ORGANIZATIONAL RESTRUCTURING

ORGANIZATIONAL RESTRUCTURING

GAURAV SHARMA

February 19, 2015

MGT 160/270 – Spring 2015

Prof. Sharon Page

ORGANIZATIONAL RESTRUCTURING

PROLOGUE

This management research paper presents a broad overview of organizational restructuring and its

implications in the business market. The purpose of this paper is to understand why certain

organizations undergo structural changes and how they revive themselves in the competitive

world. To explain this concept, the paper provides a comprehensive study of organizationa l

revamping performed at Eastman Kodak Co. and Fujifilm Holding Corp. Both these companies

were once competitive rivalries and leaders in their photographic film based product line. Paper

highlights company’s situational analysis and approach adopted to overcome the pressure of

dynamic world. This comparison prepares us to better understand the strategic techniques behind

the organizational restructuring and explains the undying need for it to be leaders in today’s world.

ORGANIZATIONAL RESTRUCTURING

ISSUES FACED BY AN ORGANIZATION AND ITS ADVERSE IMPACT

Organizational Restructuring is defined as a corporate process involving significant modifica t ion

in existing operations or structure of a company. An organization often restructures its operations

by cutting costs, payroll, reducing its size through the sale of assets, facilities and layoffs. This is

seen as absolute necessary when the company’s current situation is one that may lead to its ultimate

collapse. It usually happens when there are significant problems, which are causing unrecoverable

financial harm and putting the overall business in jeopardy.

By restructuring, a company can eliminate financial harm and improve its business. It improves

its efficiency, effectiveness, keep technology up to date and align its strategic operations with the

new changes in tax, embargo and trade laws implemented by the government. For instance, debt

restructuring makes the payments on debt more manageable for the company and the likelihood of

payment to bondholders increases.

Any organizational restructuring is basically a part of change initiative taken by the management

but worked together by the employee workforce. Some of the common issues faced by an

organization which forces them to undergo restructuring in order to remain in business are listed

as below

ORGANIZATIONAL RESTRUCTURING

Changed Nature of Business and Customer Demands

Companies that refuse to change with time, face the risk of their product line becoming obsolete.

This is the main reason for the businesses to learn to innovate and experiment with new products,

explore new sectors of the markets and reach out to new customer groups on a continuous basis.

This helps the businesses to diversify into new areas to increase sales, optimize their capacity and

conversely shed off divisions that do not add much value. All such initiatives requires thought

process and strong urge to compete. This is achievable by restructuring.

Technological changes and Quality Management

Technological innovations, advancements, new work processes, better materials and various

factors influencing the business productivity may require restructuring to keep up with the pace.

Failure to adapt and change, results in the systems and procedures turning obsolete and discordant

with the changing times. Due to competitive environment, companies struggle to improvise on

quality of their products by adopting new techniques such as Six Sigma and Total Quality

Management (TQM). Implementing new, improved, high quality standards may require changes

in the organization and hence attribute to organizational restructuring.

Mergers, Acquisitions and Buy Outs

Merger/acquisition is often accompanied by organizational restructuring exercise. It helps to

reconcile the systems and procedures of the merged organizations to ensure integrity and evenness

around the joint venture. This also provides the new entity a consistency of approach in its

operations. Joint ventures require formation of matrix teams and new task forces to sustain the

pressure in the restructured environment. In case of buy outs, restructuring exercise allows the new

ORGANIZATIONAL RESTRUCTURING

owner to reshuffle key personnel and provide power to trusted employees under his leadership. It

provides a fresh start, with a clean state to exert greater control and power.

New working methodology with and change in management style

New innovative working methodologies like outsourcing, telecommuting and flex time require

advanced systems, policies and structures in place which trigger organizational restructuring. This

places greater emphasis on the results rather than the methods, flexible reporting relationships with

strong communication policy.

Traditional management style recommends highly centralized operations and the top management

adopting a command and control style. The new behavioral approach to management focuses on

empowering the workforce by providing considerate authority to Supervisors in conducting day-

to-day operations.

Bankruptcy/Financial Debt

Bankruptcy forces businesses to shed excessive overhead expenditure such as workforce, out of

order manufacturing facilities or sell some business product lines to raise money and become lean

and mean. They undertake organizational restructuring exercise to improve its efficiency,

effectiveness and unlock hidden potential, thereby attract fresh investors and shareholders. It helps

them to avoid high costs of a formal bankruptcy.

Downsizing

Tough competition and overwhelming pressure from competitors, especially who advertise and

work on low price strategy, forces the company to adopt more lean techniques such as just in time

inventory and other measures to reduce input costs and achieve process efficiency. Downsizing-

ORGANIZATIONAL RESTRUCTURING

induced restructuring leads to flatter organizational structure which is more effective and

transparent. It also enhances the job descriptions and duties.

Legal compliance and new TAX laws

Restructuring is enforced to adhere some legal or statutory requirements. New trade laws and

embargo changes often requires company to undergo restructuring to maximize profits and

minimize the impact of the legal compliance on its operations.

ORGANIZATIONAL RESTRUCTURING

SITUATIONAL ANALYSIS

Fujifilm Holdings Corp. (App A) with a regional presence in Japan, started global expansion in early

1960’s and became a competitive rivalry for photographic-film leader Eastman Kodak Co. (App B).

Over next three decades, the market changed dynamically due to new technological advancements

and creative innovation. The demand for photographic film subsequently reduced and was

overpowered by the digital world, ultimately shaking up the company’s existence. Both Fujifilm

and Kodak knew the digital age was surging and were finding ways to cope up immense pressure

risen from technological advancement and innovations.

Kodak acted like a stereotypical change-resistant firm. They filed a lawsuit against Fujifilm

alleging patent infringement and monetize its R&D in its one and only core business of

photography. They seemed to believe that its core strength lay in brand and marketing, it could

simply partner or buy its way into new industries, such as drugs or chemicals. The problem with

this approach was that without in-house expertise, they lacked some key skills like the ability to

adapt and integrate the companies it had purchased. They also failed to negotiate profitable

partnerships. Kodak’s over confidence about their marketing capability, their brand and shortcut

methods ultimately lead to its BIG failure. They failed to keep pace and filed for Chapter 11

bankruptcy protection in 2013.

On the other hand, Fujifilm seriously worked on reviving the company and they funded their R&D

department to find effective ways to deal with the change. They were flexible and prepared to

accept the change. Apart from working on innovation moving to digital photography from analog

versions, Fujifilm tapped its chemical potential for broader usage such as drugs, liquid-crys ta l

ORGANIZATIONAL RESTRUCTURING

display panels and cleaning supplies. They ventured into cosmetics as well, on the thought process

for stopping photos from fading, would well suit for human skin too. Company's post digita l

transformation was marked by sacrificing thousands of jobs and manufacturing facilities across

the world to restructure themselves and survive. In 2005 and 2006, the company worked on

downsizing the overhead by chopping approx. $2.5 billion in costs mainly in its photographic- film

business with a return back of huge profits and backing up good investment trust. Fujifilm then,

reorganized its operating structure after the global financial crisis of 2008-09, forcing the company

to shed a further $1.5 billion in cost and expenditure.

For this fiscal year, the company is aiming for 32% growth in operating profit to $2.0 billion from

its forecast for this year. It has targeted a 9.2% rise in revenue to $2.0 trillion. With time Fujifilm

still holds its initial business of photographic film and they make around 1% of its revenue from

it, down from nearly 20% a decade ago. Its health-care operation such as medical equipment, drugs

and cosmetics, accounts for about 12% of revenue. Materials for flat-panel displays generate 10%.

The fact shows that when company lost its core business, they were able to well adapt and

overcome the situation by diversifying and carefully planned organizational restructuring. For

more details on the stock analysis for Fujifilm and Kodak, please refer to Appendix (App A, App B)

section of the paper.

ORGANIZATIONAL RESTRUCTURING

RECOMMENDATIONS

Organizational restructuring is successful only if it is carefully planned and executed. To cope up

with the changing market and to be on a competitive edge requires an effective strategic execution.

In the above described scenario, in situational analysis section of the paper, restructuring would

have proven effective for Kodak if it was carefully planned and executed. Kodak would have

revived from the situation if they have accepted the change and were willing to adapt and learn

from their mistakes. Some of the recommendations, Kodak may act upon are listed below.

Innovation

Kodak should willingly allocate more resources to R&D to encourage innovation at company.

They should encourage employees to contribute ideas and methods to improvise products and

processes. This in turn will help reduce some excessive operational costs. New products will pave

the path for more revenues to the company. They can file fresh patents for their innovative ideas

and leverage this additional income. This will help them to improve upon their in house skillset

and will provide an overall competitive edge

Diversification

Kodak relied only on their core business of photographic films and miserably failed with changing

market demands. New products like printers, cleaners, cosmetic etc. will help them diversify in

global market and will be able to provide a strong hold on shareholder’s trust and confidence.

Go Thinner

ORGANIZATIONAL RESTRUCTURING

Shedding of excessive layers of management will prove efficient to reduce cost and become more

effective, providing more opportunity to the first line managers to contribute. Additional benefit

of clear transparent communication will improve the work culture and working environment.

Shutting down its non-profitable units to divert the spared resources to run the company’s

operations will be a temporary solution to this problem.

Clear Communication and Trainings

Clear communications from the Top management will help retain trust of the employees. Kodak

should set a clear path for the company to follow in next 1-5 year and forecast its projections. This

will help the stockholders to reinforce their confidence in the company and employees will also

have clear set of guidelines to follow to achieve the desirable results.

Trainings will help the employees, better cope up with the change and will facilitate in the

restructuring process. It provides an opportunity for the management to help their employees

understand the need for the change and encourage them to work together in this difficult times.

Trainings help to improve understanding of the new process in place and improve the productivity

and quality standards.

ORGANIZATIONAL RESTRUCTURING

IMPLEMENTATION

Organizational Restructuring can be successfully implemented in a company by the follow

approach.

Dry run in one department unit

This process includes identifying the least involved unit in the organization in order to minimize

the impact of the change. Set clear instructions for the change to undergo for the unit. Maintain an

open door policy for the employees to ask questions about the change, so that they can mentally

prepare for the new structure or process. Implement the change and let the employees experience

the aftermath of the change, discuss with them about the new process, their comfortness and

analyze their resentment. Encourage them to undergo trainings to cope with the new changes and

allow sufficient time for them to transition from traditional to the new system. Once the impact

analysis is done in one unit, the same process can be replicated throughout the organization.

Increasing Transparency

The communication from top management about the restructuring will be imparted to the

employees on various media like emails, discussion boards and conferences. They will be

encouraged to participate and contribute ideas to the management. Also will suggest ways to cut

cost and improvise products.

Frequent meetings with the first line managers to get feedback

During the change implementation, frequent meetings with the supervisors ensures everything is

in place and will also highlight the areas of concerns and conflict. This will help to curb the issue

in time and will give authority to the Supervisor to help complete the change.

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SUMMARY

Change is inevitable. Organizations which learns to adapt to the changing world survive and thrive.

Organizational restructuring is a collaborative tool which helps the company to cope up with the

change. It is absolutely clear that restructuring is effective only when both employer and

employees participate. Being innovative and creative will always provide a competitive edge to a

company and will help shield its integrity from the dynamic market forces.

Organizational change is often accompanied by comprehensive study of the market forces which

impact business, demographics, target customer and estimated sales. Restructuring effort aims to

improvise business and generate more sources of revenue without compromising the quality.

Restructuring has become a higher priority for companies scrambling to change, survive and thrive

in a tough economic climate. Careful planning and strategic execution will ensure its success. This

helps the company to revive and grow. It also enhances the effectiveness of the organization by

improving productivity and quality of the product offerings. So organizations which are ready to

accept their failure and learn from their mistakes will have better chances of survival in near future.

ORGANIZATIONAL RESTRUCTURING

REFERENCES

Bree Fowler |”Kodak CEO talks company's restructuring after bankruptcy”

http://www.semissourian.com/story/2001667.html Retrieved Feb 17, 2015

“Defining Restructuring”

http://www.investopedia.com/terms/r/restructuring.asp Retrieved Feb 05, 2015

“FUJIFILM NORTH AMERICA CORPORATION ANNOUNCES RESTRUCTURING TO SUPPORT SALES EFFORT“

http://www.fujifilmusa.com/press/news/display_news?newsID=880011 Retrieved Feb 03, 2015

Gilson, Stuart C. “How To Make Restructuring Work for Your Company”

http://hbswk.hbs.edu/item/2476.html Retrieved Jan 22, 2015

N Nayab, Finn Wendy | “10 Reasons Why You Should Consider Restructuring”

http://www.brighthub.com/office/human-resources/articles/122660.aspx Retrieved Feb 11, 2015

Principles of Supervision and Management Vol.2 “Forces for change”

Chapter-19 Pg.560. Retrieved Feb 07, 2015

“Shift to a New Structure”

http://www.fujifilmholdings.com/en/rd/structure/shift.html Retrieved Jan 17, 2015

“Sharper focus” Retrieved Feb 11, 2015

http://www.economist.com/blogs/schumpeter/2012/01/how-fujifilm-survived

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APPENDIX A

Fujifilm Holdings Corporation, commonly known as Fujifilm is a Japanese multinational

photography and imaging company headquartered in Tokyo, Japan was founded in 1934.

Shigetaka Komori is the current president and CEO of the company. It has an employee

strength of 35, 000 and net worth of $1.8 trillion (FY2010)

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APPENDIX B

Eastman Kodak Company, commonly known as Kodak, is an American company focused on

imaging solutions and services for businesses with headquarters in Rochester, New York, United

States. It was founded by George Eastman in 1888. Jeff Clarke is the current CEO of the company

and company’s net worth is $4.11 billion (FY2012). It has about 9000 employees as of 2014.