Free Essay On Strategic Management – Restructuring
Strategic Management – Restructuring
Restructuring has a negative connotation in the business environment, being often associated with employee dismissal, and it is considered to be the cause of poor financial performances that could even lead to liquidation or bankruptcy if not applied in a timely manner (Vance, 2009). However, corporate restructuring is not always the reflection of poor management or performances. Corporate diversification is always a change process, which reshapes the companies’ business model, by focusing either on diversifying the services, shrinking them down, or reorganizing the departments and the working process, all with the purpose of generating improved results and long – term profitability (Markides, 2003). Gilson (2010) defines corporate restructuring as a process of renegotiating contracts with stakeholders (employees, contractors, shareholders, creditors, customers) with the expected outcome of reducing debts, cutting costs, selling or acquiring new services or changing the ownership structure. Caterpillar’s corporate restructuring occurred because the company experienced a mature market, which did not allow the company to grow anymore and for continuing to be profitable, the company changed its business approach.
Figura and Wascher (2008) draw attention on the fact that restructuring appears as a consequence of the economic evolution, demand and technology shocks, and can produce relocation, temporary or prolonged unemployment for workers.
For Caterpillar (CAT), the 80s restructuring process implied a modernization process of the organization’s work activities, which implied significant investment in new machinery, robotics, identifying global suppliers and investing in the good transportation, but also a reorganization of its plants (International Management and Development Institute, 1900). Up until the 80s, Caterpillar enjoyed a leading position in the manufacturing system, when the market in which it operated reached the maturity stage, and its products and services where on a descendant trend, due to its high prices and bureaucratic working processes, not satisfying customer demand (Neilson and Pasternack, 2005). The company downsized during its corporate restructuring process, changing its business model, but also renouncing specific roles and dismissing people (International Management and Development Institute, 1900).
CAT was experiencing a business situation that threatened the company’s continuity, but with an organizational change it managed to reach from nearly bankruptcy to profits, registering ongoing profits after the restructuring (Neilson and Pasternack, 2005). The restructuring mean changing working processes, reorganizing departments, reestablishing goals and replacing metrics with profit and loss statements, with the purpose of increasing the responsiveness towards the end customer (Neilson and Pasternack, 2005). With the dismissal of thousands of employees, the company was able to focus on production, on its products, revising its marketing strategy, but also its business strategy, changing its shift to smaller types of machinery, bringing prices dramatically down and rapidly pursuing new markets (International Management and Development Institute, 1900). Therefore, the company diversified its business, while focusing on functionality, reaching nowadays a lean organization, with clearer production lines, each of them having strict responsibilities, goals and performance targets, which keeps the company registering profits (Neilson and Pasternack, 2005). However, the corporate restructuring within CAT meant not only an increased focus on applying the lean management philosophy, but it also increased the employees’ responsibility, seeking productivity for the organization, in order to remain competitive, which is the business model that the company still pursues nowadays (Neilson and Pasternack, 2005).
The payrolls keep organizations from making all these changes, so they have to be decrease (Vance, 2009). This strategy generated an increase in efficiency for CAT by restructuring the activities in order to enhance their efficiency. With the restructuring process, which represented a reorganization of the plants, departments, functions and roles, the defective parts of Caterpillar business were totally eradicated, giving increased independence, autonomy, responsibility, but also accountability to plants’ managers, which challenged employees to proactively perform (Neilson and Pasternack, 2005).
Caterpillar restructuring lead to changes in the construction manufacturing market, as the company settled for lower prices, renouncing its previous premium prices, which were required to keep the faulty operations before the restructuring process. In fact, the premium prices were sustaining the ineffective production. With the layoff of thousands of employees, the company was able to cut down costs for its products, to invest in modern technology and focus on less expensive machinery, as the customers demanded (International Management and Development Institute, 1900).
The company diversified and this, along with the rethinking of the activities and the business model, with increased autonomy and accountability for each plant, contributed to its boosted financial performances and productivity. The productivity within CAT was obvious in the restructuring process because fewer employees were able to produce improved results by embracing the lean management business style.
Before having to face the possibility of filing Chapter 11 for bankruptcy, organizations need to consider what they could change in their organization for transforming their position on the market, as well as their productivity and financial performances. For Caterpillar, the business model, diversification, modernization, reorganization of departments and functions across organization and accountability for each plant produced the envisioned transformation in the market, productivity and financial performances. Other organizations who consider corporate restructuring should envision how to emphasize internal capabilities, while making the necessary internal changes for answering the changing market’s requirements.
Figura, A, and Wascher, W. 2008. The causes and consequences of economic restructuring: evidence from the early 21st century. Washington, D.C.: Finance and Economic Discussion Series Divisions of Research & Statistics and monetary Affairs Federal Reserve Board.
Gilson, S, C. 2010. Creating value through corporate restructuring: Case studies in bankruptcies. New Jersey: John Wiley & Sons.
International Management and Development Institute (1990) Charting the course for business growth through the 1990s: Interviews. Maryland: University Press of America, Inc.
Markides, C,C. 2003. “Diversification, restructuring and economic performance” Strategic Management Journal. Vol. 16, no. 2, pp. 101 – 118.
Neilson, G,L and Pasternick, B, A. 2005. Results: Kep what’s good, fix what’s wrong, and unlock great performance. New York: Crown Publishing.
Vance, D. 2009. Corporate restructuring: From cause analysis to execution. London: Springer.