Author
David HillChief Operating Officer
0403 037 664
Running a business requires constant input, a clear vision of your current direction and the environment in which you operate, as well as a keen eye for challenges on the horizon. For companies big or small, this may require restructuring.
Restructuring primarily takes two forms, business restructuring and job restructuring. There are many reasons why you may want to consider one, or both of these strategies to benefit your business.
It’s important to remember that restructuring does not imply that the current business model is underperforming. The reality is that all businesses are operating in a changing economy. The appropriate response to these new challenges may require a more streamlined model or the reallocation of resources into new areas. What worked yesterday may not work today, or tomorrow - and only businesses that acknowledge this will prosper.
Once the decision to restructure has been made, the next question is how to begin. As a leader in your company, you know your business best. But you may not be aware of all the financial, strategic and legal options available to you during a transitional phase. There are professionals who can guide your business through the process by laying out the various options available and then building an action plan.
What is business restructuring?
Business restructuring typically involves re-organising the legal, ownership, operational, and/or other structures of the company. The aim could range from making your business more profitable to averting a disaster like insolvency or debt issues, and sometimes business restructuring is associated with turnaround efforts. A business restructure could involve bringing in experts to assess your business, review your current strategy and team, and changing up everything from your operations and marketing to finance and business model.
In extreme cases, business restructuring could occur by first entering a formal insolvency process like administration, which would leave it up to an appointed administrator to recommend the best course of action.
How does business restructuring work?
So business restructuring can vary widely in how it works, and this can depend on what your business might need to operate profitably or to keep up with market trends.
For example, your business turnaround experts could recommend and assist with obtaining turnaround finance for debt restructuring after a thorough assessment of your finance reports. It could involve reducing staff numbers (which can involve job restructuring).
The restructuring might also work by exploring ways to generate revenue quickly, such as narrowing your focus only on your most profitable products or services. Business restructuring could also mean streamlining your operations to eliminate wastage and disruptions.
Ultimately, you could end up with a refreshed business model and plan that gives your business a better chance at staying solvent or returning to profitability.
What is job restructuring, and why may it be needed?
As part of an organisational restructure, some of your employee’s roles may change. Role changes can be defined as vertical or horizontal restructures.
- Vertical role changes relate to an employee gaining responsibilities for tasks previously overseen by more senior staff.
- Horizontal changes involve the addition of new tasks or different tasks on the same level.
For example, if a junior account manager’s role is amended to include tasks usually performed by a senior account manager, then that would be considered a vertical restructure. But, if new responsibilities were added to cover for another junior account manager, that would be horizontal. Both these changes can be complex, as they may involve contract renegotiations and care must be taken to ensure the welfare of the employee.
As the employer, you need to be clear about how roles are changing and lay out an action plan with the employee’s input to come to a mutually-agreeable solution. If an employee’s responsibilities and wage are significantly reduced, they may claim this makes them redundant in all but name and request a severance package based on their original salary.
There are murky waters surrounding the issue of redundancy, and professional advice should be sought before engaging in any restructuring operation.
How do these types of restructuring differ?
Business restructuring is a broad concept and it could encompass job restructuring. The two terms differ in the following ways.
Scope
As mentioned above, business restructuring could potentially involve just about any aspect of the business. While job restructuring is generally limited to HR, your team, and each staff member’s role, business restructuring could involve HR changes as well as things like debt restructuring, operational changes, product line variations, and much more.
Scale of change
Job restructuring could be narrowly focused on role changes without redundancies. If so, the job restructure could be relatively small in terms of the scale of change.
In contrast, business restructures are usually large-scale changes that impact multiple elements of the organisation.
More moving parts
Since a business restructure typically happens on a larger scale than a job restructure (and can include job or HR restructuring), business leadership could be managing more moving parts.
For example:
- With a business restructure plan, you might be focused on making legal or structural changes while staying compliant, and the plan could involve other considerations like operational and financial changes. Since major changes are happening, you need to manage staff as well and ensure communication channels remain open.
- In contrast, a job restructure could be more manageable as you’re focused on only HR aspects like training, recruitment, and managing the impacts of redundancy. Both however will usually require detailed planning and careful execution.
Reasons
- Job restructuring could be undertaken to update your organisation’s collective skill set, improve productivity, or other reasons closely linked to your team’s capabilities and their costs.
- Business restructuring, however, could be carried out for a wider number of reasons, such as cash flow, boosting operations, adapting to changing trends, and financial pressures.
Making the call
Preparing to take the first step on a restructuring process can seem daunting when faced with the prospect of making redundancies or choosing which products to focus on and which to wind down.
Luckily, Mackay Goodwin specialises in corporate debt and small business restructuring - which also can involve job restructuring - and can help you successfully turn your business around.
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