Why do companies Restructure ?

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Why do companies Restructure ?

Corporate restructuring can be driven by a need for change in the organizational structure or business model of a company, or it can be driven by the necessity to make financial adjustments to its assets and liabilities. Frequently, it involves both. Companies restructure for a variety of reasons:

Internal reasons behind corporate restructuring -

  • Profitability below expectations

  • Stagnant or decreasing revenues,

  • Too low gross margin,

  • Too high operating costs,

  • Bad cash flow,

  • Over- or under-investment,

  • Productivity/KPIs below market standards,

  • High labour costs,

  • Unclear roles & responsibilities,

  • Poor internal communication,

  • Lack of leadership,

  • Bad design of processes,

  • Marketing budgets allocated ineffectively.

  • To reduce costs

  • To concentrate on key products or accounts

  • To incorporate new technology

  • To make better use of talent

  • To improve competitive advantage

  • To spin off a subsidiary company

  • To merge with another company

  • To decrease or consolidate debt

External reasons behind corporate restructuring -

  • New consumer trends
  • Innovations that redefine the market
  • Company\'s market share decrease due to actions of competition

Most companies declare their commitment to address market changes in their strategies, but not many of them really realize this goal in practice. Deep restructuring is not an easy fix and requires radical changes in distribution network, channel management, supply chain, HR policy, production and its sourcing, communication with consumers, product/category management, etc

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