Strategies for Corporate Restructuring

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Strategies for Corporate Restructuring
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Corporate Restructuring

• With constantly changing competitive
  environments, firms must consistently adjust
• Managers have many options to change firm
  structure without taking part in a merger or
  acquisition
• Corporate restructuring should occur within the
  framework of the firms overall strategy
• No one-size-fits-all approach to corporate
  decision making.

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Restructuring Motives

• Many possible motives for a firm to restructure
• Direct relation between corporate strategy and
  corporate restructuring
• Corporate focus often cited as restructuring
  reason, but focused companies also must review
  strategic alternatives in due to market changes
• Divestiture reasons learning, reversing
  mistakes, changing strategies (Weston, 1989)
• Firms restructure to remain competitive and to
  respond to change forces in the economy

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Restructuring

• Divestment Selling off business to someone else
  where it will continue as a going concern
• Spin-Off Setting up business unit as a separate
  business through the distribution of shares
• Liquidation Shutting down the business
  completely
• Reengineering Fundamental rethinking redesign
  of the organizations business processes
• Downsizing Laying-off employees
• Bankruptcy Dissolving or reorganizing the
  business under the protection of bankruptcy
  legislation

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Types of Restructuring

• Asset sales
• Equity carve-out
• Split-up Separation of firm into 2 parts, often
  via spinoff
• Tracking stock Creation of new class of stock
  with value based on cash flows of a division
• Exchange offer Distribution giving shareholders
  choice between parent and subsidiary stock
  creates separate public firm

Sale of division or other assets to another firm,
usually for cash
Public offering of partial interest in subsidiary
creating new firm with at least some autonomy
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STRATEGIES FOR ENTERING NEW BUSINESSES
Diversifying into New Businesses
Acquisition
Internal new venture (start-up)
Joint venture
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Strategy Formulation

• Strategy is an organizational plan of action
  intended to accomplish goals.
• Corporate strategy formulation refers to domain
  definition, or the choice of business areas.
  Usually decided by the CEO and the board of
  directors.
• Business strategy formulation involves domain
  direction and navigation, or how to compete in a
  given area. Usually decided by division heads
  and business unit managers.
• Functional strategy formulation contains the
  details of how the functional areas such as
  marketing, operations, finance, and research
  should work together to achieve the
  business-level strategy.

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Strategy Implementation

• Strategy implementation involves creating the
  functional strategies, systems, structures, and
  processes needed by the organization in achieving
  strategic ends.
• Strategic control refers to the processes that
  lead to adjustments in strategic direction,
  strategies, or the implementation plan when
  necessary.
• Strategic restructuring involves a renewed
  emphasis on what an organization does well,
  combined with a variety of tactics to revitalize
  the organization and strengthen its competitive
  position.

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Strategic Alliances

• Cooperative agreements between potential or
  actual competitors.
• Advantages
• Facilitate entry into market
• Share fixed costs
• Bring together skills and assets that neither
  company has or can develop
• Establish industry technology standards
• Disadvantages
• Competitors get low cost route to technology and
  markets

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Characteristics of a strategic alliance
Independence of Participants
Benefits
Technology
Products
Control
Ongoing Contributions
Shared Benefits
Markets
Cooperation
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