What Is Humane Restructuring ?

 
 

humane restructuringAmid the comments, often politically motivated, about the excesses of corporate restructuring, the goal that guides many of us engaged in turning around companies is saving jobs while, at the same time, creating a profitable, sustainable company.

While most restructuring requires cutting expenses, and, in most cases, that expense cutting translates into job reduction, it is often possible to save more jobs than is apparent when first beginning a turnaround. But saving some jobs inevitably means some jobs can’t and shouldn’t be saved.   The key is how that corporate downsizing is carried out.   And the success of any restructuring is dependent on how it looks to the remaining employees.

So, what is “humane restructuring?

That question is best answered by those remaining employees after management has completed the turnaround and the company has been operating for a period of time.    But, in general, it is restructuring in which the stakeholders, including non-management employees, view as a process that was performed with the interests of all of them in mind.

Revitalization Partners recently spent 15 months in the process of seeking to turnaround a North American subsidiary of a major global Japanese company.   This $260 million subsidiary was formed when the parent company bought two profitable family owned companies and attempted to merge them together.   The result was a $15 million operating loss in the year prior to retaining Revitalization Partners.

What led these two profitable companies to such a substantial loss?    Let’s look how the merger took place.    Management was selected from the two companies in an effort to be “fair”.    This meant that senior management was selected on the basis on which company they came from rather than experience or job performance.

 ... substantially more Vice Presidents and Senior Management than were required

It also meant that there were substantially more Vice Presidents and Senior Management than were required for a company of its revenue base. And each of these senior managers created overhead commensurate with their positions.

As neither company was large enough to have the appropriate systems and procedures in place, an attempt was made to select and install a significant Enterprise Resource Planning (ERP) system simultaneously with the merger.   As none of the managers had any experience with selecting such a system or hiring the appropriate outside consultants.

The result was what you would expect.  Complete chaos and finger pointing as well as an inability to get the most basic necessary information to run the business.

When the layoffs viewed by the parent company as “necessary” took place, they were also done in a “fair” manner with the appropriate number of employees from each of the former companies let go.   While this was perceived as being “fair” by those doing the layoffs, the remaining employees knew that many of those laid off were, in fact, the most competent.

Recognizing the magnitude of the problem following the losses, the parent company took several steps, among them, replacing the Japanese CEO and hiring Revitalization Partners to perform a restructuring.

For the first six weeks, we interviewed all of the management team and key employees then from the data collected, developed a restructuring plan that was presented to the parent company.   Among other things, it called for a “local” to run the day to day operations of the company.   The parent company agreed and a Principal of RP was appointed interim President.

The first step was generating a new three month P&L forecast followed by a plan for SG&A reductions.   But unlike many reductions, we asked every department manager to develop a restructuring plan for their own departments.   Then, unlike previous cost reductions, we started from the top.   The jobs of several Vice Presidents were eliminated, followed by those managers that were either non-performing or whose passive/aggressive behavior was holding back the integration of the two companies.

Only then did we reach into the pool of individual contributors.

The corporate culture had been so much like a family with a dictatorial parent, that when we asked why there weren’t vending machines in the cafeteria, the answer was that the former President didn’t think they were good for the employees.   That, combined with the natural detailed oversight style of the parent company, had eliminated all vestiges of accepting responsibility on the part of the average employee.   This attitude was so entrenched that a senior department manager had to have the CEO’s signature to buy a special ream of paper for marketing announcements.

After installing vending machines, over the next 12 months we focused on changing the corporate culture by increasing the level of responsibility for employees and department managers.   They responded by increasing gross margins for the company in excess of 50% and within six months installing a new, fully functional, ERP system.

After replacing several high level employees with a single individual; a division of the company that had not been profitable in three years turned a substantial profit.

When the restructuring assignment ended, we received a large number of emails from line employees thanking us for our efforts.   The operating loss, while not completely eliminated, was reduced to $1.5 million. During the process, the parent company decided that the business was not one that matched their future plans and RP was able to find an acquirer.

Most restructuring is done by management from the standpoint of cost cutting and rapidly improving cash flow.   It is something done to employees rather than by the employees as a group.

 employees responsible for the work understand what sacrifices must be made …

Our experience in this instance demonstrates that the employees responsible for the work understand what sacrifices must be made and, most importantly, who should be making them, including at the management level.

By involving them in the restructuring process, the company retains the appropriate talent on an ongoing basis and the employees who are let go perceive the process to have been as fair as possible