FINANCE ASSIGNMENT

Finance assignment

Strategic Challenges at Restructuring

Technological progress and globalization have completely changed the overall conditions and rules of entrepreneurial engagement. The speed of this modern high performance economy has accelerated. Competition is fierce than ever, and the battles are no longer fought in the domestic or intra-European arena, but on a global level. To keep up with their rivals and increase their productivity, businesses must be able to efficiently manage their processes and structures. However, strategies and business models must be developed simultaneously to set the stage for a successful and sustainable course of expansion. Driven by these forces, the management and focus of restructuring measures has also changed in recent years: in the past, the primary objective was to implement solutions to improve the operational end of the business — and, ultimately, to cut costs. The strategic revamping of the company is closely linked to this type of operational restructuring. Since then, however, another financial dimension has been added to this restructuring approach. In other words, the restructuring process and the respective demands it imposes on stakeholders, such as managers, financial partners, and consultants — has evolved substantially from pure cost cutting measures (often associated with “rightsizing”) to consulting on the brink of insolvency (planned insolvency method) and growth-oriented financial restructuring.

Companies are being forced to examine the way they do business as well as the manner in which they are financed. In doing so, companies are striving to streamline the business, reduce costs, improve cash-flows and secure much-needed financing from lenders or investors to position themselves for growth. There are two interlinked components of any restructuring plan: Operational; and Financial.

Operational restructuring

To survive and succeed in the current economic climate where competition is intense and finance limited there is a need to be far more innovative, agile, and cost competitive in order to differentiate oneself Operational restructuring requires that a detailed review of the business should be performed to identify and eliminate all non essential expenditure. Such a review should be performed on a bottom up basis by project managers who are independent from the areas of the business they are reviewing. The procurement function in a company becomes critical, generating savings through seeking quotations from alternative suppliers and challenging existing longstanding suppliers to reduce costs. Revisiting longstanding relationships is a crucial component of successful operational restructuring, particularly where the contract or partnership was agreed in different economic circumstances. Another key area of focus is that of loss making businesses or activities (Shim & Siegel, 2008). Regardless of the initial rationale for a particular business or contract, if the figures don't support its retention and its outlook is poor, do not try to rescue it. Take the hit early and move on to focus on the more lucrative and essential business areas. Exploration of alternative business practices should also be considered, including analysing whether outsourcing or relocation of aspects of the business to low-cost jurisdictions is appropriate.

Above all, successful operational restructuring requires a clinical, challenging mind-set ...