Organizational Restructuring- Meaning, Reasons, Types & More

The changes in the business world are some of the most testing times for a company to withstand. It is for this reason why adaptability is one of the crucial attributes in the corporate space today. To survive, you must be able to swiftly change course whenever things go bust.

Of these many changes that a company may have to endure, one of the hardest is organizational restructuring. It is because often restructuring changes a significant chunk of the business. This can be products, employees, ownership, or even the original mission and business model.

So, what is this big change called organizational restructuring? Let’s break it down by understanding its definition first.

What is Organizational Restructuring?

Restructuring is the act of changing the business model of an organization to transform it for the better. These changes can be legal, operational processes, ownership, etc. The cause of such a shift in the company can be either external or internal.

A change as enormous as such can have various implications for the company. In most cases, it can result in either downsizing or upsizing employees, changes in staffing requirements, etc. This is because a restructure can take place for many different reasons.

It can be when a company is struggling to survive a massive blow or looking to maximize its already profitable business. Based on the situations, restructuring is necessary for numerous reasons. Some of the common causes are as follows.

Reasons for Organizational Restructuring

1. Changing business environment

The business world is and always will be a dynamic environment. It never settles on one point and keeps on changing as time flies. In certain times, some industries may suffer a massive blow due to external factors.

For example, during COVID-19, the tourism and hospitality sectors are two of the worst-hit industries. In times like this, there isn’t much that the players can do rather than endure it.

While the industry giants may have the resources to stay afloat, every business may not. In times like such, a company may shift focus and go through a restructuring process to remain in business.

Related Podcast: Reinventing the Organization for Post COVID-19 Phase

2. New methods of operation

As time goes by, there will always be the entry of new methods into operations. These can be telecommunication, new and improved working systems, better employee policies, rise of remote working culture, technological advancements, etc.

For a company, it is crucial to respond and adapt quickly to these changes. In some cases, these changes may require a restructuring for a large scale organization. These can result in new divisions, reporting managers, etc.

Setting up such new departments, management, leadership styles, may require restructuring at times.

3. Buyout

A buyout is wherein a party acquires the rights of a controlling interest in the business for a sum of money. In such a case, restructuring occurs in the business proceedings.

It is because the buyer may want to rebrand the company and start-over again. In these cases, legal and organizational structure changes are necessary, which gives rise to the restructuring process.

4. A different direction

“Change is the law of life and those who look only to the past or present are certain to miss the future.” – John F. Kennedy

Often, a difference in direction may be the answer to poor business performance. Understanding this, most entrepreneurs change their business model in the hope of better profitability.

While some may change their products/services, others may choose a different space altogether. Both of these shifts require a rethink of the current business. In such a scenario, the need for proper organizational restructuring is imperative.

These were some of the reasons where organizational restructuring can take place. Based on these scenarios, there are also many types of restructuring that you can examine to best suit your needs.

Types of Organizational Restructuring

1. Mergers and Acquisitions

This restructuring takes place in case of a merger or acquisition. A merger is a situation wherein two companies combine to do business. An acquisition is wherein a company absorbs another by buying the entire stake in the business.

2. Legal Restructuring

A restructuring as such takes place when the changes in a company pertain to legal norms. These can be changes in ownership, legal business paperwork, agreements, etc. n the realm of legal restructuring, one notable entity that often comes into play is the Limited Liability Company (LLC). An LLC is a versatile business structure that combines the liability protection of a corporation with the flexibility and tax advantages of a partnership. It provides business owners a framework to restructure their organization while safeguarding personal assets and promoting efficient operations.Forming an Limited Liability Company (LLC) can seem complicated. There are costs and legal formalities to consider when establishing an LLC, so it's important to educate yourself before getting started.

3. Financials

Financial restructuring arises when there is a change in the capital structure of the business. These can be changes in debt structuring, equity, etc.

4. Repositioning

This change pertains to a transition to a new business model. An example of this can be when an IT firm selling software products changes to being a service provider.

5. Cost-Reduction

A cost-reduction restructuring takes place to cut costs in the administrative and operations section. These can be automating procedures, downsizing, etc.

6. Turnaround

Turnaround is the restructuring of a huge part of the company. It involves changes in the operations side, administrative, products, or services.

7. Divestment

Divestment is a restructuring procedure wherein a company sells an underperforming part of the business in the market.

8. Spin-Off

It is a restructuring process that employers use to attain a higher valuation of a part of the company. It involves making a particular business unit to be a company in itself while retaining ownership.

These are eight of the organizational restructuring types that companies commonly use. After deciding on one of these, employers must keep in mind certain things during the process.

How To Manage A Workforce During Organizational Restructuring

1. Understanding your current workforce

Restructuring can be harsh for a workforce at times. The sudden layoffs are never easy, and the negativity may affect the job satisfaction of the remaining employees as well. Therefore, you must be careful in this aspect to handle your workforce well.

Before deciding which employees to retain and which to let go, you must first get your strategies right. A restructuring may mean the entry of new tasks and duties for your employees. So, you must base your decision on the new job roles.

Now, it is crucial to understand which of your employees may work well in new roles. It means understanding their skills and personality for the job. In this aspect, you can turn towards employee personality test to examine individual personality traits.

For understanding the skills, you can hold meetings with the employees and go through their performance reviews. The idea here is to be extremely cautious before making any decision on workforce hiring or firing.

Related Article: Understanding Millennials in the Workforce

2. Organizational structure

An organization structure defines the job roles, scope, responsibilities of the employees. It is extremely important to have a definitive structure to have a clear understanding of everyone’s work.

You must have this structure laid out before the restructuring process to have a clear idea of which employees you want. For example, say you are restructuring to be a small business specializing in custom materials. Here, you require a few skillful workers rather than a vast workforce for mass-production.

In this regard, the key lies in understanding what will be the organizational structure post restructuring and planning accordingly.

3. Redesigning the jobs

After you have carefully laid out the org chart, you must redesign the roles and responsibilities as per the new strategy. You can also compare the new job roles to old ones to understand similarities and differences in them.

Once you understand this, you’ll have a better idea of the best fit of the employees to the job role. In some cases, new positions may arise as well. Here, you can consider having employee training and development to upgrade the workforce instead of acquiring a new work staff.

But, if you feel that the circumstances don’t allow for the same then you can go for new hires.

4. Redeployment and Downsizing

After you have made all the above decisions, you must finalize which employees must stay and which do not. While taking this decision, you must be careful as massive layoffs will stir up emotions and disrupt an environment.

But, most importantly, you must make the right decision for the restructuring to be a success. Be firm and objective in your decision-making process and proceed accordingly.

5. Strategies for the new work staff

“Let’s form proactive synergy restructuring teams.” – Scott Adams

Finally, after deciding on the organizational structure, job roles, and workforce, comes the part of effective workplace communication. A restructuring process is a tough one, especially on the employees.

Therefore, you must make the current work staff understand a few crucial details. These are why they are with you, what you expect from them and how to get things done right. You can hold a seminar on the new direction that your company is going and clearly put forward the new strategies.

These were some of the basics you must understand while opting for the organizational restructuring process.

Conclusion

“A restructuring of an organization is always a difficult time and delicate.” – Toto Wolff

Changes are never easy, but they are always crucial for a business.

We’re sure after understanding the points above; you’d know by now that organizational restructuring is no different either. But, while it may be difficult, a redesign can help companies survive, compete, and thrive in their domain during difficult times.

It is a fact that every employer must understand to succeed, sooner or later. We hope you catch the drift sooner and act smarter.

This article is written by Jyoti Prakash Barman. He is an in-house Content Marketer at Vantage Circle with interests in music and automobiles. For any related queries, contact editor@vantagecircle.com