Restructuring has become a very fashioned thing for modern business these days. No state of organization is perfect, and it needs to evolve over time in order achieve to success. Many businesses are changing the way of doing thing these days. Restructuring is about changing the number of employees, business processes, and way of doing things.
Restructuring creates value of shareholders by increasing the profitability of the business. Reducing the operating costs and increasing the market share. Therefore, it is imperative for the businesses to continually restructure and create value for shareholders. Recent studies concluded that restructuring is also more feasible for growth. Restructuring also allows the companies to have a clear vision just like the case of Kodak below. For example, many businesses are becoming more focused now. Instead of keeping several business units, they are focusing on the best options to keep, and getting rid of some of the elements that are generating waste and gnawing the overall profitability of the firm, by requiring support from the other business segment. Sometimes, it happens that when a business is not doing well, the other businesses in the same group support its operation by sharing its costs, but such business segments do not last long. A group only sees the profitability of the business for some years, and gets rid of it, if things do not start to improve.
Shareholders are also concerned about the price of the shares or their investment n the company. If certain business segments are making losses, the overall profitability of the company will go down and this will be reflected in the share price. Therefore, often restructuring helps the company to maximize its profits by reducing the wasteful segment and elements from the company’s mix of assets. As a result, the share prices start rising and shareholder’s wealth is maximized. Hence, restructuring is a way of generating wealth for the shareholders and earning a good return on this investment by increasing the annual yield and yield to maturity of the shares. If this is greater than the other investments, then the shareholder value is created by restructuring and in this era, where the only change in constant, the companies are required to constantly change and restructure to give the best value to the shareholders.
For example, Kodak has recently restructured its operations by reducing its operation in some field. It is trying to become a more focused company, by getting rid of some of the business operations. It has decided to keep its operations in certain areas, and has reduced the number of businesses it had. The move has been planned in order to reduce the cost structures. Kodak has decided to sell off its Personalized Imaging and Document Imaging businesses. As a result of restructuring plan 2700 workers will be made redundant. This will help save the company $330 million annually in labor costs and compensation benefits. It will help the company to become more efficient, and profitable. Even the president of the company has been asked to leave, in order to become more efficient by hiring a better person who can look after the restructured business better and has an experience of organizational change management.
Daft, R. (2014). Management. Australia: South-Western Cengage Learning.
Kodak.com, (2014). Kodak Makes Organizational Changes to Align with Restructuring Plan. [online] Available at: http://www.kodak.com/ek/US/en/Kodak_Makes_Organizational_Changes_to_Align_with_Restructuring_Plan.htm [Accessed 8 Nov. 2014].