Abstract: Organizations are dynamic

systems and they cannot function in

the same way all the time.
In order to work smoothly and
efficiently, they need evolve through
various life cycles. That is why,
each time the organizations want to
develop, they often must undergo
significant changes in their
Overall strategies, practices and
operational tactics.
Abstract: Organizations are dynamic
systems and they cannot function in
the same way all the time.
In order to work smoothly and
efficiently, they need evolve through
various life cycles. That is why,
each time the organizations want to
develop, they often must undergo
significant changes in their
Overall strategies, practices and
operational tactics
Chapter 14

Restructuring Organization

Submitted to:

Mr Michael Protacio
 Submitted by:

Dela Cruz, Reymart

Agullana, Chiela Joyce

Abstract:

Organizations are dynamic systems and they cannot function in the same way all the time. In
order to work smoothly and efficiently, they need evolve through various life cycles. That is why,
each time the organizations want to develop, they often must undergo significant changes in
their overall strategies, practices and operational tactics. Changes of the process of
organizational restructuring should be aligned with an ever-changing, dynamic and culturally
diverse workplace. Companies, its leaders and employees must also evolve as the part of the
organizational structure. The organization restructuring frequently means making critical
decisions and evolves positive and negative impacts on the functioning of the organization.
Therefore, the key to improve organization's ability to move through change effectively is the
awareness of all possible negative aspects of restructuring besides its positive outcomes.

Introduction
Changes in the environment of
the organization forces the
entities to react and
Respond quickly to new
challenges that appear in this
environment
Introduction:

Changes in the environment of the organization forces the entities to react and respond quickly
to new challenges that appear in this environment. Global trends and internationalization of
markets make the companies to exist in very competitive conditions which very often impose
interaction with other entities, adapting new technologies and innovative strategies of
management. Restructuring usually involves major changes for the organization in its multiple
departments and locations including procedures and processes. Restructuring leads to a more
efficient and modernized. However it may lead as well to the deletion of jobs and the layoff of
personnel. The procedure of restructuring generally focuses on problems with financing debt
and very often, involves selling portions of the company to investor; basically it means certain
reorganizing or reducing operations inside the company. The restructuring can be done by the
internal executives of the organization, but frequently the professional help of financial and legal
advisers who assist with the details and negotiations is required. In order to lead the company
through the transition the restructuring procedure must consider employees' ability to adapt as
well as the efficiency of the organization. The major aim is to go through the changes with the
intention that the employees should adjust to the changes and the new environment and the
organization will be able to focus better on its goals, as more suitable strategic and financial
plans will be implemented. The organization can be regarded in two ways, as a system or as a
form (Figure 1). In management and marketing the concept of viewing the organization as the
system is popular among several researchers who focus on examining the relationship between
organizations and their environment. The typical scheme of organization includes the structure
with departments, programs, divisions or teams and the organization’s policy, culture, plans and
procedures. All of them function in cooperation and combine a kind of summation which results
in outcomes and scores of the company.

Organization
 System Form

A person or group
An organized Inputs, of people
collection of parts processes, intentionally
that are highly outputs and organized to
integrated in order outcomes accomplish an
to accomplish an overall, common
overall goal goal or set of goals

But these parts of

organization may also
become dysfunctional and
bring no
Effects while they operate in
dynamically changing reality
But these parts of organization may also become dysfunctional and bring no effects while they
operate in dynamically changing reality. This happens if one forgets about the people inside the
organization and sees the organization as the raw scheme. The organizations are the socio-
technical stems including two main components. One is a social component and means people
and the other is a technical component which includes technology and machines. The
organization should therefore combine the system approach and the social approach in its
functionality, because the most valuable asset the company can possess is the loyal and
qualified group of people with the same goals who operate in this structured cluster. The
problems inside the organization may occur when it comes to restructuring and at the same time
there exists a clash between executives who see the company as the system and the workforce
which considers the company as their source of living and the shared community. The
restructuring of organization due to various strategies may then bring negative impacts which
frequently diminish the final impression and result of positive outcomes. The task for the
executives and representatives in the company should be the correct evaluation of the possible
restructuring process results in terms of positive and negative impacts, as well as implementing
the most efficient restructuring strategies which will help to manage the process in the most risk-
free way.

Motives, strategies and implications of restructuring

There might be hundreds reasons why the organization need to restructure, but the most
significant is the market expectations. The business environment these days is so dynamic and
turbulent that it is hard for the companies to keep up and follow the newest trends and
frequently they lose their stability, especially the finance one, and competitiveness. Therefore,
the companies go through changes and decide to restructure. Basic reasons to restructure are:

 To make the organization more profitable and integrated

 To achieve efficiency and effectiveness
 To reduce unwanted and overwhelming expenses
 To implement new technologies
 To open to new markets on a global scale
 To meet the customers’ demands in a quicker and smoother way
 To be more competitive and achieve the market advantage
 To raise from the crisis or survive a currently adverse economic climate
 To move in an entirely new direction and enhance the shareholder value

If the reasons why the company wants and needs to restrict are learned, the organization
should focus on strategies which will lead through the process. In most cases, the strategies are
implemented according to the expectations of the restructuring procedure, i.e. to improve the
management of the company and the work organization, better and more effective applying of
company’s assets in order to gain the stability in business environment. Unfortunately, many
companies decide to restructure the whole company instead of its individual parts which may
not be that effective as the representatives wished. The changes inside each separate field are
the most appropriate in terms of final results. Therefore, it is advised that organization
concentrate on individual parts and restructure according to the division into:

 Operational restructuring
 Financial restructuring
 Decisive restructuring
 Restructuring in organization
The structural change should be done by a particular strategy. There are various strategies
which are commonly implemented by many organizations in the process of restructuring:

 Downsizing
 Layoff rightsizing or smart sizing
 Star bursting or networking
 De-layering outsourcing
 Business process re-engineering
 Enterprise resource planning
 Total quality management
 Virtualization
 Virtualization

The organization in order to accept and welcome the changes should be thoroughly prepared. It
is very crucial because the restructuring itself is difficult enough. The major mistake that often
occurs is the fact that staff is usually uninformed and thus keeps being obstructive because the
necessity for the restructuring has not been introduced to them in an appropriate way. In order
to avoid the uncertainty and turbulence during the restructuring process, the staff should be
exposed to all elements of the new approach and invited in to share in some parts of the
transformation. That becomes very important if the degree of changes may address a number of
difficulties and issues that staff members should be aware of. Being open with the staff and
inviting them to be participative as possible may have an effect on the decisions taking
procedure and may, as well, help to identify general implications of restructuring, which can be
positive or negative (Figure 2):

General Implication of Restructuring Organization

Positive Negative
o Helps the company move o Causes employees uncertainty and
forward effects their job security
o Helps to improve business o Decorates organization’s workforce
to work more resourcefully morale
o Help to reserve o May initiate dropping stock prices
competitiveness o May root in further cost implications
o May be provide more o Causes the loss of various assets
control inside the company o Decreases public image of the
organization
Problems and impacts of restructuring strategies

During the restructuring process, the company may have to face different strategies of going out
with its production or sell, entering new markets and at the same time, new societies and
cultures. In case of organizations that merge the clash between their individual cultures is the
most common problem which may slow down the process of implementing new patterns and
paths of doing business. This usually happens, when the company crosses the borders and
functions on different markets and gets into interactions or cooperation with other entities. In
such cases, the interaction with the foreign management, workforce, standards of doing
business can become destructive for the staff inside the company and the new environment,
especially when the representatives or managers are not prepared to work in co-companies,
subsidiaries, joint production plants, outlets or other company’s divisions sometimes far away
from the domestic headquarters. The knowledge about the market and the organization’s
background can be beneficial for the company if this knowledge is acquired properly, but it
can become destructive if not acquired at all or if guided by stereotypes. For the managers it is
crucial to learn the new markets and culture in order to avoid the problems that affect the whole
image of the organization. In case of corporation, for example, it is common to move some parts
of production in areas of the world where the cost of labour or manufacture is much smaller than
in homeland which evokes facing the new cultures. Sometimes it is imposed due to the lack of
transport infrastructure, or the transport itself, logistics, or technical infrastructure is less
expensive, available or in a better condition. Nevertheless, the strategy of moving to different
place should also bear in mind the culture and behaviour of the company and the environment
and identify whether the changes are accepted by the employees. The organizational leaders
should also function as the cultural leaders and be able to help facilitate the transformation,
because after restructuring not only the system and structure of the company is changed but
also the culture of this organization. Changes in such cases also should be prepared according
to the restructuring plan and implemented step by step in phases. Regarding the implications of
changes, the company management should implement the design of ethics and sensitivity in
order to reduce the negative impact of strategies taken in the process of restructuring the
organization by predicting disadvantages and potential problems. The typical restructuring
strategies and their impacts both positive and negative on the functioning of the organization
have been presented in Table 1.

SOME OF THE RESTRUCTURING STRATEGIES AND THEIR

IMPACTS ON THE FUNCTIONING OF THE ORGANIZATION
STRATEGY POSITIVE IMPACTS NEGATIVE IMPACTS

o Responsible structures o Downsizers judge their

consider their employees as costs the
employees as be cut
Downsizing
company’s assets to o They use the ‘’take an
develop exit’’ method which ruins
 o It can reduce informs o It can demotivate
about the details of workers due to job losses
Delayering restructuring o Initial disorder may take
o Ti offers opportunities place when people take
for allocation, on new responsibilities
empowerment and o Control over bigger
motivation, as the number of workers may
numbers of managers cause trouble in
is reduced and more communication and flow
authority is given to of information within
manage bottom company
workers

o Cheaper labour force o Necessity of adapting

o Increased to foreign rules norms
competitiveness in terms of work culture
Outsourcing
o Better, faster and more o Bad quality of work due
effective realization of to unskilled and
services uneducated employees
o More income o Permanent risk of
o Access to new information and know-
technology and know- how of the company
how leaking
o Wider spectrum of o Risk of third shift due to
views and knowledge overseas production

o Smaller units allow o Control over units can

improving, flexibility be disturbed by the
and productivity lacked of smooth flow
Star bursting
o Managers can be of information or
converted into feedback
entrepreneurs o Companies may suffer
o Handling business in from losing in-house
different geographic capability or the skills
areas can be easier to innovate to cover the
o It can allow the organization’s non-core
 o Implementation of o Aligning respective it
technology allow system
setting up unmanned o Hiring and training staff
Virtualization
virtual offices to reach companies
o Better contact with targets after
costumers and more virtualization
fluent responses to o Employees may need
their needs by pushing additional motivation
employees outside the o Virtual organizations
office to place like the require intensive
client’s site communication to avoid
o Providing an extended duplicating attempts
product and service
range

The above table shows the most common strategies of restructuring the organization. These are
the most frequently used strategies which unfortunately may bring some bad results than it is
usually expected if the plan of implementing them is not prepared well enough. First of all, the
restructuring should avoid the reduction of employment and try to implement the plan or
program of moving the personnel into new positions and if it is not possible, prepare them for
the jobs by offering special courses or programs that give the workers the opportunity to find the
new workplace. The qualifications of the personnel are also very important especially if the
company moves to new places and needs new people to work. Another difficult aspect is
reducing the number of executives or managers, especially top managers who need to be
dismissed or moved to different positions. This may result in unwanted crisis and confusion
among the workers. Not all companies should implement the strategy of delayering because it
may affect the flow of information within the organization. Generally, implementing the
restructuring strategies should first analyse the impact of the strategies on functioning of the
organization. Such analysing is essential in order to avoid the damage to the personnel and the
organizational functioning. The right attitude and experience of the leadership and managers
determine the success of the change process and bring the positive reaction of the employees.

Conclusion

Changing times and changing business conditions require from organizations making changes
to the organizational setup. Nowadays, it is impossible for various types of organizations to
function in the same unchanged from all the time. New challenges on the market in terms of
global environment enforce adapting to new standards and circumstances and facing the
customers’ demands instantly. Thus, restructuring is one of the options for the business to stay
on track which has the impact on the flow of authority, liability and information crosswise the
organization. The most significant issue for present organizations is to observe the market and
chose the best restructuring strategy in order to maintain or expand the market advantage, but
without unnecessary problems and negative implication that could possibly ruin the
organization’s image and trust.

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