What is Business Restructuring? Why Is It So Important to an Effective Digital Transformation?

Written By: Eric Kimberling
Date: April 12, 2023

As companies expand and develop, their structure must adapt to accommodate these transformations. This article will explore the notion of restructuring a business, including its definition, relevance to your company, and steps to initiate the process.

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Many organizations are currently experiencing growth and undergoing changes, including process and technological advancements as well as organizational adjustments. These changes necessitate restructuring at various stages in the organization's growth trajectory. In this article, we discuss business restructuring, its components, and how to initiate the process.

Why Restructuring is Important

Before delving into the components of restructuring, it is important to understand its significance. Numerous internal and external factors, such as macroeconomic trends, evolving customer requirements, growth, mergers and acquisitions, and divestitures, are driving significant changes within organizations. To ensure future growth, organizations must periodically restructure to match their capacity and scalability needs. Additionally, restructuring enables innovation, agility, and the ability to respond to change, providing a competitive edge. In the upcoming segments, I will outline the steps required to incorporate restructuring into your strategy and plan.

Organizational Efficiencies

One of the primary drivers for restructuring is the aim to maximize organizational efficiency. This involves scrutinizing the daily tasks of personnel, their efficiency, and identifying impediments or volume issues that obstruct productivity throughout the organization, regardless of the department. Every individual's ability within the organization is restricted by current processes, organization, and technologies. Therefore, examining organizational efficiency and pinpointing opportunities to optimize it is crucial.

A typical example of restructuring is transitioning to a shared service model. Suppose an organization has acquired multiple companies, each with its HR, accounting, and IT department, which results in duplicative functions. In that case, consolidating these departments would improve organizational efficiency and enable organizations to achieve more with fewer resources. This is one of the reasons why many organizations opt for restructuring.

Even without implementing a shared service model, organizations can scrutinize various components to uncover opportunities to increase efficiency. Crucially, having robust metrics in place to measure the throughput, expenses, and activities of different roles and responsibilities is essential. These metrics help determine areas where operational and organizational efficiencies can be enhanced. As a result, addressing low-hanging fruit and optimizing efficiency can establish more responsive and agile structures that maximize competitive advantage.

Competencies and Skills

Besides efficiency, it is also necessary to consider the effectiveness of the organization. What competencies and skills does the organization currently possess, or should it have, to become more effective? For instance, organizations often discover that upskilling their personnel can lead to enhanced organizational capabilities. This may not necessitate a complete restructuring, alterations in reporting relationships, or job reassignments. However, it may require upskilling or establishing new competencies within a particular box on the org chart. Consequently, a significant aspect of restructuring involves recognizing how the roles of individuals in the organization can progress and become more robust in their competencies.

Many organizations rely on technology to enhance their restructuring efforts. By incorporating machine learning capabilities, tasks can be automated, freeing up individuals to focus on strategic decision-making tasks that are more valuable to the organization. This is an important aspect of organizational restructuring, as it allows organizations to evaluate their current competencies and determine what competencies they should develop in the future to scale for growth, increase effectiveness, and improve efficiency.

Business Process Alignment

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To identify opportunities for organizational efficiency and effectiveness, it's crucial to examine your business process alignment. This involves understanding your current processes and determining what they should look like in the future. By doing so, you can identify the areas where you need to become more efficient and build the competencies necessary for success.

Hence, defining the future state business process and the roles required to execute those processes is a prerequisite for organizational design and redefining organizational efficiencies and competencies.

In addition, technology upgrades can provide better tools to help people do their jobs more effectively. This brings me to my next point, technological alignment, which should enable the business process alignment that was just discussed.

Technology Alignment

The next factor that enables organizational restructuring is technology. There are various technologies available in the market that can assist in restructuring. Manual or inefficient processes will only allow for minor changes in restructuring, but they will not provide a significant boost to help scale for growth, become agile, or increase intelligence as an organization. Thus, it is essential to have better technological tools and capabilities that are constantly evolving. Understanding these technological capabilities can help enable the organizational restructuring process.

One example of how technology can enable organizational restructuring is through the use of machine learning. Specifically, machine learning technologies can automate the purchase order and invoice approval process. This process typically involves someone manually approving invoices to ensure that they match a PO and incoming goods received. Machine learning can automate this task, allowing people to focus on exceptions and strategic planning instead of manual processes.

One example of how technology can enable organizational restructuring is through automating the purchase order and invoice approval process using machine learning technology. Instead of having people manually approve and do the three-way match process, the technology can automate the task and flag exceptions for human intervention. This frees up the procurement department to focus on more strategic activities, and opens up opportunities for restructuring roles and responsibilities within the organization. There are numerous other use cases where technology can enable organizational restructuring, providing opportunities to improve efficiency and effectiveness.

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Change Management Strategy

Therefore, effective change management is crucial to realize the value and potential of organizational restructuring. Once you have defined your future state business processes, technological roadmap, and organizational restructuring plan, you must focus on how to transition people from the current state to the future state. Change management is the human component that ties all of these together. It is the key to realizing the value and potential of restructuring efforts. If change management is not handled appropriately, restructuring efforts may not yield the desired results.

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Timing of Restructuring 

The key is to recognize that it's an important piece of the overall transformation puzzle, and it needs to be integrated and aligned with everything else you're doing.

If you are looking to strategize an upcoming transformation or are looking at selecting an ERP system, we would love to give you some insights. Please contact me for more information eric.kimberling@thirdstage-consulting.com

Be sure to download the newly released 2023 Digital Transformation Report to garner additional industry insight and project best practices.

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Eric Kimberling

Eric is known globally as a thought leader in the ERP consulting space. He has helped hundreds of high-profile enterprises worldwide with their technology initiatives, including Nucor Steel, Fisher and Paykel Healthcare, Kodak, Coors, Boeing, and Duke Energy. He has helped manage ERP implementations and reengineer global supply chains across the world.

Author:
Eric Kimberling
Eric is known globally as a thought leader in the ERP consulting space. He has helped hundreds of high-profile enterprises worldwide with their technology initiatives, including Nucor Steel, Fisher and Paykel Healthcare, Kodak, Coors, Boeing, and Duke Energy. He has helped manage ERP implementations and reengineer global supply chains across the world.
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