CRITERIA RESTRUCTURING
Concern for Who? • Restructuring is concerned primarily with
shareholder well-being rather than
employee well-being.
Other Names • Restructuring—also called downsizing,
rightsizing, or delayering—
Process • Involves reducing the size of the firm in
terms of number of employees, number of
divisions or units, and number of
hierarchical levels in the firm’s
organizational structure.
• This reduction in size is intended to
improve both efficiency and effectiveness.
• Recall that benchmarking simply involves •
comparing a firm against the best firms in
the industry on a wide variety of
performance related criteria.
• Some benchmarking ratios commonly
used in rationalizing the need for
restructuring are headcount-to-sales-
volume, or corporate-staff-to-operating-
employees, or span-of-control figures.
Example
• Recessionary economic conditions have
forced many European companies to
downsize, laying off managers and
employees.
• This was almost unheard of prior to the
mid-1990s because European labor unions
and laws required lengthy negotiations or
huge severance checks before workers
could be terminated.
• In contrast to the United States, labor
union executives of large European firms
sit on most boards of directors.
• Job security in European companies is
REENGINEERING
• Reengineering is concerned more w
employee and customer well-being th
shareholder well-being.
• Reengineering—also called proc
management, process innovation, or proc
redesign—
• Involves reconfiguring or redesigning wo
jobs, and processes for the purpose
improving cost, quality, service, and speed.
• The focus of reengineering is changing t
way work is actually carried out.
Example
Developed by Motorola in 1986 and ma
famous by CEO Jack Welch at General Elect
and more recently by Robert Nardelli, form
CEO of Home Depot, Six Sigma is a quali
boosting process improvement techniq
that entails training several key persons
the firm in the techniques to monit
measure, and improve processes a
eliminate defects.
• Six Sigma has been widely applied acro
industries from retailing to financial service
• CEO Dave Cote at Honeywell and CEO J
Immelt at General Electric spurr
acceptance of Six Sigma, which aims
improve work processes and eliminate wa
by training “select” employees who are giv
judo titles such as Master Black Belts, Bla
Belts, and Green Belts.
• Six Sigma was criticized in a 2007 Wall Stre
Journal article that cited many example fir
whose stock price fell for a number of ye
after adoption of Six Sigma.
• The technique’s reliance on the special gro
of trained employees is problematic and
use within retail firms such as Home Dep
 slowly moving toward a U.S. scenario, in has not been as successful as
which firms lay off almost at will. manufacturing firms.

• From banks in Milan to factories in

Mannheim, European employers are
starting to show people the door in an
effort to streamline operations, increase
efficiency, and compete against already
slim and trim U.S. firms.

• Massive U.S.-style layoffs are still rare in

Europe, but unemployment rates
throughout the continent are rising quite
rapidly.

• European firms still prefer to downsize by

attrition and retirement rather than by
blanket layoffs because of culture, laws,
and unions.
Organizational • Restructuring is concerned with • Reengineering does not usually affect t
structure eliminating or establishing, shrinking or organizational structure or chart, nor does
enlarging, and moving organizational imply job loss or employee layoffs.
departments and divisions.
• The argument for a firm engaging in
reengineering usually goes as follows : Man
companies historically have been organized
vertically by business function.

• This arrangement has led over time to

managers’ and employees’ mind-sets being
defined by their particular functions rather
than by overall customer service, product
quality, or corporate performance.

• The logic is that all firms tend to

bureaucratize over time.

• As routines become entrenched, turf

becomes delineated and defended, and
politics takes precedence over performance
• Walls that exist in the physical workplace ca
be reflections of “mental” walls.
Duration • Restructuring is characterized by strategic • Reengineering is characterized by ma
(long-term, affecting all business tactical (short-term, business-functio
functions) decisions. specific) decisions.

Implementation • Firms often employ restructuring when • In reengineering, a firm uses information
 various ratios appear out of line with
competitors as determined through
benchmarking exercises.
Benefits • The primary benefit sought from
restructuring is cost reduction. For some
highly bureaucratic firms, restructuring
can actually rescue the firm from global
competition and demise.
• Managers today manage more people
spread over different locations, travel
more, manage diverse functions, and are
change agents even when they have
nothing to do with the creation of the plan
or disagree with its approach.
Downsides • But the downside of restructuring can be,
reduced employee commitment,
creativity, and innovation that
accompanies the uncertainty and trauma
associated with pending and actual
employee layoffs.
• Another downside of restructuring is that
many people today do not aspire to
technology to break down functional barrie
and create a work system based on busines
processes, products, or outputs rather than
on functions or inputs.
• Cornerstones of reengineering are
decentralization, reciprocal interdependenc
and information sharing.
• The Wall Street Journal noted that
reengineering today must go beyond
knocking down internal walls that keep par
of a company from cooperating effectively.
• It must also knock down the external walls
that prohibit or discourage cooperation wit
other firms—even rival firms.
Example
• A firm that exemplifies complete informatio
sharing is Springfield Remanufacturing
Corporation, which provides to all employe
a weekly income statement of the firm, as
well as extensive information on other
companies’ performances.
• A benefit of reengineering is that it offers
employees the opportunity to see more
clearly how their particular jobs affect the
final product or service being marketed by
the firm.
Reengineering can also raise manager and
employee anxiety, which, unless calmed, ca
lead to corporate trauma.
 become managers, and many present-day
managers are trying to get off the
management track.

• Restructuring in many firms has made a

manager’s job an invisible, thankless role.

• Managing others historically led to

enhanced career mobility, financial
rewards, and executive perks.

• In today’s global, more competitive,

restructured arena, managerial jobs
demand more hours and headaches with
fewer financial rewards.

Example

• Sentiment against joining management

ranks is higher today than ever.

• About 80 percent of employees say they

want nothing to do with management, a
major shift from just a decade ago when
60 to 70 percent hoped to become
managers.

• More workers today are self-managed,

entrepreneurs, interpreneurs, or team-
managed.

• Managers today need to be counselors,

motivators, financial advisors, and
psychologists.

• They also run the risk of becoming

technologically behind in their areas of
expertise.

• Employers today are looking for people

who can do things, not for people who
make other people do things.
Imagery • “Dilbert” cartoons commonly portray
managers as enemies or as morons.
Example From • Avon Products restructured in 2011 partly
Textbook due to corruption investigation in its
• A maker of disposable diapers echoes this
need differently when it says that to be
successful “cooperation at the firm must
stretch from stump to rump.”
• Hewlett Packard is a good example of a
company that has knocked down the extern
 Russia and Brazil operations.
• The company reduced its six commercial
business units down to - (1) Developed
Market and (2) Developing Market – in
essence going to a divisional by
geographic region type structure.
• Avon has been reporting lower sales and
profits amid missteps in key markets.
• CEO Andrea Jung is installing five new
regional heads and new presidents in
Avon’s U.S and Russia markets.
Example From Adidas From Textbook
• ADIDAS-Salomon Group (2005)
 ADIDAS sell Salomon to Amer
Sports in 2005 but keeping the
Taylor-Made brand as it is the
only stable part of Salomon.
 Decision for this restructuring as
the group has lacked the scale to
make a big push into the winter
sports market during a global
decline in demand for ski
equipment.
 The France-based Salomon group
also been hit by the rising value of
the Euro. The first-quarter
operating losses widened from
€16m in previous year to €25m.
 Adidas CEO, Herbet Hainer said,
“Now is the time to focus even
more on our core strength in the
athletic sportswear and apparel
market as well as the growing golf
category”.
 The restructuring involves the loss
of 160 French jobs.
Other Sources
• Taylor Made-Adidas Golf (2014)
 Taylor Made-Adidas Golf s’ CEO, Ben
Sharpe announced a restructuring of
the company’s product teams (Taylor
Made and Adams brands).
 Part of new strategy called “Playbook
3.0”
 This strategy is focused on making the
company more efficient.
barriers to cooperation and practices mode
reengineering.
• The HP of today shares its forecast with all
its supply-chain partners.
• Shares other critical information with its
distributors and other stakeholders.
• HP Does all the buying of resin for its many
manufacturers, giving it a volume discount
up to 5 percent.
• HP has established many alliances and
cooperative agreement.
Other Source
Example 1
• The Adidas product line includes more
than 20,000 items, from soccer and inli
skates to outdoor jackets and
snowboards, with thousands of produc
variations.
• To keep up with market demand and
competition, the company changes its
product range twice a year.
• The change in the product range depen
more often on the availability of the ne
technologies and the also on the produ
range and technology of the competitio
• Adidas also designs product for local,
vertical and niche markets.
Example 2
 Over the past 15 years, Adidas-Salomon
transformed itself from a manufacturin
organization to a global sports brand
manager with 14,000 employees locate
around the world.
 Previously, Adidas-Salomon operated in
decentralized manner, and each
operating unit chose software that suit
its geography and internal preferences.
 The company believed that implementi
and creating common processes,
especially in its sales organization, wou
help it establish global direction,
streamline and automate its business.
 Operations thereby improving flexibility
scalability, and visibility across the
extended enterprise.
 Move Adams from Plano, TX to
Carlsbad, CA.
 Adidas realigned the resources to
ensure innovation was at the core for
all new products.
 Sean Toulon, Executive VP of Product
Creation team, will oversee all
product design for Taylor Made and
Adams.
 George Talge, VP of Global Product
Strategy, will manage all strategy and
product lines.