Demand will continue to slide, costs will keep rising, competitors will play desperate to maintain cash-flow, channel partners will keep demanding extended credit and margins, interest rates will not be any lower. Taxes and duties may even rise again during the year with a desperate effort to reduce government borrowing in rupees. So what can you expect? Better or worst operating environment. Newspapers reported recently that some small and medium scale businesses have opted to sell and bank cash at 30% interest rate. How many businesses today can give you a ROI of over 30%?
When the economy becomes very unstable, small businesses often feel the effects first. Similarly, changes within a small business industry, like a new competitor or industry’s weaker demand, may cause its profits to decline. Small businesses have a tendency to make decisions for shorter terms; hence such companies generally don’t pay that much attention to medium to long term risk aversion. When small organisations have depleted all their capacity in trying to resurrect operations, the next best thing is to restructure the business for revival and rejuvenation. To start on a new journey with a new Successful restructuring and reorganisation of an organisation needs good analysis of the challenges and to define the issue in context. Big or small as the businesses progress over time there is a natural tendency to add complexity.
Complexity reduction is non-negotiable under present circumstances. Making changes to the existing strategy may not be enough to conquer the humungous challenges. There can be more drawbacks than what’s identified already. Another wave of Covid cannot be overruled. Political instability striking back again is very imminent. So better be prepared.
Painful path
If we put things in simple terms, then complexity does cost quite some money. Whether the organisational design and structure is complex, a product is complex and will offer a transactional process, the added cost of complexity shall also drag the performance a bit further. Whether it’s a public entity or private ownership, restructuring can be driven by a need for change in the organisational structure or business model of a company, or it can be driven by the necessity to make financial adjustments to its assets and liabilities. Frequently, it involves both. Companies restructure for a variety of reasons:
Reduce the cost structure, concentrate on profitable market and product segments only, improve competitive advantage, spin off a subsidiary company, merge with another company, decrease or consolidate debt – this is a major item in today’s context, lay off excess employees for greater productivity.
Many private owners are reluctant to restructure due to egoistic attitudes with the fear that they might be perceived as those who have failed. As opposed to this misconception the decision to restructure itself makes the business come out of a disaster which is a fact that has to be kept in mind. If you look around the world you would hardly find a large multinational who has not done re-structuring over the past 10 years. Look at the large local conglomerates; they too have done many. The good thing about the company restructuring plan is that the cost of operations could decrease in the future. An example can be used to explain this. The payroll expenses will be much lower if the businesses have dismissed some of the employees. Likewise, there are outsourced operations which are usually less expensive than in-house labour.
We live in an era of risk and instability. Globalisation, new technologies, and greater transparency have combined to upend the business environment and give many CEOs a deep sense of unease. And it has become virtually impossible for some executives even to clearly identify in what industry and with which companies they’re competing.
Read and act in timely manner
All this uncertainty poses a tremendous challenge for strategy making. That’s because traditional approaches to strategy — though often seen as the answer to change and uncertainty — actually assume a relatively stable and predictable world.
Think about it. The goal of most strategies is to build an enduring (and implicitly static) competitive advantage by establishing clever market positioning (dominant scale or an attractive niche) or assembling the right capabilities and competencies for making or delivering an offering (doing what the company does well). Companies undertake periodic strategy reviews and set direction and organisational structure on the basis of an analysis of their industry and some forecast of how it will evolve.
To restructure or adapt, a company must have its antennae tuned to signals of change from the external environment, decode them, and quickly act to refine or reinvent its business model and even reshape the information landscape of its industry.