Types of Restructuring: Definitions and Management Tips

By Indeed Editorial Team

Published March 29, 2021

The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.

When employed in a management or leadership role, professionals need to be able to help their employees adapt to changes in the workplace. Company restructuring occurs when businesses identify a need to make changes in order to maintain or enhance company success. By understanding more about restructuring and how to prepare your team, you can ensure a smooth transition and continued productivity. In this article, we define restructuring in business, review the different types of restructuring and provide useful tips to help managers lead their employees during restructuring activities.

Related: How To Perform a Smooth Company Reorganization

What is restructuring?

Restructuring is a term used to describe circumstances where companies decide to make changes to business models, business operations, structural organization or financial spending. On a smaller scale, restructuring can also occur at the department level, where department managers reorganize roles, priorities and department budgets.

Related: Corporate Development: Definition, Types and Strategies

What are the benefits of restructuring?

These are some examples of potential benefits that companies use to guide restructuring activities:

  • Levels businesses with competitors: Through restructuring, companies have the opportunity to improve their finances, improve organizational structure or adapt to changes in an industry. Because of this, companies can level themselves with industry competitors and ensure they maintain a strong business entity.

  • Enhances communication: When restructuring organizational components or business operations, company leaders can potentially enhance communication between departments or company branch locations. This influences the way departments work toward company goals and collaborate with one another.

  • Increases employee productivity: By restructuring departments or an entire business, company leaders have the opportunity to rearrange business activities and roles in a way that benefits employees. This includes moving employees into different roles or teams and implementing systems that enhance workflow.

  • Maintains or improves company finances: Financial restructuring activities benefit companies whether company leaders want to maximize their revenue streams, reduce debt or maintain operations during economic downturns.

  • Provides opportunities for business growth: Through restructuring organizational components or financial activities, companies can grow and expand operations to different locations or product markets.

Types of restructuring

Here are examples of different types of restructuring and when they occur:

Legal restructuring

Legal restructuring is a type of restructuring that company executives use when they decide to make a company its own legal entity. Another purpose of legal restructuring in business is to evaluate the ethical practices and procedures within a company and create a legal structure to ensure each department adheres to legal practices.

Turnaround restructuring

Turnaround restructuring refers to any restructuring activities that seek to replace product lines, business models, organizational structure, culture and other areas that don't contribute to a company's success. An example of this would be when company leaders decide to discontinue a major product due to low sales and consumer interest. From this they can develop a new product or set of products that match the revised needs of consumers within their industry.

Cost restructuring

Companies use cost restructuring to maintain operations before or during economic downturns. This means restructuring department budgets, enacting furloughs or layoffs and other cost-saving measures.

Related: How To Create a Cost Leadership Strategy

Repositioning restructuring

Repositioning is a type of restructuring that companies use specifically when they want to change their business model and redirect the focus of their business. An example of this would be if a major clothing retailer expanded their business model to include home furnishings and decor.

Spin-off restructuring

Spin-off restructuring refers to the process by which a company makes one or more branch locations or company sectors into their own business entities. This enhances the value of the company and allows it to take on the role of a parent organization.

Divestment

Divestment is a type of restructuring where companies close branch locations, departments or other business units due to revised needs or profitability expectations. For example, a company removes their community engagement department and moves employees to work as members of the marketing department.

Mergers and acquisitions

Mergers and acquisitions refer to a type of restructuring in business where a company consolidates branch locations or appoints one person as the head of multiple departments.

Related: Mergers and Acquisitions: Definition, Types and How They Work

Tips for managing a team during restructuring activities

Review these tips to guide your management strategies during restructuring activities:

Maintain transparency throughout the process

By maintaining open communication with your team about what the restructuring process entails and how it might affect them, you can help your team prepare for changes and get used to new ideas about their roles, or organizational procedures.

Make yourself available for employee discussions

Before and during the restructuring of your company or department, make sure you emphasize your office hours and communication methods to help make your team more comfortable. This shows employees you care about their thoughts or opinions and also gives them the chance to address any concerns they have about upcoming changes.

Highlight the end goals of restructuring activities

When announcing restructuring activities, you can help your team take on a positive view by emphasizing the potential benefits and end goals of changes. Throughout company or departmental changes, make sure you continually emphasize benefits as it helps employees refocus their productivity and remember that current changes can contribute to a better workplace in the future.

Related: How To Manage Change: A Guide To Organizational Change

Offer training courses to employees

If restructuring activities cause employees to adapt to new roles or use new technologies, consider making it a priority to give them the training and resources they need to adapt and continue succeeding at your company. This can help you maintain employee satisfaction and productivity.

Show support for your employees' health and happiness

You can help ease the transition during the restructuring process by showing employees you care about their well-being. You can do this by buying your team breakfast or lunch for their hard work or by encouraging employees to take personal days to promote their mental health.

Monitor employee performance during and after restructuring

It's important that you monitor employee performance during and after the restructuring process to make sure your employees adapt to changes well. If you notice lower productivity or another performance indicator, you can make a point to communicate with them and give them the support they need to adapt to changes.

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