Types of organizational restructuring

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Types of organizational restructuring

Business change is inevitable. It has been rather ironically described as the one constant for organizations. Whether you’re a growing startup or an established company, you will require an organizational restructure sometime down the road. The good news is that change can bring a lot of benefits and spur success in the long run. You just need to be aware of the possible pitfalls and have a carefully thought-out plan of action to ensure your transition is as smooth as possible.

What is the goal of organizational restructuring?

What is the goal of organizational restructuring?

1. Changing business environment

The corporate world is and will continue to be a dynamic setting. It changes over time and never settles on a single idea. Some industries may occasionally take a severe hit as a result of outside influences. For instance, two of the most severely affected industries during COVID-19 are the tourism and hospitality sectors. The players’ only option in situations like this is to put up with it.

Every company might not have the resources to survive, even though the industry giants might. In situations like these, a corporation could change its direction and go through a restructuring procedure to stay in operation.

2. New methods of operation

There will always be new techniques introduced into use as time goes on. These can include innovations in technology, communication, new and better-working processes, better employee policies, the emergence of remote working culture, etc.

A business needs to react and adapt to these developments right away. In some instances, these changes might necessitate a huge organization’s restructuring. These might lead to new divisions, managers who report to others, etc.

The restructuring may occasionally be necessary when establishing new management, leadership, and departmental structures.

3. Buyout

In a buyout, one party pays another party money in exchange for the rights to a majority interest in the company. Restructuring takes place in the business proceedings in such a case.

It’s because the purchaser might wish to rebrand the business and start afresh. In these situations, it is required to make changes to the legal and organizational structures, which results in the restructuring process.

4. A different course

Change is a fact of life, and people who exclusively focus on the past or the present are sure to miss what the future holds. Change is frequently the solution to subpar corporate performance. Knowing this, most business owners modify their operations to increase profitability.

While some might alter their goods or services, others might decide to operate in a completely different market. Both of these changes necessitate a revision of the existing business. Proper organizational restructuring is essential in this situation.

These were a few of the justifications for organizational reorganization. Based on these instances, there are numerous restructuring options that you can investigate to see which best suits your requirements.

What are the types of restructuring strategies?

What are the types of restructuring strategies?


To increase flexibility and productivity, this restructuring technique entails dividing a firm into smaller, autonomous business units. When a company wishes to diversify and venture into unrelated industries, it may do this to break it up into manageable pieces.

Starbursting can also be utilized for commercial development, such as when a company decides to spin off subsidiaries to handle operations in other regions.


The most recent restructuring trend involves an organization restructuring itself to provide specialized goods and services to meet the needs of a certain industry. To better serve the needs of five distinct industries: retail, media and telecommunications, manufacturing, finance, and life sciences HCL verticalized its activities in 2002. Such restructuring creates opportunities for specialization.



De-layering entails converting the conventional pyramidal structure into a flat organization. The primary goal of this kind of restructuring is to eliminate the top layer of highly compensated but underproductive “white collar” employees.

De-layering has the main benefit of making decision-making quicker and more efficient.

Process reengineering in business

This kind of reorganization is done to enhance operational efficiency. It starts with figuring out how things are currently done before re-engineering the processes to increase productivity.

Usually, responsibilities change due to business process re-engineering (BPR). BPR might occasionally result in job losses but it can also open up new employment prospects.

Ford Motor discovered that the procedure at its accounts payable department needed to be re-engineered while it was trying to cut costs. After firing 75% of the employees in the accounts payable department, the re-engineering assisted in streamlining the controls and improving the accuracy of financial information maintenance.


Businesses today choose to contract out portions of their operations to other companies. Outsourcing helps a business in two ways: first, it lowers expenses; and second, it frees the company up to focus on its core competencies while leaving the rest to outsourcing companies.

Anytime a corporation decides to outsource one of its processes, it will undergo significant internal restructuring. When a business outsources its operations, downsizing is frequent. As an illustration, Nokia outsourced the creation of its Symbian operating system, which will result in the layoff of 4000 of its employees by the end of 2012.



The final restructuring tactic on our list is virtualization. Employers are pushed outside the office to locations where they are more needed, such as the client site, as part of this plan. It also entails updating technology to enable the establishment of unmanned virtual offices. For instance, the ATMs that banks provide are their virtual units.


It doesn’t matter what you call it downsizing, layoffs, rightsizing, smart sizing, etc.—it’s all essentially the same thing. To keep labor costs in check, this restructuring technique involves lowering the number of employees. Consider the decision made in 1991 by the car industry titan General Motors to close 21 factories and fire 74,000 workers to reduce losses.

Another example is IBM, which had never fired a worker since it was founded but had to let go of 85,000 of them to remain in operation. This difficult-to-manage restructuring strategy is frequently used to get out of difficult circumstances. Downsizing may be necessary even in takeover, acquisition, and merger situations, where personnel dishonesty is what drives this type of organizational restructuring. Downsizing is not necessarily the result of economic losses.

The restructuring will be required after the acquisition, regardless of whether you are buying a business or someone else is buying your business. To align with the organizational structure of the acquiring business, the business that is being purchased goes through a significant restructuring process.

Legal restructuring

Legal restructuring

When business leaders decide to establish a corporation as a separate legal entity, they engage in a sort of restructuring called legal restructuring. A legal structure must be established to ensure that each department follows legal procedures. This is another reason for legal restructuring in business.

Turnaround restructuring

Any restructuring efforts that aim to replace product lines, business models, organizational structures, cultures, and other elements that don’t support a company’s performance are referred to as turnaround restructuring. This can be seen, for instance, when business executives decide to stop producing a key product because of weak demand and sales. They can use this information to create a new product or line of products that satisfy the updated wants of customers in their sector.

Cost restructuring

Cost restructuring

Cost restructuring is a strategy used by businesses to maintain operations before or during economic downturns. This entails reorganizing departmental spending plans, implementing furloughs or layoffs, and taking other cost-cutting actions.

Repositioning restructuring

Companies utilize repositioning, a sort of restructuring, specifically when they want to alter their company model and refocus their attention. The expansion of a big apparel retailer’s business model to include home furnishings and decor would illustrate this.

Spin-off restructuring

Spin-off restructuring is the process through which a business separates one or more branch offices or business units into separate legal entities. This raises the company’s worth and enables it to play the parent organization function.


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 its 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 a business where a company consolidates branch locations or appoints one person as the head of multiple departments.

Joint ventures and mergers

Merging is when two companies combine to create a larger one. The benefit of merging with another company is that with added labor resources, production and project management becomes more efficient. Merging can also prevent companies from having to liquidate their assets to pay off creditors. Integrating with new management replaces flawed systems and helps identify operational problems in both companies.



Larger companies acquire the stock of a smaller company intending to subsidize with most of the stock. Acquisitions can be mutual, where both companies agree to the benefits given to each entity, or hostile, where the larger company purchases stakes in the targeted company without them knowing. Larger companies initiating the acquisition sometimes require the smaller company to liquidate their assets to use as capital.


Transferring is when a company sells a part of its business to another company. Transferring can take place as either spin-offs or split-offs. Results are when a company creates a division of the parent company and operates as a separate entity, and split-offs are subsidiaries of the parent company where shareholders decide if they want to transfer their shares to the subsidiary, or the parent company.


Recapitalization is a capital structure change. This type of company restructuring happens when companies are in significant debt and want to prevent a hostile takeover. When debt is high or the company faces financial difficulty, companies can restructure their capital by purchasing back some of their shares in the open market. Companies may also want to reduce their expenses to increase profit, which increases the overall value of the company.

Change identity and brand

Companies often change their brand and identity to target a new market or to separate themselves from a history of bad press. Identity changes are common when companies merge or become subsidiaries of a parent company. Companies that undergo inventory restructuring also change their identity when the products differ from what they previously sold.

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