To assure profitability, a company needs to continuously follow the business and adjust to market requirements. In some previous articles, we discussed these issues. We talked about continuous improvement and change management. But if a company is slipping deeper and deeper into losses, it is necessary to put a restructuring project in place. This is a dangerous situation for a company for two reasons:
- the change has to be done decisively so as not to put the company in danger due to cash or finance problems; and
- the restructuring has be targeted at bringing the company back onto a path to healthy performance. It cannot focus on cost cutting only.
What does this mean? It means that cost cutting is necessary and all possibilities for improving the structure and reduce costs should be put in place. This all has to stop at the point when the company becomes unable to prepare for the future anymore.
A proper restructuring project shows not only the possibilities for cost reduction, but also the possibilities to adjust to market needs and puts the resources in place to design this future. Even more, a good restructuring project puts everything in place to construct this future.
I always keep in mind a statement of Wilhelm Rabe: Look to the stars, take care on the road.
That means that when restructuring is necessary, we have to have a clear view of how to position our company for the future, but we cannot do it without taking action to assure our functionality at present time.
What does this mean practically if we have to decide to restructure? A restructuring project normally focuses on four main areas:
- production costs;
- cost of purchasing;
- costs for development and distribution; and
- benchmarking products and productions.
It is necessary to evaluate these four areas to look for savings. This will eliminate waste that is accruing in an organization. If restructuring is done early, it will help the organization recover. Very often, restructuring projects are done when the company is already in deep trouble. In this case, it is necessary to focus on the four areas, but it is also necessary to question the business model of the company and to put in place the resources to change that model, if necessary.
This subject is often overlooked in restructuring projects. Failing to take this into consideration causes a lot of restructuring projects to fail or to not offer a sustainable business case. For this reason, a restructuring project should always focus on five subprojects:
1. production costs;
2. cost of purchasing;
3. costs for development and distribution;
4. benchmarking products and productions; and
5. reviewing the business model and its profitability.
Focusing on all five areas will lead to a healthy and sustainable business in the future.