To What Extent Does Restructuring Transform Corporate Market and Financial Performance?

To what extent does restructuring transform corporal market and pecuniary death penalty? Discuss using an ext terminate example. Restructuring is simply the re presidency of a connections structure to combat external or internal forces that hinder the maximisation of shargonholder value. The frontier restructuring is quite broad an is an umbrella term for both action taken by a self-coloured to maximise partakeholders wealth (Wright et al) or a ships companys reaction when its under insistency (Usui and Colignon, 1996). These actions bracket coalitions and encyclopaedisms with much else (Froud et al. , 2002, P. 2).This essay should explain in great detail how restructuring can transform unified market and pecuniary performance. It will focus on pecuniary, portfolio and schemeal restructuring and to a greater extent specifically the following restructuring actions mergers and acquisition and outsourcing and off-shoring. In addition Marks and Spencer and British Airway s would be used interchangeably as extended examples to further beautify stated points. Restructuring actions usually occur to revive failing bloodlinees. By delayering or merging with another business levels are likely to become more free-enterprise(a) and more profitable.It is also not uncommon for restructuring to be used as a preventative measure to stay ahead of the game and react to competition. If make correctly and when necessary, it should result in economies of scale, decreased operational costs and easier communication. Financial restructuring refers to changes in a companys financial structure. It involves managing debts, stocks and shareowner payments. Portfolio restructuring on the other hand deals with products, acquisitions and diversification. Finally organisational restructuring is mainly concerned with the gracious resources in the company.Mergers and Acquisitions are the most common forms of restructuring. In value terms, the merger of whole companies thr ough (often hostile) takeover continues to be the most important form of restructuring. (Froud et al P 3). Companies prefer to restructure in this carriage as it brings numerous instant benefits and can aid in transforming market and financial performance immediately. Firstly, merging with or acquiring a company gives an instant increase in market share. It is the easiest way to demean into a new market and deal a larger customer base overnight.British Airways recent merger with Iberia has been beneficial to shareholders, employees and customers. According to the airline their corporate market would be transformed as they would be travel to more destinations, own more aircrafts and be in possession of more passengers. Thus making it more competitive and change the companys image and brand. In addition, their financial performance would be transformed as they stand to benefit from a significant decrease in costs and benefit from economies of scale the merger is bound to provid e.These costs nest egg can be then passed on to the customer and susceptibility enable British Airways to be competitive on price a luxury it might look at not been able to afford prior(prenominal) to the merger. The merger might also help British Airways break into the South American market a market in which it had no prior expertise or significant market share in. In addition to an increased market share, Kotlers 8 C framework details how a firms market power could be increased through mergers and acquisitions (Kotler et al 2005).Firms gain greater pick up of every aspect of their products, greater efficiency, greater control of customer experiences and increased buying power if they have links with their competitors, challengers, collaborators, commodities, components, customers or consumers. Despite aiding in transforming corporate market and financial performance to or so extent, mergers and acquisitions arent unbosom from critique. This form of restructuring despite bei ng the most common is also the most critiqued. Firstly, there is the issue of Monopoly and unclouded competition. The Acquisition of a competitor could instantly make a firm the market leader.Consumers suffer as a result. There might be little product differentiation, increased prices and barriers to new entrants could be grade to prevent other smaller companies from entering the market therefrom giving a single organisation too much power. The government sometimes has to step in to minimise the formation of monopolies. British Airways were burnished for a merger with American Airlines which would have made them a dominating airline in major(ip) airports across the world. The deal was eventually stopped because of its anti competitive nature. In addition to monopolies, a best- exchange(predicate) critique on mergers and acquisitions is they just dont work. the Boston consultancy group estimate that 64% of recent US acquisitions truly destroy value for the acquirers sharehold ers (Kotler et al 2004) rather than increased profitability, mergers and acquisitions have come to be associated with lowered morale, telephone line dissatisfaction, unproductive behaviour (Meeks 1977, Sinetar 1981, Attendorf 1986, Cartwright & Cooper 1993). Three major reasons for the tribulation of mergers and acquisitions are a clash of organisational culture, piece relations dilemmas and abandoning core competencies. Different organisations have unique styles of going about their day to day trading trading operations.When a company merges with or acquires another the dominant culture usually prevails however employees from the organisation with the less dominant culture might still carry on doing things the way theyve always done it thus causation this clash. Errors associated with clashing cultures could range from minute to disastrous and if this carries on for a prolonged period of time, the opposite of the comprehend benefits of mergers and acquisitions is most likel y to occur. Employees also tend to feel worried about their job security when any form of restructuring takes place.Their insecurities are manifested through their actions that usually prove high-priced for the newly merged or acquired organisation and can eventually drive it to failure. High labour turnover, absenteeism and decreased productivity are some of the actions that could be manifested as a result of job insecurity. A disparity in core competencies is a last reason why mergers and acquisitions are becoming more prone to failure. Hamel and Prahalad (1994) argue that an organisation can never gain long term financial rewards if its core competencies are ignored.Thus merging with or acquiring a company with contrasting core competences isnt likely to be successful. The merger between Daimler Benz (makers of Mercedes Benz) and Chrysler is a perfect example of a failed merger. Due to a clash of organisational culture and contrasting core competencies, the merger eventually en ded in failure. There were good intentions behind the merger but finding the balance between Daimler Benzs richly end auto mobiles and Chryslers middle of the road range proved more difficult than anticipated thus Chrysler was eventually sold off.Druckers (1985) critique of mergers and acquisition argued that managers often seek to restructure in this manner to diffuse risk but it doesnt guarantee success and usually results in failure. His five rules for successful acquisition give useful steps that managers might want to take into consideration prior to restructuring their organisation in this fashion. Outsourcing is another restructuring initiative used by firms when they find it necessary. Outsourcing aids in transforming the corporate market and financial performance of a firm to a great extent.It enables firms to focus completely on their core competencies as other organisations are hired to carry out activities that arent directly related to the companys operations. It save s costs, improves efficiency and aids in the implementation of rapid change. In addition, finding workers with the necessary qualifications and skill in a specific hoidenish required might be difficult, thus offshore outsourcing becomes a necessity (King, 2009). One of the most outsourced operations in the United Kingdom and the ground forces is Information Technology. There are more IT positions in the USA than there are graduates (Morrill, 2009).Marks and Spencers indulge in offshore outsourcing to aid with its IT operations. As a result they have been able to focus on areas of more importance to them which is the quality of their products and their customer service. Additionally, offshore outsourcing aids in creating jobs in developing third world countries where unemployment rates are high. Some of the accounting and research operations on Wall Street are outsourced offshore. The companies are usually based in India where the best candidates are selected for the job and would be paid a good wage according to the standard of living in India.However if the very same operations were to be performed in New York, the staff may not be as dexterous as those in India and would demand triple the salary in accordance to the high standard of living in New York. All in all, Outsourcing is intended to ensure that the most skilled and most efficient people do the job at a mutually beneficial financial cost. On the other hand, there are so many ethical and political concerns associated with outsourcing. Many intrust that its damaging to the economy as creating employment offshore decreases employment in the companys home country. utsourcing is a suffering alternative to a firms internal management of Information Technology and operate because it is tantamount to selling your birthright (Clark et al, 1995). Also, ethical issues such as exploiting local workers in offshore countries in a desperate call down to extend overheads to a bare minimum and maximise prof its have been connected to outsourcing. Numerous companies have been scrutinised and criticised for this. The likes of Nike and Primark have endured the embarrassment and scandal of engaging in child labour in an attempt to keep overheads unrealistically low.Pisano (2009) argues that outsourcing operations especially manufacturing can provide a leak in entropy which might enable competitors overseas to hone their skills and possible surpass the skills of the company outsourcing. Other criticisms of outsourcing include quality control, detriment of managerial control and hidden costs or the service being outsourced proving to be more costly in the long run. British Airways outsources almost all its operations. Back office operations, finance and accounting and its in-flight sell business are all outsourced.This has resulted in poor employee relations, a breakdown in communication and poor customer service amongst a host of other things. Whilst Marks and Spencers restructuring incl uded outsourcing IT operations which resulted in some employees being made redundant and other transferred to their outsourced off shore location. To conclude, restructuring transforms corporate market and financial performance to a significant extent. Every firm needs to change especially when it is at risk of failure or its not as profitable as it once was.Marks and Spencers restructuring ensured the company was re-branded in the customers mind and an emphasis was placed on quality. As a result sales soared and market share was gained. On the other hand their restructuring initiatives also led to the company making the strategic decision to stiff all shops in France thus bringing about bad press, criticism from trade unions and the French government, justice suits and parties calling for consumers to boycott Marks and Spencers stores. Restructuring is however necessary if a business is to remain competitive.If competitors are changing and a firm decides to remain stagnant, it is only a matter of time before it becomes irrelevant. The decision to restructure must be dependent on the overall business dodging. Strategic management as a correspond is concerned with how firms formulate and implement strategies in order to accomplish desired performance goals. (Schendel and Hofer 1979). A more aggressive proactive strategy might be better suited for companies pursuing mergers and acquisitions whilst an organisation with a cost saving and value adding strategy might prefer to outsource.Restructuring does transform corporate market and financial performance but should only ever be used in synch with the overall corporate strategy to reap maximum benefits. Bibliography * MN220 Strategic Management Lecture 18- Restructuring. Sukhdev Johal. 2012 * Restructuring for Shareholder value and its implications for labour. Cambridge journal of economics. Julie Froud, Colin Haslam, Sukhdev Johal and Karel Williams * Bbc. co. uk/business why firms bother to restructure. 1 2 Feb 2003 http//news. bbc. co. uk/1/hi/business/711722. stm * Caterpillar Two stories and an argument.J. Froud, K. Williams, C. Haslam, S. Johal, J. Williams. 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HBR Blog network. 2009 * Offshore outsourcing hard-nosed and ethical arguments for and against from a small business perspective. Danny King. 2009 *