Planning, Formulation and Execution of Various Restructuring Strategies
Global competition, legislative changes, technical discoveries, managerial innovations, transformation of centrally planned communist economies, and international commerce have all contributed to corporate restructuring. It has resulted in significant improvement in company performance. A company’s restructuring is an action that aims to make the organization more balanced, lucrative, and able to execute its goals in a more streamlined way than before. It may include organizational restructuring such as merger, amalgamation, takeover, joint venture, divestment, expansion, and so on, as well as financial reorganization such as share buybacks, sweat equity share issues, share redemptions, convertible debenture/preference share issues, bonus share issues, deep discount bond issues, and so on. However, corporate restructurings fail if they do not align with the strategic goals.
Strategic fit.
The first phase of the approach is to determine if the restructuring aligns with the vision and strategy of both/all parties concerned. As an example, A typical merger occurs when two or more parties join together to establish a new business. Neither is taking over nor acquiring the other. Even when business A acquires half or all of firm B, the outcome is a merger.
In any situation, whether merging or selling and purchasing, it is preferable that the senior managements of both A and B have matured their separate perspective views and reached the reasoned decision that a merger is the best plan.
Takeovers may be an effective approach for A to enter a new product, area, or category; or to accelerate growth in addition to internal, organic expansion; or to get access to resources such as capacity, personnel, technology, brands, or finances. For B, selling out may be a suitable strategy for divesting an unrelated firm, focusing on core operations, and freeing up resources for such concentration.
- Planning Phase
- SMART objectives, ROI
Restructuring makes sense only if profitability and market position are improved. The business objectives should be ambitious, but realistic, time bound, specific and clearly measured.
- Budget for restructuring
Without a sufficient budget, any restructuring is “mission impossible”.
- Internal communication to gain team’s support & give/get ongoing feedback
Incorrect/poor communication of the process creates chaos.
- Project team creation: x-functional, x-country
The project team should include all key people who are needed to make the project successful.
- One fully dedicated project manager/coordinator
“Shared” responsibility does not work in restructuring.
- “Sponsor” from top management team who will support the process
Without support from the top management level, the process can get stacked easily.
- Person responsible for each country
For multinational restructuring, the voice from the country level with first hand, local knowledge should be heard.
- Project management tools and procedures in place
Project management tools should be used, especially in complex projects. A company can use existing procedures or create new ones.
- Implementation test phase
- Test phase for one country, area, division, function, head office, etc.
Small-scale tests are needed to avoid the risk of big and costly mistakes affecting the whole organisation.
- Measuring & analysis of test phase
- Measuring results against SMART objectives
- Corrections of initial plans, if necessary
This is the most important part of organisational restructuring process in its implementation phase. If a test is not successful, the whole organisational restructuring is in danger.
- Full rollout
- Measuring results against SMART objectives
- Corrections to implementation
From business units to category management
Nike began as a firm that sold running shoes. After a few years, they launched footwear for various sports, including soccer, sportswear (lifestyle), tennis, basketball, x-training, women’s fitness, and American football. Nike rapidly understood that its customers need specific gear and equipment to participate in their sports, therefore the two business divisions were introduced to the product catalog. The company’s organizational structure mirrored all of these developments by adding “business unit” departments: footwear, clothing, and equipment for all sports to traditional functional divisions. Nike’s senior management eventually chose to divide the corporation into sports groups. The fundamental reason was that, for example, soccer goods varied greatly from running products in terms of product variety, skills required, distribution channel, sports assets, product characteristics, consumer play areas, and so on. Each category represents a distinct “field of play” in which manufacturers fight to capture the hearts of each category’s customers. When the organisation mirrored the category strategy, it became much simpler to react to customer demands and build discrete category markets. Each sports category division contains footwear, clothing, and equipment, as well as a staff responsible for category marketing, retail, visual merchandising, and product development.Nike’s organizational development from a business unit to a sports category structure is an excellent illustration of how a corporation may adapt to better satisfy customer wants and expand its business at a rapid rate. This technique assisted Nike in becoming the worldwide and sport-specific “field of play” leader. The transition from footwear to BU divisions took many years, while the rearrangement from BU to categories was completed in one year. Nike’s aim to serve and inspire athletes all over the globe (“if you have a body, you are an athlete”) aided the corporation in making sound organizational choices and redefining the industry’s service model. The rival followed suit, but was unable to reclaim strategic initiative.
Geographic expansion: an example of the CEMEA area.
Nike was founded in Oregon, USA. It quickly grew to all other nations before establishing a presence in Western Europe and beyond. Nike chose Poland as the region’s first test nation. Nike Poland was established as a buy-sell subsidiary using shared services from Nike’s European headquarters in Holland and the primary warehouse for Europe in Belgium. Following a year of testing, the country’s opening pattern was gradually adapted to other CEMEA nations. Poland served as a training and information center for teams from other nations. Prior to Nike’s establishment of its own subsidiaries, these markets were served by ineffective, exclusive distributors who were unable to promote the Nike brand and develop profits the Nike way. Each CEMEA nation has its own customer service in the European headquarters, functional and category teams, and a centralized supply chain approach. With its own companies in each CEMEA country, Nike was able to provide better commercial conditions to its retail partners, initiate marketing initiatives to correctly position the brand, and generate revenues. The European headquarters was established as a service center for all European nations, allowing countries to be less staffed, more focused on sales, and with less manpower required to cover all functional areas within each country. Nike operated as a matrix, with all functional and category jobs represented at all levels (global, geographic, and national). Marketing efforts were integrated across all divisions (sales, marketing, and retail) and carried out in each country, following global rules and making local adaptations.
Supply chain: concentration of delivery
After Nike moved into Europe and began in certain nations with conventional logistics in the early years, instead of having warehouses in each country, a central warehouse was created in Laakdal, Belgium, to service all European clients from a single location. All Nike worldwide manufacturers carried their items to Laakdal, after which outsourced logistics businesses delivered seasonal orders to Nike European consumers’ doors. In the 1990s, establishing a massive storage complex in the middle of nowhere in Belgium but near to seaports was a big supply chain innovation that simplified logistics and saved labor and operating costs as compared to having warehouses in each nation. The system did not perform properly from the start, but Nike continually improved its functionality and automation.
From “prop” to “futures” orders.
Nike initially fulfilled demand by collecting client orders, arranging manufacturing from manufacturers, and delivering items to customers. The notion of requiring buyers to purchase things six months before each of the four seasons, using product samples and catalogs, was groundbreaking. It provided better demand-driven supply planning with fewer financial and logistical restrictions. This technique, known as “futures” ordering, as opposed to the on-demand “prop” system, has radically altered Nike’s structure. Instead of gathering orders from clients during sales calls, Nike established a network of uniform showrooms in each nation. Nike’s sales staff offered new seasonal collections to clients in a similar manner, with comparable visual merchandising assistance, and far ahead of their market release.
From wholesale to direct-to-consumer.
Any company success is dependent on positive customer interactions and a large profit margin. As Nike’s creator, Phil Knight, once said, “Once the gross margin is good, everything else can be fixed”. Previously, Nike’s major business partners included significant accounts such as Footlocker, Intersport, Decathlon, El Corte Ingles, Sports Direct, JD Sport, Go Sport, Bata, mid-size “field” accounts, and Small Value Accounts. Nike’s sales divisions clearly mirrored this strategy. In certain ways, Nike relied on the consumer experience provided by its partners. Many of them were far from brand boosters, with prices routinely reduced via aggressive discounting. Except than a few Nike Towns or factory outlet shops, the corporation did not own any retail stores. With the growing role of e-commerce and periodic market overstocking as a result of aggressive strategic goals, Nike decided to strengthen its direct-to-consumer presence in the global market by opening Nike-only stores, its own online store www.nike.com, its own factory outlet stores, and introducing the category shop-in-shop concept with key accounts. These measures necessitated significant reorganization of the Nike organisation to deal with new duties such as channel and space planning, category directive assortments for its own shops, product differentiation in retail, return logistics, and a variety of other issues. Although Nike’s direct-to-consumer method is always evolving, generating double wholesale and retail margins on their own, a brand-enhancing retail store network was a significant boost to Nike’s profit and loss statement.
Selected cost optimization restructuring efforts
“Shared services” is a concept created by Nike to decrease employment by providing a single central or regional service center for several nations. It was given to a collection of lesser nations or the whole Nike area. HR, customer service, logistics, IT, procurement, and other departments used common services. It’s nothing new now, yet it was a really inventive approach 20 years ago. Reducing global or regional headcount is a very simple method of lowering labor costs. Nike used it because the organization accumulated too much “fat” yet sales and gross margins did not expand as expected. When the top line returned to normal and headcount constraints were relaxed, the total number of employees generally returned to the prior level or higher. Nike’s “10 percent cut in costs” strategy aimed at reducing unnecessary operating expenditures at the national or regional level. Despite their initial opposition, Nike nations found it remarkably simple to do this assignment, as provided as the practice was not repeated the following year.