business strategic implementation - part1

Business Strategy Implementation

Question No. 1

What are the reasons for corporate to restructure the

organizations and how could they avoid these reasons?

Aim of Organizational Restructuring

The aim of all organizational restructuring strategies is to change the organization and make it work more effectively, more efficiently, to be more productive and increase profits. Whether in the private sector or in government agencies restructuring is a never ending process. Restructuring strategies are also used by global organizations to improve and enhance their business's position.

Why Engage in Corporate Restructuring?

Smart-sizing: It is the process of reducing the size of a company by laying off employees on the basis of incompetence and inefficiency.

Examples 1. Acquisitions

2. Diversification: Videocon group is diversified into power projects, oil exploration and basic telecom services.

3. Merger: Asea and Brown Boveri came together to form ABB.

4. Strategic alliances: Siemens India has got a Strategic alliance with Bharati Telecom for marketing of its EPABX.

5. Expansion: Siemens is expanding its medical electronics division- a new factory for medical electronics is already come up in Goa.


Changes in competitive situation: Because of foreign competition, accelerated rate of technological change& competitive pressures faced globally. To focus on core competencies by divesting non-core businesses; these disinvestments can have attractive valuations.

Changes in capital markets : Abolition of Controller of Capital Issues, empowering SEBI, freedom to FIIs to invest in new issues and existing stocks, access to capital globally at cheap rates, scope for private placement, scope for delisting, the emergence of angel investors as well as venture funds, etc., are forcing companies to rethink their capital structure.


Changes in Govt. policies :Major changes in MRTP Act, FEMA, Industrial licensing, setting up of Competition Commission of India, etc.; Size no longer is a constraint; growth strategy is based on competencies and not govt. licenses; MNCs can gain control of operations in India. A classic example is HUL

To avoid unsolicited take-overs :As bidders believe that the stock prices of some companies do not reflect true values achievable via restructuring of businesses (after acquisition).Going concern value may be lower than break-up market value. Therefore, some firms increase debt considerably to become unattractive.


To gain long term competitive advantage: Honda Motors India broke up with Kinetic Engineering to set up HMSI Private Ltd. HUL restructured itself via project millennium in 2000. Now after loosing market share to competitors in 2008-09 it is trying to reinvent itself.

To enter international markets :This is especially in the face of quota & other restrictions besides the effects of globalisation.

Ranbaxy acquired firms’ abroad to penetrate foreign markets. Infosys reorganised itself as per demands of international stock exchanges and investors. Tata’s acquired Tetley, Chorus and Jaguar Land rover to enter global business in tea, steel and automobiles.


New skills and capabilities are needed to meet current or expected operational requirements.

Parts of the organization are significantly over or under staffed.

Technology and/or innovation are creating changes in workflow and production processes.


To achieve operational & market related benefits:Restructuring of the appropriate kind can lead to improved competitive position (say via vertical integration), gains in market share (by business combinations) and increased productivity (via modernisation and retraining)

To reduce cost: Reducing the cost structure via a host of organisational, portfolio and financial restructuring is essential to make firms cost competitive/ profitable.

To increase management control: By merger of investment companies, increasing share holding pattern, etc.

How could we avoided the above ….

By giving proper training and hiring skilled staff inside and out side the organization.

Avoid merging, acquisition, diversification

Get new technology and process by hiring consultants and educate employee inside to avoid reorganization.

Retain skilled staff and eliminate underperformer by 10% every year.