WHAT IS THE DIFFERENCE BETWEEN CORPORATE RESTRUCTURING & BUSINESS RESTRUCTURING?

This article has been researched and written by the Business Development Team at Creation Business Consultants. AI has not been used in generating this article.

Corporate restructuring and business restructuring are often used interchangeably, but they have distinct meanings and purposes within the realm of organizational change.

Corporate restructuring is a dynamic and strategic process that companies undertake to effectively adapt to the ever-evolving business landscape. This multifaceted approach involves a series of actions and strategies aimed at achieving specific objectives. Corporate restructuring services in the UAE play a crucial role in assisting businesses navigate through challenges and capitalize on opportunities within the region’s competitive market environment.

Business restructuring is when a company takes significant action to reshape its operations with the intention of reducing debt, increasing efficiency, and improving the business going forward. It is most common in companies facing financial difficulties. A company that finds itself accumulating increasing debt and struggling to make payments on time will often opt to restructure to devise a sustainable plan to repay creditors and settle accrued debt.

BRIEF OVERVIEW OF CORPORATE AND BUSINESS RESTRUCTURING

CORPORATE RESTRUCTURING:

• Corporate restructuring refers to significant changes made to the organizational structure, ownership, or financial structure of a company.
• It involves strategic decisions at the corporate level aimed at enhancing the overall efficiency, profitability, or competitiveness of the entire organization.
• Examples of corporate restructuring include mergers and acquisitions, divestitures, spin-offs, joint ventures, changes in ownership, and financial reorganizations like debt restructuring or bankruptcy.

BUSINESS RESTRUCTURING:

• Business restructuring focuses on changes made within specific business units or divisions of a company.
• It involves operational adjustments, realignment of resources, and changes to business processes or strategies to improve the performance or viability of a particular segment of the organization.
• Examples of business restructuring include downsizing, rightsizing, reorganizing departments, outsourcing, product line adjustments, and changes in distribution channels.

In summary, while corporate restructuring involves broader changes that affect the entire organization, business restructuring focuses on specific units or aspects of the business to enhance efficiency, profitability, or competitiveness.

UNDERSTANDING BUSINESS RESTRUCTURING

Just as there are numerous reasons to consider restructuring a business, it can also serve as an important tool in any business owner’s arsenal.

• Can act to revive a dying business.
• Significantly increase a company’s value.
• Set up a company for prolonged growth.
• Assist businesses to readjust to changing market circumstances.

Common causes for restructuring are:

• To reduce debt.
• Merge with another business.
• Reduce company costs.
• Rearrange roles within the company.

OPERATIONAL RESTRUCTURING AND FINANCIAL RESTRUCTURING

Operational restructuring is a process that aims to render a company and its business model profitable by identifying underperforming areas and devising strategies for improvement. Financial restructuring involves modifying a company’s capital structure, focusing on its financial aspects.

THE RESTRUCTURING PROCESS

When a company undergoes internal restructuring, its operations, processes, departments, or ownership may change, thereby enabling the business to become more integrated and profitable. Financial and legal advisors are often enlisted to negotiate restructuring plans. Portions of the company may be sold to investors, and a new CEO may be appointed to facilitate the implementation of the changes.

The results may include alterations in procedures, computer systems, networks, locations, and legal matters, potentially leading to overlapping positions, job eliminations, and employee layoffs.

Restructuring can be a tumultuous, painful process as the internal and external structure of a company is adjusted and jobs are cut. But once it is completed, restructuring should result in smoother, more economically sound business operations.

After employees adjust to the new environment, the company can be in a better position for achieving its goals through greater efficiency in production, however not all corporate restructurings end well. Sometimes a company many need to admit defeat and begin selling or liquidating assets to pay off its creditors before permanently closing.

After employees adapt to the new environment, the company can position itself for achieving its goals more efficiently, resulting in smoother and economically sound business operations. However, it is important to note that not all corporate restructurings lead to positive outcomes. At times, a company may need to acknowledge defeat and initiate the sale or liquidation of assets to repay creditors before permanently closing its doors.

CASE STUDIES AND EXAMPLES

• GENERAL MOTORS (GM): During the 2008 financial crisis, GM faced significant issues. They had a lot of debt and were not operating efficiently. GM’s solution involved a government-supported bankruptcy in 2009. They divested parts of the company they no longer needed, renegotiated deals with workers, and received assistance from the U.S. government. This restructuring made a substantial difference – GM emerged as a better, more efficient, and financially secure company. This shows how a well-executed plan to reorganize can have positive results.
• CHRYSLER: In a similar situation to GM, Chrysler faced financial distress in 2009, leading to a government-sponsored bankruptcy reorganization. The company formed a strategic alliance with Fiat, resulting in a new leadership structure and access to additional resources. This partnership allowed Chrysler to revamp its product line, improve operational efficiency, and regain market share, showcasing the power of collaboration in successful financial restructuring.”
• Delta Air Lines: In 2005, Delta Air Lines faced financial troubles and had to declare bankruptcy under Chapter 11. This was due to rising fuel prices and tough competition. Delta came up with a detailed plan to fix things. They cut costs, renegotiated contracts with workers, and in 2008, merged with Northwest Airlines. This move strengthened Delta financially and expanded their flight routes. This shows that using different strategies of corporate restructuring can help a company successfully recover from financial problems.
• Lehman Brothers: Lehman Brothers’ collapse in 2008 provides valuable lessons in financial restructuring. It highlights the critical need for effective risk management, transparency, and regulatory oversight. The failure of Lehman Brothers emphasizes the importance of early intervention and implementing appropriate measures to prevent systemic risks in the financial sector.
• Google’s Alphabet: In 2015, Google made a big change by creating a new company called Alphabet. This move helped Google focus more on technological innovation. The restructuring separated the core parts of the business from the riskier projects, resulting in greater clarity and autonomy for each division. This change at Google led to positive outcomes, including reduced spending on risky projects and a more diverse group of leaders.

TAKEAWAY

Ready to strengthen your business through corporate restructuring or business restructuring? Our expert consultants specialize in both areas and are ready to assist you. Contact us today to schedule a consultation and see how we can help optimize your operations and financial performance.

Email: [email protected] | UAE: +971 4 878 6240 | Saudi Arabia: +966 54 511 2494

Thomas McNelliey,
Business Development Consultant