Introduction

Many Companies, during different phases of organizational life cycles, reach a stage when organizational change becomes essential for survival and growth. Changes as distinguished by Balogun and Hailey (1999) in terms of their nature and scope can be of four types; Evolution, Adaptation, Revolution and Reconstruction. Adaptation is the mildest form of change. This is the most common form of change in organizations and can be managed within the present paradigm without change of strategy. Evolution means some transformation. This requires paradigm change, but over time. Revolution is a fast and major transformation. In such a case, the pressure for change is the highest; for example, a continuous decline in profit threatening the existence of the organization. Reconstruction also implies upheaval in the organization, but this is less drastic than a revolution; for example, major changes in the market conditions or the environment requiring structural or organizational change. Organizations have to adopt appropriate strategies for managing such changes. The strategies in order to manage the changes effectively can be divided broadly as 1) Reactive: Which includes Corporate Restructuring Strategy, Divestment Strategy, Liquidation Strategy and Corporate Turnaround Strategy, and 2) Proactive: Which includes Managing Radical change, Managing Uncertainty, Doomsday Management and Change during Good Times

Corporate Restructuring
Corporate Restructuring means organizational change to create a more efficient or profitable enterprise. Corporate Restructuring has three different meanings or connotations; a) Organizational Restructuring: It means changes in the structure of the organizationChanging or reducing hierarchies or delayering, downsizing i.e. Reducing the number of employees, redesigning positions, reallocation of jobs or portfolios or changing the reporting system. b) Business-Level Restructuring: It applies to multi-business organizations which deal with changes in the composition of a company’s businesses or product portfolios. The changes are done on the basis of movements in the market share or performance of different businesses or products to improve efficiency or profitability at the corporate level.

More common forms of restructuring are organizational restructuring and business-level restructuring. A business becomes a good candidate for spinning off as an independent company if it possesses sufficient resource strength to compete successfully on its own. Divestment is usually a part of corporate restructuring or rehabilitation program. debt servicing schedule. If a company decides to spin off a business. Selling a business outright is the more commonly used form of divestment. Retaining partial control is generally recommended if the business to be divested has good profit prospects. borrowing pattern. means selling a part of a company. etc. Many times. Divestment Strategy Divestment also called divestiture. Restructuring is essentially an adaptation strategy.c) Financial Restructuring: It is concerned with changes in financial management in terms of equity pattern or equity holdings. This may happen more during a turnaround situation. Divestment is many a time used to raise capital for new acquisitions or investment. Divestment can be done in two ways: selling a business outright or spinning it off as an independent company. but has not been successful. Parle Products sold its profitable soft drinks business to Coca- . businesses are sold not necessarily because they are unprofitable. rather combine. when major crisis develops. but because of strategic or environmental reason. Divestment can be part of an overall downsizing or retrenchment strategy of an organization to get rid of businesses which are unprofitable or which require too much capital or which do not fit well with the company’s other existing businesses or activities. one important decision the corporate parent has to take is whether to retain partial ownership in the divested business. Finding a suitable buyer may be easy or difficult depending on the nature of the business to be divested. organizational restructuring and even financial restructuring. size and growth of the industry or market. business-level restructuring. emerging competitive threat. may be it does not fit well with the core business of the company. Sometimes divestment becomes a forced option when an attempt has been made to turnaround the business.a major division or an SBU. Spinning off business into a separate company may be done because of some strategic reason. Sometimes. It also depends on the structure. may be done either by selling shares to the public through an initial public offering (IPO) or by distributing shares of the new company to the existing shareholders of the corporate parent. debt-equity ratio. Spinning off a business. Selling a business outright involves finding a suitable buyer. restructuring may be comprehensive. say. with or without partial ownership. which may simultaneously involve.

Government Regulations like MRTP Act require a business to be divested because of oversize of the organization. But. 2. where liquidation is officially termed as ‘winding up’. so. The important reasons/ situations are: 1. A product may require technological upgradation. liquidation is governed by the Companies Act. 1956. but environmental change may make it unprofitable.Cola because the company did not want to get involved into a marketing warfare with giants like Coke and Pepsi. A business has become a mismatch with other core businesses of the company. In India. A business is currently profitable. If liquidation is unplanned or haphazard. in parts. An SBU requires more resources to be competitive than the company can provide. but. 4. the seller company should look for a buyer who finds the business a good fit with their existing product mix or product portfolio. Liquidation may be the toughest decision for a company. The Act stipulates appointment of a liquidator who handles the liquidation process. while selling a business. 6. divestments are recommended under certain situations. . The Act defines winding up of a company as ‘the process whereby its life is ended and its property administered for the benefit of its creditors and members’. This should be the strategy of last resort when no other alternatives like turnaround. or in other words. the company may incur unavoidable or unnecessary losses. A business has become unprofitable because of continuing competition. Planned liquidation involves a systematic process for maximum benefits for the company and its shareholders. Divestment may be done because divesting the business or part of the company may be the only way for the company to survive. at some stage of the organizational life cycle. for their tangible worth”. Divestments can take place for various reasons. Liquidation Strategy Liquidation means closing down a company and selling its assets. A company has pursued a turnaround strategy for a business but failed to achieve required improvements. it should be done at the right time and. Liquidation can also be defined as “selling of a company’s assets. 8. but the cost-benefits or returns may not justify such an investment. it is advisable to cease operating than continue to operate and accumulate losses. it is wise to make a profitable exit. Also. if it is unavoidable or inevitable. restructuring or divestment are applicable or workable. 3. in a planned manner. 7. Liquidation is actually a recognition of defeat. 5.

Turnaround strategies are usually required for crisis situations. According to the Act. 3) The stockholders of a company can minimize their losses by selling the company’s assets through liquidation. business or organizational decline. neither has been successful. . Under certain situations. or accrual or accumulation of losses. distributes any surplus among the members.The liquidator takes control of the company. eroding profit. During these two years. pays its debts and finally. A company can legally declare bankruptcy and then liquidate various divisions or businesses to raise funds or capital. Business decline for a company means continuous fall in turnover or revenue. relative to industry rates or averages or even economic growth of the country. liquidation is particularly recommended. 1) Voluntary winding up 2) Voluntary winding up under supervision of the court 3) Compulsory winding up under an order of the court The Act also provides for dissolution of a company in which case it ceases to exist as a corporate entity for all practical purposes and all its operations remain suspended for a period of two years. If organizational decline is not continuous or severe. like business performance. 1) An organization has pursued both a retrenchment strategy and a divestment strategy. 2) For an organization. the company may be liquidated. in this case. liquidation or winding up may be done in three ways. Turnaround Strategy Corporate Turnaround may be defined as organizational recovery from business decline or crisis. but. according to their rights. But. some strategy analysts describe business decline in terms of current comparisons also. is understood in relative a term that is compared with the past. Part VII (Sections 145 to 560) of the Act deals comprehensively with various legal aspects of liquidation including dissolution. corporate restructuring can provide the solutions. liquidation. only alternative left is bankruptcy. for example. David (2003) has suggested three situational guidelines for liquidation to be an effective strategy. So. Corporate crisis is deepening or perpetuation of a decline. collects its assets. That is why corporate turnaround strategy may be said to be an extension of restructuring strategy. represents an orderly and planned means of obtaining maximum possible cash for the organization’s assets.

sustained turnaround is not possible. A company in such an industry or situation can either go for divestment or turnaround if it foresees or can create a niche in the industry and if the growth prospects can be created.When restructuring is comprehensive and leads to corporate recovery. a. Inherently. Temporary recovery situation: This situation exists when there can be initial successful recovery. there are two methods of Corporate Turnaround strategy. This happen primarily because the industry is in a declining phase Eg// Black and White TV. a turnaround or recovery becomes highly imperative. d. Generally. Slatter (1984) contends that there are four recovery situations in terms of feasibility or success. In such cases. recovery may be more or less successful than in others. Sustained survival situation: This situation means that recovery is possible but potential for further growth does not exist. managers. clear cost disadvantage exists and demand for the company’s product is in decline stage. This can happen because repositioning of the product is possible. but. Surgical Turnaround method is more commonly practiced in the west. 1) 2) 3) 4) 5) 6) Steadily declining market share Continuous negative cash flow Negative Profit or accumulating losses Accumulation of debt Falling share price in a steady market Mismanagement or low morale With some or all these situations becoming clearly visible for a company. Given a strategy. divestment or liquidation may be a better option. Some cost reduction programmes may be successful. it almost becomes a turnaround strategy. audio cassettes. because the company is not competitive. wholesale reshuffling of . the situation should be carefully reviewed to assess the extent of recovery possible before undertaking any such program. and revenue generation is also possible at least for some time. Surgical and NonSurgical Turnaround. These situations are. Realistically non-recoverable situation: It is a situation in which chances of survival are very little. Major situations which signals towards the need for a turnaround strategy are. in some situations. business decline might have been caused by internal organizational factors or external or environmental conditions which the company is able to deal with effectively. b. the potential for improvement is low. the company is strong in terms of competence. c. It involves sweeping changes like firing of staff. But. In such a situation. Sustained Recovery situation: This situation is one in which successful turnaround is possible for sustained growth.

Non-Surgical Turnaround Method adopts the opposite approach. . For eg// a company can either adopt the liquidation strategy if it incurs continuous loss which is not recovered by the other strategies such as divestment or turnaround. Some call it bloodshed or bloodbath.portfolios.revamping or recovery through meetings. discussions. A company can also adopt proactive strategies so as to avoid any uncertainties in future. consensus etc. persuasions. i. peaceful means. Conclusion Thus a company can react effectively to the changes taking place in its environment by choosing the best alternative fit for the situation it is in.e. closing down operations etc.

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