Corporate Restructuring Q & A
Corporate restructuring is often misunderstood as only a remedy for distressed companies, or companies in bankruptcy or nearing bankruptcy, or those companies solely engaging in debt restructuring services. Nothing could be further from the truth. CSC Capital has twenty years of experience making good companies great. In these instances, a business savvy CEO, owner, or Board makes the tough decision, though often unpopular with top management, that even though revenues are growing or stagnate and profits are up or flat, the corporation is not strategically structured for long-term success. Typically, these transformational chief executives understand that an inherit problem with most organizations is that management assumes existing structures and controls are satisfactory even though they were usually set up as a patchwork of functions and processes. When problems do occur management tends to deal with symptoms rather than addressing the real organizational and financial issues. When a CSC Capital Corporate Restructuring services are considered three questions usually emerge.
What is Holistic Restructuring?
CSC Capital Corporate Restructuring is a process to revitalize and to increase the value of a business by redesigning the organization and the relationships between all business functions. The process begins with a comprehensive analysis that measures the performance of a business. This initial audit very quickly evaluates the levels of effectiveness within an organization and pinpoints areas of strengths and weaknesses. The restructuring process then redesigns the entire corporation both in terms of the organizational structure and the financial structure mirroring the two structures so that management accountability is precisely targeted. This further aids in determining specifically and on a priority basis where to focus energy and what actions need to be taken to increase revenues and margins, and increase operational efficiency, employee productivity and bottom line profitability.
The restructuring process always addresses three distinct and inter-related areas of the corporation:
- Organizational restructuring directs attention at the primary management and operational systems that cut across the company as a whole. It deals with the human element of the organization, how divisions and departments interact with each other, the number of personnel needed to perform specific activities, creation of job descriptions focusing on work behavior that also double as an evaluation package, redesign of work flow for effectiveness and efficiency and an overall strategy that embraces the actual capabilities of the newly designed profit and cost centers.
- Financial restructuring creates a management accounting package focused around the newly designed profit and cost centers. This allows for the easy application of other internal financial control systems that are all integrated as a cohesive apparatus within the company’s newly designed structure. The financial restructuring is quantitative and may be viewed as a greatly expanded income statement with sales and costs of all product lines being applied to their specific profit center expenses and cost centers being set up to sell their overhead services in appropriate fashion to each profit center, thereby creating individual businesses within the corporation all with profit and loss transparency and accountability.It is designed as the ultimate management tool as it monitors with great clarity and detail financial outcomes and who or what divisions or departments are responsible. Specific results include a completely redesigned chart of accounts, the development of a company-wide budgetary control system built around the appropriate profit and cost centers that drives corporate decision making and management accountability at all levels, the monetary advantages or disadvantages of product and/or vendor selection, and a product unit break even costing and pricing system that absorbs the exact amount of expenses and overhead into each product unit providing the most reliable breakeven pricing systems in corporate America.
When necessary, financial restructuring also includes a debt and asset restructuring program that targets increasing cash flow by the elimination of unnecessary assets, liabilities and debt service as well as arranging new financing with more attractive borrowing costs. The uniqueness of the overall holistic restructuring program supports the application and success of any debt and asset restructuring activities.
- Compensation restructuring focuses on wage and salary schedules of all employees as well as incentive programs oriented toward specific individuals or groups. The objective is to increase compensation levels through increased individual productivity and performance that can be quantitatively measured through bottom line profitability. In this fashion compensation restructuring includes the development of pay-for-performance schemes that include actual overhead expenses as reflected in the reformatted financial monthly and quarterly results. Thus since the compensation calculations are integrated into the profit and cost centers, companies know that all incentives are appropriately based upon an individual’s or group’s bottom line. Lastly compensation incentive payouts are linked into a performance evaluation system as well as the actual job descriptions that double as a specific job related employee evaluation package.In July 2003, CSC Capital wrote an article entitled “Legends of Sales,” in Pro Sales Magazine regarding sales compensation. The firm’s point was it was time to debunk the four most common sales compensation myths. 1) Calculation based on gross sales, 2) Calculation based gross margin dollars, 3) Calculation on gross margin percentages, and 4) profit sharing. The article stated “In light of these of these myths, the best way to ensure profit per transaction is to link a pay-for-performance system into financial statements that break out each product line by profit center, inclusive of expenses.”
Why restructure the whole company?
Organizations are made up numerous entities, activities and people who work together or individually for the betterment of the overall corporation. However, all things within a corporate entity are in one way or another connected. Thus you cannot separate sales from procurement, operations from accounting, traffic from inventory control, information technology from management decision making, and so on. Even with separate locations, functions and staffs, whether operating locally or globally the inter-connections and the interdependencies within organizations are real and the associated economies of scales are real. A corporation can either prosper by taking advantage of these realities, or continue to work harder with more expenses and less productivity not smarter with less expenses and more productivity.
Research indicates that working smarter and adding high-leverage initiatives are where huge gains can be realized in today’s fast-paced hyper-competitive marketplace. Holistic restructuring is the ultimate high-leverage corporate initiative, applicable to all corporations large or small. Practically speaking, restructuring is also a common sense application of meaningful corporate change. Change initiatives must have a realistic strategic plan and a method in order to achieve the strategy. Change for the sake of change produces either nothing or chaos, and a corporation or person cannot change what one does not acknowledge. Often,
this acknowledgement of what needs to be changed is done subjectively with pre-determined biases of true and false which undermine change efforts.
Restructuring is an objective undertaking. In fact internal management driven restructurings is an oxymoron, because truly acknowledging corporate strengths and weaknesses cannot be accomplished by the people with the most to gain by keeping the status quo. If there is any reason why the term “restructuring” has a negative meaning, it is because internally driven restructurings normally lead to layoffs, spin-offs, and terminations with very little real corporate change after the dust settles. Why then restructure the whole company? Because if conducted objectively by professionals who are experts the restructuring will deliver exponential results.
What are the benefits from a Holistic Restructuring?
The immediate goal is to increase sales volume, gross margins, cash flow and profitability. Accountability through a well planned, well executed and well maintained systematic restructuring are ensured. The underlying benefit in corporate restructuring is the development of a management team that subscribes to a vision and culture that will progress towards the achievement of the newly established corporate vision and goals. Also employees will be committed, productive, and well compensated. Lastly, the increase of corporate value will guarantee all owners and/or shareholders an investment that would be unlikely elsewhere.