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Restructuring Methodology

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Based on this information, the SWOT analysis is completed: the relative strengths & weaknesses (internal), and the opportunities & threats in the external

    Methodology for Enterprise Restructuring

    By Bert van Manen

    Companies pass through different phases in their lifetime. Good times are

    followed by bad times, expansion is followed by retraction. Sometimes,

    companies cannot ensure their continuity and are partly or entirely liquidated.

    Through their life cycle, companies from time to time need to be restructured,

    dramatically changing course to restore profitable operations. Restructuring is a

    change in company strategy without which its continuity could not be ensured.

    Restructuring is often forced by impending bankruptcy. It also naturally follows

    on divestiture or privatisation.

I The Restructuring Process

    The methodology of enterprise restructuring is based on a strategic planning process. This consists of three phases:

1 Diagnostic phase - Diagnosis of the company through ‘strategic appraisal’ (?

    four months)

    2 Planning phase - Preparation of the ‘strategic improvement plan’ (business

    plan, ? two months)

    3 Implementation phase - Restructuring, including monitoring of progress and

    revisions of the previous phases (? eighteen months)

The process and methodology of Internal analysis ofExternal ana-marketing, produc-lysis – market,diagnostic review and strategic tion, organisationcompetitive,planning is summarised in the and finance func-economic andtions. Analysis oflegal environ-figure below. The diagnostic business unitsmentphase analyses the internal and Diagnostic

    external environment of the SWOT at the strate-company, its relative position on gic level – Identifythe competitive ad-the market, and its position vantagesrelative to the competition. Thus,

    in-depth studies are conducted Strategic planning:into the operations of the com-definition of corpo-rate objectives, mis-pany, in particular its marketing, sion statement, andcorporate (businessproduction, organisation and unit) strategyfinance functions, problems Planningencountered, their causes and Tactical planning:possible solutions. The local and marketing, produc-tion, organisationexport market is extensively and finance objec-investigated, as is the competition. tives and strategiesBased on this information, the

    SWOT analysis is completed: the Implemen-Action plan, to puttationactions in a timerelative strengths & weaknesses frame, assign res-(internal), and the opportunities & ponsibilities, andmonitor progressthreats in the external environ-

    ment. Through this analysis, the

    company’s competitive advantages on the market can be determined.

With a thorough and detailed diagnostic, the development of the restructuring plan is

    not very difficult. Based on the SWOT, the corporate objectives, mission statement

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and subsequently corporate and business unit strategies are developed - strategic

    planning. Having completed this important step, the corresponding objectives and

    actions at the functional level (marketing, production, organisation, and finance)

    logically follow. Accordingly, financial projections (scenario’s) are developed, as is an

    action plan clearly outlining what is to be done to implement the restructuring plan,

    when and by whom. This process is further clarified in the three chapters that follow.

II The Company Diagnostic

The company diagnostic, or the ‘strategic appraisal’ of the enterprise, consists of five

    consecutive steps. This leads to a diagnostic report by the fourth month of project

    implementation. Apart from technical studies, the diagnostic phase includes a

    number of participatory planning sessions with middle and higher management staff,

    aiming to uncover strategic bottlenecks for the company’s development, assessing

    the options, and defining new strategic directions.

1. Identification of stakeholders in the company - who will be affected. These are

    the management, shareholders, workers (some of whom may be

    shareholders as well), clients, suppliers, distributors, creditors, banks,

    government, and others. Are they willing to collaborate in the restructuring

    exercise? Are there any conflicting interests among the stakeholders?

    2. Pre-assessment of the current situation. What are the present product / market

    combinations. How has the company performed in recent years? What would

    be the outcome of a strategy ‘continue business as usual’? Would the company

    be able to secure its continuity without restructuring?

    3. Internal analysis aims at identification of strengths and weaknesses in the

    company’s structure, culture, and resources. The internal analysis includes a

    review of sales, costs, profits, organisational structure, management style,

    technology, financial results, and other factors. For the main functional areas of

    marketing, production, organisation and finance diagnostic tables are made,

    demonstrating the problems found,

    Problems observedConsequencesSolutionstheir consequences, and possible Productssolutions (see example). The internal

    analysis also identifies Strategic

    Business Units (SBUs) that could be Priceoperated independently from the rest

    of the enterprise. Core businesses

    and core competencies are identified, ……that is SBUs that are considered

    crucial to the company’s existence

    and survival. Determine the competi-

    tive strengths and weaknesses of SBUs, starting with the ‘core

    businesses’.

    4. External analysis of the economic environment, markets and competition.

    This implies a critical analysis of elements / developments outside the com-

    pany that are (potentially) relevant to the performance of the company, and

    most of which can not be directly influenced by the company. This includes an

    assessment of macro economic, legal and political developments in the

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    country, market analysis (prospective product / market combinations),

    customers, competitors, distribution channels, logistics, and the environment.

    5. SWOT-analysis at the strategic level: relative strengths & weaknesses,

    opportunities & threats. This helps the enterprise identify its competitive

    advantages on the market. Competitive advantages may be found at the level

    of manufacturing (enabling a company to produce a product cheaper),

    product design and / or quality (enabling a company to reach higher levels of

    customer satisfaction), marketing (enabling the company to exploit market

    opportunities), distribution (aiming to better reach the client), and many others.

    The SWOT summarises the Strengths : what we doWeaknesses : what wewelldo not do wellfindings from the diagnostic, and

    places this information in a Poor marketing know howImprove…strategic framework for compa-and practice

    ny improvement. Through the

    SWOT we match strengths with

    opportunities (take advantage), Food safety and packagingstandards do not satisfyaim to convert weaknesses into ‘advanced’ export marketsstrengths (improve), and deter-Close to internationalmine how threats can be airport

    avoided by specific actions

    (upgrade). Thus, the SWOT

    helps determine what the com-Opportunities : externalThreats : external factorsfactors favourable to usworking against uspany already does well, how it

    can use these skills to grab

    opportunities, and where it Takeneeds to make improvements to Advantage…Upgrade…counter threats and overcome

    weaknesses. The SWOT, which Hygienic standards in Rus-is the outcome of the diagnostic Likelihood of exportsia may be upgraded,study, is an extremely important markets in Middle Eastreflecting advanced marketrequirementsstep in establishing the priorities

    for the restructuring plan. In fact, having completed the diagnostic

    tables and SWOT the outline for the restructuring plan is already on the

    table…

    III The Restructuring Plan

The ‘strategic planning’ process consists of another four steps (step six to nine),

    during which concrete restructuring actions are formulated. Step ten aims to put in

    place a framework to monitor to what extent the restructuring plan is being

    implemented and its goals are being realised (‘strategy implementation’).

    6. Strategic planning - define global objectives. Based on the SWOT, the

    enterprise’s objectives, its strategic vision and business philosophy is

    formulated. What do we want to achieve in terms of profit, market penetration,

    client satisfaction, and other objectives at the corporate level. Which business

    are we in, or do we want to be in, and in which we no longer operate. Define a

    new mission statement, showing what the company is, what it stands for, and

    what it does for others. Strategic planning aims to lay down the strategic

    directions that the company will follow in the medium and long term. This is not

    very detailed. Strategic planning deals with trends rather than details.

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    7. Corporate planning - making the strategic choices (long-term), affirming the

    commitment to undertake corporate restructuring. It includes a decision which

    of the current SBUs to drop (divest), which ones to develop further, and which

    new ones to start with. These decisions are obviously based on the internal

    strengths, external opportunities, and corporate objectives identified before.

    They include an assessment of the ‘attractiveness of the market’ on the one

    hand and ‘the ability of the company to compete successfully on that market’ on

    the other hand. The strategic choices to be made set priorities for possible

    investment decisions at the corporate and SBU levels, and require an

    analysis of their financial and operational feasibility.

    8. Tactical planning (medium term) for each of the selected SBUs. Whether to

    produce sausages or bread is a strategic decision, based on the SWOT and

    conclusions of the diagnostic. How to market them is a tactical decision: in

    marketing planning we work out in detail how the strategic objectives that are

    related to the commercialisation of the products will be reached. This plan

    indicates specific actions to be undertaken. Likewise, production, organisation

    / HRM, and financial management plans are developed.

    9. Financial implications: revenue projections / cash flow planning, projected profit

    & loss statements and projected balance sheets of the restructuring plan. If so

    needed, several scenario’s may be developed reflecting variations in uncertain

    and difficult to predict factors.

    10. Monitoring & control: mile stone path. In order to concretise the restructuring

    effort, an action plan is developed, indicating who will be responsible for the

    respective actions to be undertaken in the implementation of the strategic plan,

    and when these actions will be undertaken.

The restructuring plan should probably be approved and adopted by the board of

    directors or meeting of shareholders. In case of liquidation or bankruptcy, the plan is

    approved by the bankruptcy court. To facilitate the process, the restructuring plan

    should be written in a logical and easy accessible manner. The table of contents of the

    restructuring plan is graphically shown in annex E. In annex F a model to summarise

    the restructuring plan is shown. Using this template, the entire restructuring plan can

    be presented in no more than three pages.

    IV Implementation

During the implementation of the restructuring plan, the action plan plays a key role.

    As this plan indicates what is to be done, when and by whom, it guides day-to-day

    actions of management. The plan is adapted regularly as the market conditions

    change. However, the global objectives and strategies should not normally be

    changed, unless there is really a significant shift in the company’s external and

    internal environment. Changes in company strategy probably require a decision of

    the board of directors or shareholders.

It is noted that apart from the above mentioned strategic and tactical planning, the

    company will also engage in some micro planning at the department and even

    personnel level. The action plan forms the basis for the subsequent development of

    department plans, and eventually personal performance and development plans.

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Annex A - Overview of the Restructuring Process

     Internal analysis of External ana-

    marketing, produc-lysis market,

    tion, organisation competitive,

    and finance func-economic and

    tions. Analysis of legal environ-

    business units ment Diagnostic

     SWOT at the strate-

    gic level Identify

    the competitive ad-

    vantages

     Strategic planning:

    definition of corpo-

    rate objectives, mis-

    sion statement, and

    corporate (business

    unit) strategy

    Planning

     Tactical planning:

    marketing, produc-

    tion, organisation

    and finance objec-

    tives and strategies

    Implemen-Action plan, to put tation actions in a time

    frame, assign res-

    ponsibilities, and

    monitor progress

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Annex B - Ten steps in Diagnostic and Planning

     Diagnostic pathway

    1Identification of stakeholders in the company –

    shareholders, workers, clients, suppliers, distributors,

    banks, government, and others. Are they willing to

    collaborate in the restructuring exercise? Are there any

    conflicting interests?

    2Pre-assessment of the current situation. What will be the

    outcome of a strategy ‘continuing business as usual’.

    3Internal analysis aimed at identification of strengths and

    weaknesses in the company’s marketing, production,

    organisation and finance functions. Identification of

    Strategic Business Units. Determine the competitive

    advantages and weaknesses of SBUs, starting with the

    ‘core businesses’.

    4External analysis of economic environment, markets and

    competition. Analysis of elements / developments

    outside the company that are (potentially) relevant to the

    performance of the company, and most of which can not

    be directly influenced by the company.

    5SWOT-analysis at the strategic level: relative strengths

    & weaknesses, opportunities & threats. Identify the

    competitive advantages on the market.

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    Strategic planning pathway

    6Strategic planning – corporate objectives. Define a new

    mission statement. Strategic planning defines the gene-

    ral course that the company will follow in the near future.7Corporate planning: making the strategic choices (long-

    term). It includes a decision on which of the current

    SBUs to drop (divest), which ones to develop further,

    and which new ones to start with.

    8Tactical planning: the marketing plan (medium term) for

    each of the selected SBUs. Linked to this, the

    production, organisation and finance plans are

    developed.

    9Financial implications: revenue projections / cash flow

    planning, projected profit & loss statements and

    projected balance sheets.

    10Monitoring & control: mile stone path. An action plan is

    developed, indicating who will be responsible for the

    respective actions to be undertaken in the

    implementation of the strategic plan.

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Annex C - Diagnostic tables, example

     Problems observed Consequences Solutions Marketing

    Clients do not trust local No sales, loss of market Produce foreign products

    products, prefer imported ones to imports under license ….

    Production

    All installations and buildings High energy, maintenan-Down-scaling of existing faci-are greatly over-dimensioned to ce and depreciation ex-lities. If replacement is consi-current and expected needs penses dered, lower but more flexible

    capacities ….

    Organisation / HRM

    Company structure is Company is not market Profit centre approach, lease

    production and technology orientated / organised. out or sell unprofitable sup-orientated, with excessive Many support units not port units, buy outside

    vertical integration (all support feasible to keep ‘in-support if cheaper, divest

    functions in house) house’. The same for some by-product units

    by-products

    ….

    Finance

    No provision of accurate and Management can not Monthly management

    timely financial information to make well-informed accounts management decisions

    ….

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Annex D - SWOT

    Strengths : what we do Weaknesses : what we do

    not do well well

    Poor marketing know how Improve…

    and practice Food safety and packaging standards do not satisfy ‘advanced’ export markets Close to international airport

Opportunities : external

    factors favourable to us Threats : external factors

    working against us

     Take

    Advantage… Upgrade…

     Hygienic standards on Likelihood of export markets export markets are in-in Middle East creased, approaching EU standards

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Annex E - Strategic Planning Framework Contents of the restructuring plan

     Analysis of external, customer, and internal

    environments (company diagnostic) (Annex A)

     SWOT analysis at the strategic level: analysis of

    internal strengths and weaknesses, and external

    opportunities and threats (Chapter two)

     Development of mission statement and corporate objectives (Chapter three)

     Formulation of Corporate or Business Unit

    Strategy (Chapter four)

    Marketing Production Organisation / Financial - Objectives - Objectives Human resources management

    - Strategy - Strategy - Objectives - Objectives - Implementation - Implementation - Strategy - Strategy and resources and resources - Implementation - Implementation

    needed needed and resources and resources (Chapter five) (Chapter six) needed needed

    (Chapter seven) (Chapter eight)

     Financial Projections (chapter nine)

    Action Plan 2000 (and annual updates)

    (Chapter ten)

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