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’ (?
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
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
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.
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-
definition of corpo-
rate objectives, mis-
sion statement, and
and finance objec-
tives and strategies
Implemen-Action plan, to put tation actions in a time
frame, assign res-
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Annex B - Ten steps in Diagnostic and Planning
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
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
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
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 ….
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
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
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
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)
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