On Business Restructuring
Business restructuring is the catch-all phrase used to describe the series of actions that a firm or other organisation might take to re-organise its affairs following some management decision to change the course of the business. There are three views often discussed: from the legal perspective, from the finance perspective and from the human resources perspective. Taken alone, they all tend to adopt a hard approach. The lawyers talk of new legal arrangements for the firm and like the accountants they assume the firm is in difficulty. Both assume that if drastic restructuring action is not taken urgently then third perspective action will be inevitable – redundancy following liquidation, merger or buy-out. In every case it’s a boom time for the professional services firms.
But business restructuring is not about the stuff of films. It’s about the normal adjustment that a firm makes to optimise its approach to the market.
It’s hopefully about incremental change because if the lawyers, accountants and HR folk are circling and drastic action is on the horizon, it suggests that the firm is in dire straits and it’s too late for evolution.
This article discusses how to go about an incremental business restructure. It starts by developing the aims behind the change and the business model before and after. It then urges that restructuring involves a lot of planning and then leads on to the need to communicate these plans with staff. It then focuses on how to do restructuring and ends with how one assesses its effects once complete. It’s a manager's obligation to restructure. This article tells how to do it painlessly.
Many firms are continually restructuring. Why is that? It is because the manager gets bored quickly? Or is it that he or she is incompetent and can’t get it right? Or is it that he or she realises that the market is continually changing with new competitors entering and technologies emerging? Good managers restructure continually because they recognise that change is all around the firm and that in order to serve the stakeholders (and that term includes the employees), change is essential.
The first step for all managers is to recognise when restructuring is needed.
Restructuring aims to place the firm in the optimum position to meet its objectives. The first essential is that the firm has objectives and that these objectives are continually being monitored. When achieved, new objectives are set. When not achieved, change of some sort is needed. All firms need a business plan in which the future performance of the firm is set as objectives. Any case for restructuring can then be made against that business plan and justification can use this business plan since all restructuring costs money.
There are several essentials to change in a firm or other organisation.
The P&L and balance sheet (or budget accounts, if not for profit) are two fundamental outputs from the firm. They form the basis for change and for restructuring in the event that this is the chosen corrective action. Objectives are stated in terms of the P&L and balance sheet and it’s here that variance will be seen such as not making top line sales or costs rising thereby reducing profits.
The marketing plan and the business development plan say how the firm will address its chosen market specifying distribution chain and marketing communications to secure leads and opportunities. And then the manpower or HR plan will define the competences needed and the folk possessing these competences to underpin the objectives. All of this forms the firm’s strategy. All of this is used in effecting change. When there’s a variance in the key performance indicators, turn to the plans and plan the corrective action.
Making successful change happen is about communication. Making restructuring happen is doubly about communication. Competitors will have a field day with any bad news. Customers will immediately be worried and staff will panic. This article now focuses on the staff and how to proceed to make the change an internal success. External success will then be assured. Treat the staff with indifference and it will be time to call the lawyers and accountants.
We’ll also assume that a restructure is now the form of change decided on.
Restructuring is about communications. But there are also statutory requirements placed on firms thinking on making staff redundant. If the firm has more than 50 staff the Information and Consultation of Employees Regulations apply. Indeed their principles give good guidance for all. The firm must consult with employees ‘in good faith’ in order to reach a conclusion. The regulations demand consultation with staff as a body and with individuals. As part of planning, develop a communication plan setting out what happens at each meeting, what the meeting aims are and how the meetings will comply with the statutory requirements. See our other White Papers and opinions on making staff redundant safely.
The following is a guide to making restructuring happen successfully.
First the legal warning. Make sure at all times that you comply with the law. The following acts and regulations govern restructuring, and may be relevant to your own restructure scenario.
- Employment Act
- Employment Rights Act
- TUPE – Transfer of Undertakings (Protection of Employment)
- Information and Consultation of Employees
- Disability Discrimination Act
- Employment Equality Regulations (age; religion or belief; sexual orientation)
- Equal Pay
- Equality Act
- Sex Discrimination
- Redundancy Regulations
None of these will actually stop a manager doing what is needed for the good of the business or organisation. Managers are allowed to manage their firms. All act as constraints to stop the unscrupulous. To be sure that your planned changes are within the law and to understand the scope of possibilities when planning, talk to TimelessTime.
- Successful restructuring comes from thoughtful planning and sensitive implementation. Managers must consult with those affected – and that extends to most stakeholders. Remember that the contract which a firm has with its staff is for the most part tacit. It’s termed the psychological contract and this governs the expectations that both employees and principals have that are unwritten.
- Change needs to be understood by all affected. Employees will find it deeply disturbing and threatening. The employees’ fear of change is as great as the principal’s own fear of failure. Use face-to-face communications. Use workshops to achieve understanding, involvement, plans, measurable aims, actions and commitment.
- Build the guiding team that will assure the implementation of the plans and ensure success after the change - get the right people in place with the right emotional commitment, and the right mix of skills and levels. At this point the manager needs help from key staff within and from key external advisors.
- When forming the plans, put effort into getting the vision right - establish a simple vision and strategy, focus on emotional and creative aspects necessary to drive service and efficiency. Then evangelise the vision since above all it is this vision of the future after the restructuring that will drive the change through.
- Then make the changes stick. Reinforce the value of successful change via recruitment, promotion and new leaders and supervisors. Train staff and managers and weave the change into the firm’s culture. Remember that if redundancies are part of the restructuring project, the folk being let go are important but those left behind are more so. They make the change effective.
- And once the current restructuring is complete measure its effects through the KPIs and get ready for the next.
Change is about people. There are few possibilities for change that are out of scope or unlawful despite what many lawyers and HR consultants might lead you to believe. But do remember that incremental change is far more lasting that revolutionary change. Make long terms plans and execute with perseverance.