisitions.

3. Divestment

Why would a company decide to divest certain business units? There are many reasons. It could be that management is trying to fix a problem, or that a previously acquired company did not integrate well. It could also be that older business units do not align with the new leadership or strategy.

But whatever the reason, divestitures are typically a positive step. Listed below are three common reasons why divestments are a good choice. First, divesting assets requires a deal team. This team will determine the key steps of the divestment process and market the assets to buyers. The process itself is complex, and it’s often abandoned before it is fully completed.

The board and senior management of a company often view divestiture as complex and difficult to execute. Additionally, if they don’t think divestitures will increase shareholder value, they fear that they won’t be able to replace the earnings from the sale.

Publicity

Before a company undertakes an organizational rearrangement project, it must first inform its employees about its plans. Employees must hear from the company’s leaders about the restructuring process, and the company should announce its key milestones during the process. While rearranging a company, there may be lingering issues.

Publicity as part of organizational restructuring is essential to keep employees informed about the rearrangement process. However, there are several different organizational restructuring strategies to look over as this one isn’t always the right choice. Restructuring an organization requires a thorough analysis of its strengths and weaknesses. The rearrangement process should be done with the end in mind and should not be rushed.

Then, it must determine what changes need to be made to increase productivity and efficiency. The goal is to avoid causing any more harm than good. It must consider the employee’s feedback and make adjustments that will lead to an improved organization.

Costs

A typical approach to organizational restructuring involves taking 10-15% off across the board. Other approaches may involve moving boxes, people, or parts of the business. Incremental rearrangement may focus on a specific aspect of the business or supply chain. Each approach has its advantages and disadvantages. Some strategies work better than others, but they tend to be short-term in focus.

While they may reduce costs in the short term, they often lead to long-term damage. Before undergoing an organizational restructuring, it is important to clearly define the scope of work, responsibilities, and jobs of each employee. The type of employees needed will also be based on the new structure.

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