What Is Corporate Restructuring? Process, Examples & More

Corporate restructuring significantly changes the structure of an organization and its business processes. It’s typically driven by internal and external drivers, current conditions and future goals. Effective change management is a critical to driving a sucessful implementation. 

Restructuring can help achieve strategic goals, such as increased profit, reduced debt or enhanced productivity. Companies striving for long-term success must periodically restructure to stay competitive in evolving markets. However, this level of change can also cause employee anxiety and operational disruptions.

In this guide, we'll explore corporate restructuring, its approaches, and the general process used to create successful change. You’ll also learn why change management is crucial for successful restructuring and how to apply it.

What Is Corporate Restructuring?

The corporate restructuring market is booming, growing 5.6% yearly from 2018 to 2023, and it's set to accelerate. According to the 2023 Corporate Restructuring Advisory Market Outlook, corporate restructuring activities are expected to grow 6.3% annually over the next decade.

This change can be caused by internal factors (such as performance or strategic direction), external factors (such as market dynamics), current conditions (such as financial health or regulations), or future goals (such as more satisfied customers and increased profit).

Reason for Change

For instance, a company might sell off underperforming divisions to streamline operations or reduce size. It can also merge with another company to enhance its competitive advantage.

Corporate restructuring can cause employees and stakeholders to feel anxious about job security and the company's future. If this unease is allowed to fester, it can disrupt daily operations and increase resistance to change. Prosci change management experts often provide strategies and tools to empower organizations during restructuring initiatives to address these and other issues.  

Change management is critical during corporate restructuring. It mitigates fear and resistance through communication and support. It also helps people gain a positive mindset toward the new system, which makes the transition smoother and increases the chances of change success.

Approaches To Corporate Restructuring

There are seven standard types of corporate restructuring, each serving specific strategic needs:

Types of Corporate Restructuring  

• Mergers and Acquisitions (M&A) – A company merges with or acquires a competitor to expand its market reach and diversify its product lines. This can help gain competitive advantages and accelerate growth.
• Organizational restructuring – A company changes its internal structure to improve core processes, enhance efficiency, or align with strategic goals. This approach can involve modifying organizational structure and hierarchies, redesigning job roles, or altering reporting lines. The formation of Alphabet by Google's co-founders is an example of an organizational restructure. Creating a parent company enabled Google and other products to run independently under strong management while still having a unified head.
• Operational restructuring – This approach focuses on improving core business activities to increase productivity or reduce costs. It can include optimizing processes, outsourcing tasks, or implementing new technology.
• Divestment – Companies can prioritize profitable areas, free up capital, and reduce operational complexity by selling unprofitable business units, subsidiaries, or non-essential assets. They can also sell underperforming assets or those that don’t match current strategies.
• Legal restructuring – This approach focuses on changing a business's legal structure to manage liabilities better, improve compliance with regulations, or gain tax advantages that enhance fiscal efficiency.
• Financial restructuring – Companies often restructure during financial distress and economic downturns. This type of restructuring improves financial stability and restores liquidity. It reorganizes a company's capital structures and can involve renegotiating debt terms, restructuring equity, filing for bankruptcy protection, or securing new financing to ensure long-term viability.
• Strategic restructuring – When market conditions change or competitive pressure increases, companies can change their business model or form strategic alliances to stay successful. They do this by entering new markets, offering different products, or adopting new business models. For example, in 2022, AT&T's WarnerMedia and Discovery, Inc. merged to form a new standalone company, Warner Bros. Discovery, to better compete in the global streaming market.
  

Corporate Restructuring Process

The corporate restructuring process varies for each company and depends on the reason for the change, but the general steps are:

Identify your goals

Define the main objectives for business restructuring or your reason for change. Examples include reducing debt, cutting operating costs, or realigning business operations with market demands.

The primary objectives guide the steps and actions taken during restructuring. The reason for change also makes it easier to help employees understand why change is necessary.

Apart from the larger objective, set small achievable goals that act as roadmaps or milestones. These milestones provide measurable targets during the restructuring process.

Create a plan

Work with leaders, strategists and consultants to form a corporate restructuring strategy that addresses the technical and people sides of change.

The technical side of change focuses on designing, developing and delivering new systems, processes and job descriptions, while the people side drives the adoption and usage of these new systems. A plan that integrates both sides, like the Unified Value Proposition model, is vital for successful change.

The Unified Value Proposition Model

Your plan must also detail the restructuring phases, outline the key actions, and identify the necessary resources and sponsors to support the initiative. Preparing employees is also important to restructure successfully. For instance, if a specific department is expected to change drastically, a communications plan can help prepare employees. Finally, your restructuring plan should define clear metrics to track progress and make data-driven decisions.

Implementation

Start implementing changes according to the planned phases. Regularly assess progress using the predefined metrics. Based on this monitoring, adjustments should be made to align the restructure with the main objectives.

Why Change Management Is Crucial for Corporate Restructuring 

Leaders and consultants formulate plans or strategies for what will change, how and when. But implementation can be challenging or painful, as the organizational structure undergoes massive change, leading to resistance, employee anxiety and disrupted operations.

This is why change management strategies are essential during restructuring. They help:

1. Ensure strategic alignment

Change management ensures that the restructuring aligns with strategic goals at every level of the organization. It clarifies the vision, aligns team and individual goals with the organization's strategic direction, and helps ensure that the entire company works toward the same goals. Change management tactics can also align employees' behavior, attitudes, and skills with what the company wants to achieve, making the transition to change smoother.

2. Minimize employee resistance

When a company decides to restructure, it can cause a lot of employee resistance. This resistance, often from fear and uncertainty, can make employees feel vulnerable and less open to change. A survey of over 1,000 employees revealed that 37% are resistant to change, with mistrust in the organization, lack of awareness, and fear of the unknown being the top reasons.

By using a structured change approach, like the Prosci Methodology, you’ll have the strategies to communicate the need for change, its benefits, and how to implement it. This understanding helps reduce resistance and gets employees on board with the changes.

3. Enhance communication

Change management strategies focus on creating clear, open lines of communication that facilitate two-way dialogue. This approach provides clarity and creates transparency, building employee trust and engagement.

For example, Prosci research shows that employees have preferences for message senders, depending on the message type. They prefer supervisors to send personal-impact messages and business leaders to send organizational messages.

Preferred Senders of Messages

Using this data, change teams can create a communications plan that ensures employees receive messages from the preferred senders through the right channels and at the right frequency, improving overall employee communication.

4. Maintain productivity during transition

The disruption caused by restructuring can lead to a temporary decline in productivity as employees adjust to new roles, structures or systems. Change management minimizes these disruptions by preparing, equipping and supporting people through their transitions. This helps employees remain focused, engaged and productive during the transition, safeguarding the company's operations.

Restructuring might also require employees to adopt new skills, embrace new roles, or use new technologies. Change management strategies help identify these new requirements, and implement training and development programs to meet them.

5. Mitigate risks associated with change

As part of their change management strategy, teams can conduct project risk assessments to anticipate resistance and roadblocks during the restructuring. They can then proactively develop solutions to mitigate risks.

Risk Grid

Using this proactive approach, teams can avoid costly errors, maintain continuity, and minimize disruptions. Change management also enhances the organization's adaptability to adjust strategies as necessary to meet objectives.

6. Facilitate cultural transformation

Corporate restructuring usually requires a shift in company culture to support new working methods, values, or strategic directions.

Change management can guide this cultural shift, ensuring that the values, behaviors and norms of everyone within the organization, match its new goals.

A comprehensive change strategy can help leaders and employees stay aligned even after the change is completed. This cultural alignment is crucial for long-term, sustained change success.

How Change Management Can Enhance Corporate Restructuring

To enhance the restructuring process and its outcomes, you can use the Prosci ADKAR® Model to develop effective change management strategies.

Prosci ADKAR Model

By using these strategies, you can:

1. Facilitate smoother transitions

Change management can make the transitions during restructuring smoother by preparing and supporting individuals and teams. Employees and stakeholders are also informed and engaged. They have access to the necessary training and resources to adapt to new structures, processes or systems, which reduces employee resistance.

2. Increase flexibility and adaptability

Change management encourages a culture of flexibility and adaptability, which is essential during restructuring. It prepares the organization to respond quickly to changes, whether internal adjustments or external market pressures, so the company remains competitive and resilient.

3. Support the integration of new processes and systems

Change management facilitates the integration of new processes or technologies by providing the framework for training, support and feedback mechanisms. These mechanisms ensure employees are competent and comfortable with the changes, resulting in reduced downtime and increased efficiency.

4. Improves employee engagement and morale

Corporate restructuring can be stressful for employees, leading to decreased morale and productivity. Change management addresses these issues by actively involving employees in the change process, getting their input, and answering their questions. This can increase employee engagement, commitment and morale, which are critical for successful restructuring.

5. Ensures sustained change and continuous improvement

Change management also focuses on the long-term sustainability of change. Reinforcing a change is important to achieving desired outcomes over time. But many businesses move from one change to the next without ensuring the change stays in place. Reinforcement involves setting up mechanisms for rewards, feedback, accountability, continuous evaluation and corrective actions to maintain the benefits of restructuring.

Work With Prosci to Manage Restructuring

Corporate restructuring is necessary for long-term success as companies strive to adapt to new market conditions. Organizations can cut costs, reduce debt, eliminate unprofitable services or products, and improve overall efficiency by changing structures and operations.

But, for these changes to be successful, they need a plan or strategy to guide their restructuring initiatives. This is why a change management strategy is essential. Effective change management can increase adoption and ensure your efforts deliver desired outcomes.