The impacts of closing and relocating the operations of a company could disrupt the organizational culture and environment of a company. HS Engineering plans to close its Wolverhampton and Oldham plants and move all precision manufacturing operations to its main Leeds plant. The Leeds plant has its employees properly unionized and it also gives its employees loyalty bonuses, pensions, sickness schemes and wages that are favourable to the local market.
The Leeds manufacturing plant has a clear and well-structured organizational structure comprising of a team leader for each area of production and structured upwards to the Managing Director. The company will need to restructure its organizational and leadership structure to accommodate the operations previously done by its Oldham and Wolverhampton plants. The restructuring of the facility to suit the increased manufacturing operations puts pressure on the plant and in future, non-precision manufacturing will be done in Malaysia where the cost of labour is cheaper and also the accessibility to markets is easier. The interference of family relations in the company could create tensions in the operations of the expanded business.
The Wolverhampton site of HS Engineering was started to supply high volume engineering bearings to the Midlands market. Relocation of this facility could result in great expenses in transporting and installing machinery. The company could be forced to hire more staff to handle increased demands before all machinery is installed to make operations much easier. Large HR teams have proved to be expensive and could damage the reputation of the company by calling for strikes. This could affect the new market and prevent the company from recovering the investment on operational machinery.
The relocation of the Oldham site could lead to loss of key clients such as BAe whom the company has been providing with aero-engine parts for most of the 7 years the company has operated in Oldham. The new site could be further from the company headquarters at Leeds and make it difficult for HS Engineering to serve its customers in its former location.
The company had also established a clean manufacturing environment and will require sometime to achieve the same in a new location. The relocation could also mean loss of dedicated operational staff. The overall impact of relocation is increment in cost of production which directly lowers the profits margins of the organization (Drucker, 1999).
Other organisations have undergone restructuring and relocation of operations overcoming big challenges and eventually enjoyed greater competitive advantage over other companies in their field. Sunterra Corporation one of the largest vacation ownership companies in the world faced the challenges of high employee turnover over the period of relocation leading to the loss of talented and experienced employees. The company was restructuring its operations in USA and Europe with the aim of exploiting its growth potential. According to Zilka, (2009) many companies restructure and relocate with the aim of improving operating efficiencies and reducing overhead costs that are associated with running big companies.
The restructuring of India’s Reliance Industries Limited which included mergers of the different companies such as Reliance Petrochemicals Ltd., Reliance Communication ventures among others led to great relocations. The relocations enhanced brand identity under the name “Reliance” and brought about improved profits, all round optimization of products, systems, and processes (Nag, Ganesh & Pathak, 2001). The exercise was however costly taking up more than half of the companies’ combined annual budget.
According to Leonard-Barton (1995) other challenges of relocating and restructuring that HS Engineering should consider include accrual accounting. This takes into consideration of the tax payable on new buildings, land among others. While moving, unpaid rent, furnishing new premises, expenses of getting services such as internet and communication technologies all add up to make the relocation venture very expensive (Bessant,1991). If these costs are not settled they become accrued liabilities which impact negatively on a business.
In all, relocations and restructurings should be informed by huge market potentials, reduced cost of production, and increased accessibility to affordable labour among other key factors.
Bessant, J. 1991. Managing advanced manufacturing technology. Manchester/Oxford: NCC/Blackwell.
Drucker. P. F. 1999. Management challenges for the 21st century. New York: Harper Business, 20, 22, 148,193.
Leonard-Barton, D. 1995. Wellsprings of knowledge: Building and sustaining the source of innovation. Boston: Harvard Business School Press.
Nag, G.C., Ganesh, S.R., and Pathak, R.D. 2001. Case studies of technological change and organizational culture. Journal of Transnational Management Development, 6 (3/4).
Zilka, C. 2009. Business Restructuring An Action Template for Reducing Cost and Growing Profit, Epub Edition. John Wiley & Sons Inc.