Restructuring in companies: Goals, procedures, examples

Restructurings are comprehensive changes to a company's organisational structure, business processes or financial situation. The reasons for a necessary restructuring can be very different, e.g. market changes, cost reductions or strategic decisions. The aim is to improve the economic situation by reducing costs and increasing sales.

Restructuring is complex and fraught with risks and uncertainties at all levels. The success of restructuring therefore depends not only on a good concept, but also on the effective management of these risks. Measures such as comprehensive planning, transparent communication, employee involvement, effective change management, risk management and external consulting counteract risks such as skills gaps, employee resistance or loss of customers.

This article shows how successful restructuring can be achieved and what alternatives are available to companies.

In the corporate context, the term "restructuring" is used to describe (usually far-reaching and comprehensive) changes to a company's organisational structure, business processes or financial situation. Most restructurings are often the result of a crisis, or at least an urgent need for action, which in the worst case can lead to the failure of the company. Triggers can be on the sales side as well ason the cost side:

• Rapid changes in the markets, partly driven by technological change, put existing business models and offerings under pressure. As a result, the company's sales revenues fall and must be compensated for in the short term by significant cost reductions. At the same time, innovation and new offerings, possibly even new business models, need to be considered. This is certainly one of the most complex starting points for restructuring - many suppliers to the automotive industry have found themselves (or still find themselves) in this situation with regard to electromobility.
• There is also a need for action on the cost side, for example if the cost structure of a company that is successful in itself continues to deteriorate. A change of direction is then necessary in order to continue to generate the economic value required for future growth. The far-reaching restructurings in the banking sector, which have been intensified by the low-interest phase, are a good example of this.

In both cases, theaim is to quickly achieve a significant improvement in the company's economic situation. On the cost side, this is achieved through consistent savings and efficiency gains. On the revenue side, the focus is on tapping into previously untapped potential.

However, despite the need for speed, restructuring will only be successful if it is also possible to lay a new foundation for the company's future success. It is therefore important to address the urgent issues quickly and consistently in order to prevent insolvency, for example (pure turnaround projects). At the same time, those responsible should always adopt a strategic perspective aimed at putting the company on a solid footing for the future (strategic and long-term reorganisation projects).

Depending on the company's specific situation, restructuring can involve various levers:

• Strategic realignment: A restructuring can be the result of a strategic decision to adapt a company's business model or market orientation. It can include repositioning on the market, entering new business areas or withdrawing from unprofitable areas.
• Organisational realignment: The focus of a restructuring can also be the redesign of a company's organisational structure in order to improve efficiency, flexibility or competitiveness. This can include the reorganisation of departments, the redistribution of tasks and responsibilities or the adjustment of hierarchical levels.
• Reorganisation of business processes: The focus here is also usually on increasing efficiency and cutting costs, but it can also be about improving the performance of the organisation. This goes hand in hand with the introduction of new technologies, the automation of processes or the reorganisation of interfaces, for example.
• Financial reorganisation: Restructuring can also aim to restore the financial stability of a company through direct measures. This includes, for example, the restructuring of debts, the sale of non-core assets or the procurement of capital through equity or debt capital measures.

The starting points and focal points may be different - in reality, restructuring is often characterised by a combination of several of these aspects. Particularly when it comes to rapid effects on the economic situation of the company, it makes sense to take a number of levers into consideration.

Restructurings are therefore complex endeavours under time pressure and ideally designed for sustainability. Even if there often seems to be no alternative in order to ensure the survival of the company, they sometimes harbour considerable risks.

There are various risks and challenges to consider when restructuring. These include, for example

• Employee resistance: Restructuring measures can entail changes to the organisational structure, work processes and responsibilities. This can lead to uncertainty, resistance and dissatisfaction among employees. Resistance can make it more difficult to implement the restructuring and have a negative impact on the working atmosphere.
• Skills gaps: If employees are redeployed or made redundant as part of a restructuring programme, skills gaps can arise. Employees who leave the company take their knowledge and experience with them. This can have a negative impact on the company's efficiency and ability to innovate. And new areas of work or tasks may require specific skills or knowledge that are not immediately available. There is a risk of bottlenecks in the company's expertise and performance.
• Costs and financial burden: Restructuring measures can involve significant costs, including redundancy payments, reorganisation costs, recruitment and training costs for new employees and investments in new technologies or infrastructure. This financial burden can temporarily impair the company and exert additional pressure on the financial situation.
• Loss of customers: Restructuring measures can also have an impact on customer relationships. Customers may lose confidence in the company and switch to competitors due to uncertainty or changes in the service or product offering. It is important to manage customer communication and retention during a restructuring in order to minimise customer losses.
• Implementation risk: The implementation of a restructuring can be complex and associated with various internal and external factors. There is a risk of delays, unforeseen obstacles or problems with the integration of new processes or structures. Poor change management or inadequate planning and coordination can lead to difficulties in successful implementation.

These risks show that restructuring must be carefully planned and implemented in order to minimise potential negative effects. Comprehensive risk management and open communication with affected employees and stakeholders are crucial to ensure a successful restructuring.

These risks are particularly relevant because the starting point for restructuring is a serious, potentially existential need for action for a company. Failure to restructure can therefore threaten the survival of the company.

To limit the risks of restructuring, companies should pay particular attention to the following points:

• Comprehensive planning: Thorough planning is essential. Companies should develop clear objectives and a detailed action plan for the restructuring. This includes identifying risks, assessing costs and benefits and defining responsibilities and timelines.
• Transparent communication: Open and transparent communication with employees is of great importance. It is important to explain the reasons for the restructuring, explain the impact on employees and facilitate an open dialogue. Clear communication helps to address fears and uncertainties and maintain the trust of employees.
• Involvement of employees: Employees should be actively involved in the restructuring process. Their opinions, ideas and concerns should be taken into account to ensure a smooth transition and better acceptance of the changes. Training and further education can help employees to familiarise themselves with new work processes and tasks.
• Change management: Effective change management is crucial to the successful implementation of the reorganisation. This includes clarifying the change objectives, creating a positive change culture, supporting employees in adapting to new roles and responsibilities and continuously monitoring the progress and impact of the reorganisation.
• Risk management: Systematic risk management helps to identify and assess potential risks at an early stage and to take appropriate measures to minimise risks. This includes regular monitoring of the restructuring, adjusting the action plan if necessary and solving any problems that arise at an early stage.
• External advice: In the case of complex restructurings, it can be useful to bring in external advice or experts. They can bring in their expertise and experience to support the restructuring process and ensure that best practices and success factors are taken into account.

With these measures, companies can better manage the risks of restructuring and increase the chances of a successful implementation. It is important to consider the specific circumstances and needs of the organisation and to respond flexibly to any challenges that arise

However, even with the best planning and preparation, considerable residual risks remain. Complex programmes with a high demand for change in a short space of time, combined with pressure to act and uncertainty, inevitably involve major imponderables. It is primarily a management task, first and foremost for top management, not to deny these, but to face them courageously. This is probably the most important success factor of all: Top management must be fully behind the desired changes as a team, consistently drive implementation and at the same time be open to new relevant insights and learnings.

The comprehensive restructuring approach described so far raises the question of whether companies have alternative approaches that are also effective and have a better risk profile. If restructuring is not the last remaining option, the following alternatives are available:

• Increasing efficiency: companies can focus on measures to increase efficiency within the existing business model and organisation. There is often considerable potential for improvement here, which may already be able to make a relevant contribution to the successful reorganisation of a company. Whether these measures are sufficient and the cause of the pressure to act is not of a strategic or structural nature must at best be clarified beforehand.
• Promoting innovation: Instead of a comprehensive restructuring of the existing business, companies can concentrate on developing and implementing new products, services or business models. Due to the complexity of the endeavour and the resulting need for change, this is only a viable approach in smaller companies. The reason for this is that in larger companies, such changes to the business model are typically accompanied by large-scale changes to structures and processes.
• Diversification: Similar to promoting innovation, companies can try to avoid restructuring by diversifying their offering. This can be done by expanding into new markets or sectors or by offering new products or services. In the vast majority of cases, the necessary changes are not a walk in the park. It is also questionable whether the positive effects will materialise quickly enough to bring about an improvement in the company's economic situation.
• Co-operations: Companies can enter into co-operations or alliances with other companies in order to jointly create synergies or open up new markets. This can also help to avoid far-reaching adjustments to strategy and organisation - with the risk of merely postponing them. Successful co-operations often also require further adjustments on the part of the co-operation partners.
• Mergers and acquisitions: A merger or takeover as an extreme case of co-operation can be an opportunity to react to changes in the market environment or to create synergies. In view of the considerable risks associated with mergers and acquisitions, this alternative is certainly not chosen for reasons of risk avoidance, but because it promises greater effectiveness.

The extent to which one of the alternatives presented is preferable to restructuring depends on many individual factors. In some situations, restructuring is the right way forward, as a number of successful restructurings have shown.

Restructuring is part of business life. Accordingly, there are numerous examples of successful restructurings:

• Airbus: In the early 2000s, Airbus found itself in a difficult situation due to delays in the A380 programme and internal problems. The company underwent a major restructuring in which it improved its production processes, optimised its supply chain and restructured its management. This reorganisation helped Airbus to strengthen its competitiveness and become one of the world's leading aircraft manufacturers again.
• Fiat Chrysler Automobiles (FCA): FCA, a multinational car manufacturer that manages various brands such as Fiat, Chrysler, Jeep and Alfa Romeo, has been in a difficult financial situation in recent years. The company carried out a restructuring in which it focused on more profitable brands and segments, optimised its production capacities and reduced costs. The restructuring helped FCA to improve its profitability and compete in the global automotive market.
• Unilever: Unilever, a multinational consumer goods company, restructured to simplify its business structures and improve operational efficiency. The company pursued a strategy of portfolio rationalisation and focused on core brands and product categories. This restructuring enabled Unilever to increase its profitability and maximise its growth opportunities.

What looks like a targeted programme in retrospect from these success stories is often a balancing act of skill and fortitude on closer inspection. The sheer complexity of the task of restructuring a large company defies detailed control, even in the face of highly dynamic markets and competitors. This makes it all the more important not only to set the right structural priorities in complex programmes and to pursue them consistently, but also to remain capable of learning and willing to adapt.

Commerzbank has provided an interesting lesson in restructuring over the past 10 years or more. Since the banking crisis at the latest, the bank has had a manifest earnings and cost problem, which it has fought against with ever new strategies and restructuring attempts - albeit often only half-heartedly and not with full vigour. Until the bank literally had its back to the wall in 2019. It was only when the new CEO, together with the Management Board, tackled the restructuring (and in particular the painful reduction of a quarter of the workforce) consistently and against all odds that progress was made. The cost position improved and the bank returned to the DAX40 with the turnaround in interest rates. When it comes to restructuring, fortune smiles on the brave.

Restructuring is often tantamount to reinventing the company - usually under great time pressure, as it is a last resort that many managers do not use lightly. If it is unavoidable, the proverbial "turnaround" must be achieved quickly and requires far-reaching, often painful changes. The pressure to act helps to create understanding among managers and employees for the necessary changes. At the same time, this pressure also creates uncertainty and fears that need to be addressed in order to prevent them from having a paralysing effect. Top management must therefore lead the way and be proactive, act decisively and listen. At the same time, it must think short-term and long-term and accept high risks. Restructuring is undoubtedly one of the top challenges that management and board members can be confronted with.

Successful restructurings depend on a number of factors:

1. Clear objective and strategy: it is important that the restructuring has a clear objective and that a convincing strategy is in place to achieve this objective. The strategy should be geared towards long-term success and not just short-term gains.
2. Effective implementation: It is crucial that the restructuring measures are implemented consistently and effectively. This requires close co-operation between management and employees as well as clear communication about the objectives and progress of the measures.
3. Flexibility and adaptability: A successful restructuring requires flexibility and adaptability, as business requirements and market conditions can change over time. It is important that the company is able to adapt quickly to changes and transform the restructuring measures accordingly.
4. Employee involvement: Employee involvement is an important factor in the success of a restructuring. Employees should be involved in the process in order to take their perspectives and ideas into account and support them in successfully transitioning to the new structure.
5. Clear monitoring and controlling: A successful restructuring requires clear monitoring and controlling to ensure that the measures are implemented as planned. Regular assessments and adjustments are required to ensure that the restructuring is on track and achieving the desired results.
6. In the end, it takes courage, concentration and perseverance.

We specialise in unlocking potential in organisations - restructuring is a particularly challenging use case. Our support starts at various points:

• Unlocking short-term potential on the sales and cost side: Here we help with a well-founded strategic analysis of the untapped potential of the current business model and a data-based analysis of the current cost structure to identify measures that can be realised in the short term.
• Development and implementation of adjustments to the structural and process organisation: Our expertise in the area of organisation allows us to make clear recommendations for the organisational setup based on the target state of the restructuring - in line with the principle of "form follows function". The intensive involvement of managers in the development process is particularly important here.
• Accompanying personnel processes: In the course of restructuring, there are numerous tasks for the HR function. These include personnel planning, the management of transfers, the drafting of contracts, but also the issue of reconciliation of interests/social plans. We support HR departments in these challenges with our decades of experience in HR projects.
• Supporting change and cultural development: Restructuring often radically changes the working reality of all employees. Accepting these changes is not always easy - especially for those who feel like "losers" in such a process. This makes it all the more important to provide close support during the change process, offering space for dialogue, discussion and design in various formats. From various transformation projects, we know how such support can be effectively designed at all levels of the organisation - both for employees and for managers, who are often both ambassadors and those affected.
• Supporting and developing management teams during transformation: The organisational changes associated with restructuring often lead to new team constellations. In order to quickly become productive in the new set-up, intensive support for the teams is required - or at least a structured team kick-off process should be initiated. In such a pressurised situation, the "dream team" may not form immediately, but especially in the initial phases it is important to set the course in order to grow together sustainably.
• Overall project management and communication: Restructuring projects are complex and are often carried out under considerable time pressure. This also means that there is little room for inefficiency and it is important to ensure a smooth process while keeping the reins in hand. In addition to the typical activities of a Restructuring Office, this also includes continuous and intensive communication between the individual workstreams of the programme. It is also important to prepare and implement clear, consistent and forward-looking communication within the company and externally. In addition to operational project management, we typically support the development of change narratives and their implementation in various communication channels.

We look forward to learning more about your specific challenges. Please contact our restructuring experts Dr Florian Dressler, Dr Axel Sauder or Philip Semelmayer directly for an exchange.