Can restructuring save my business?

At this very moment in time, British businesses are burdening some of the heaviest financial pressures to ever sit on their shoulders. As if recovery from the 2008 financial crisis wasn’t enough, the powers at be have thrown businesses under the bus with Brexit and indefinite political fragility at large.
And the impact is seismic. The latest figures suggest that some 50,000 small firms fold every year under the pressures of bulging business rates, atrocious payment practices, broken supply chains and disrupted cash flow.
Only the strongest of businesses can survive in times like this: those willing to make the toughest decisions.
In this blog post, we’re lifting the lid on business restructuring.
To restructure or not to restructure?
While we could go on and on about the benefits of restructuring your business, we’ll make it very simple: restructuring can make your business more profitable.
The act itself, however, is not so simple.
As Harvard Professor of Business Administration Stuart Gilson explains in his recent book, Lessons of Restructuring, there are three “critical hurdles” management face during any restructuring project: design, execution and marketing.
Let us explain…
“Understanding the fundamental problem”
Design – also known as strategy or approach – provides us with the opportunity to plan and overcome specific business challenges. It allows us to step back and ask ourselves, “what is stopping my business from expanding?”, or, “why am I losing money?”.
Professor Gilson explains: “Restructuring is more likely to be successful when managers first understand the fundamental business/strategic problem or opportunity that their company faces.”
Before we find solutions to the overarching problems, therefore, we must dissect our business from the inside out. Specifically, we might ask ourselves:

  • Is my business performing to industry benchmarks?
  • Is a shareholder holding back my business?
  • Do I have the talent to achieve my goals?
  • Is debt and/or interest crippling my business?
  • Are late payments a major problem?
  • Do I have a reliable funding source?
  • How do I measure success?
  • Can operations and jobs be merged or outsourced?
  • Can technology or automation replace labour?
  • What assets and facilities are critical or expendable?

By understanding the specific problems which face your business, and by listening to the people who work in your business day in and day out, you can make better-informed decisions about the restructuring operation.
Let’s look at an example.
British Airways (BA) was forced into urgent remedial action after the 1970s oil crisis left the firm in dire financial restraints.
The board of directors identified that its workforce was grossly oversized, resulting in burgeoning payroll costs. At the height of its success, British Airways (BA) reportedly employed more than 59,000 staff worldwide.
Cue a major restructuring operation.
BA made the tough choice in ‘slimming’ its workforce down to just 39,000 staff. But it didn’t stop there. The airline also cancelled unprofitable routes and upgraded its fleet to operate more efficiently. It also clearly communicated its actions to unions and the media, avoiding significant backlash and investor revolt.
The result? The combination of astute investment, transparency and regrettable but necessary cuts brought the company back to record profits within 10 years.
So, how does this example apply to your business? The BA restructuring operation demonstrates that simply cutting costs isn’t always the most effective way to restructure a company. By identifying unprofitable services and innovating operations, BA was able to save jobs and boost profitability.
Lacoste, the global sportswear brand, is yet another example of intelligent decision making. Bringing back the company from the brink, the brand’s then-CEO Robert Siegel launched a comprehensive restructuring programme in 2002, which saw Lacoste products removed from thousands of “undesirable” stores in a bid to improve its image among the elite. Sales shot up by 70 per cent in the USA as a result.
Essentially, restructuring should more closely resemble keyhole surgery than medieval bloodletting.
“Pulling the trigger”
The key to restructuring is knowing “when to pull the trigger”, says professor Gilson.
“Many companies recognise the need to restructure too late, when fewer options remain and saving the company may be more difficult.”
This is particularly true in periods of redundancy when scrupulous legal regimes must be observed.  
“Research suggests that voluntary or pre-emptive restructuring can generate more value than restructuring done under the imminent threat of bankruptcy or a hostile takeover,” he adds.
Accordingly, some of the most efficacious restructurings in business folklore took place before desperation set in. The obvious advantage here is negotiating from a position of power. A business better known for its successes, rather than its failures, is more likely to secure the funding it needs, or recruit the talent it requires.
Staff are also much more likely to invest in your vision when they are guaranteed a paycheque at the end of the month.
But life doesn’t always go to plan. Many restructurings happen after a company has hit rock bottom, forcing the hands of business owners to take do or die actions. But urgency should not result in poor decision making. The restructuring framework – design, execution and marketing – exists for a reason. As Professor Gilson reiterates, “failure to address any one of these challenges can cause the restructuring to fail”.
Likewise, the Federation of Small Businesses (FSB), the UK business organisation, advises: “You should be certain that restructuring is the only option available to you. It can be hard on a business and its staff to undergo drastic changes, so ensure that you’re positive restructuring is for the best.”
After all, almost every restructuring project will involve at least one legal and/or financial element. Shifting management, for example, may require the legal transfer of ownership. Selling assets, meanwhile, means finding equitable buyers.
Asset devaluation, legal battles, shareholder disputes, loss of business and staff dissatisfaction are the biggest consequences of rushing business-critical decisions.
“A bungled corporate restructuring can turn a good idea into disaster,” echoes Professor Gilson.
Remember the BA case study we discussed earlier? A major contributor to the airline’s prosperous restructuring programme was transparency. Throughout the whole project, the company explained – tactfully – why, what, and when cuts were happening. This helped ease in the redundancy programme, while also assuring shareholders that BA stocks were worth holding on to.
This process is known as ‘marketing’ the company’s restructure: the combination of transparency and obscurity to retain order within your business.
Convincing stakeholders that restructuring is a good idea is a precarious balancing act. You can’t disclose everything. That would put competitors at an advantage and might needlessly spook stakeholders.
But you can’t hold back, either. Once restructuring begins it will be glaringly obvious what is about to happen, so you’ll want to do your best to stem speculation and hearsay. Control the information. After all, it’s only your company’s reputation and credibility at stake.
As Professor Gilson explains: “The most obvious way to do this is to disclose useful information to investors and analysts that they can use to value the restructuring more accurately. 
“However, managers are often limited in what they can disclose publicly. For example, detailed data on the location of employee layoffs in a firm could benefit the firm’s competitors by revealing its strengths and weaknesses in specific product and geographic markets.”
So, that begs the question: what information do we have to share?
Small and medium-sized businesses have a distinct advantage in this regard. Unlike listed companies, privately held entities can hold their strategy much closer to their chest.
The FSB adds: “it’s important that you make sure your staff, suppliers and anyone else who stands to be affected by the changes are kept informed of what is going on”.
But ultimately, deciding exactly what information to disseminate is not something we can answer in an internet blog post.
If you would like to discuss the challenges facing your business, our expert team is here to help you. It’s our job to find solutions to your problems.
Get in touch today.

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