5 most important success factors for a restructuring or restructuring strategy

Mario Busshoff

20. April 2020

Restructuring strategy: these are the success factors

Restructuring is one of the central elements of every corporate strategy. The reasons for this can lie in the past as well as in the future: Negative influences in past phases can lead to crisis situations that require decisive measures. On the other hand, looking at future developments can also motivate you to strengthen your own market position through restructuring and to give the company a sharper profile. Find out here which success factors play a role in the restructuring.

Restructuring strategies require planned action

One of the main reasons why a restructuring project can fail is the lack of systematic planning. One of the success factors of a restructuring is to approach the project with a detailed strategy. Intuitive acting from the gut leads inevitably to the planning offside.

But that is exactly what happens in many companies in the face of a crisis situation: Instead of putting yourself at the forefront of events with a sophisticated restructuring concept and influencing the processes in a targeted manner, some management only reacts to occurring situations and events. Reaction instead of action – as a restructuring strategy, this is not a promising approach.

Restructuring strategy as a restructuring concept

Rapid and consequent action is required, particularly in cases where the restructuring is due to an entrepreneurial emergency. If deficits crystallize in one of the areas of competition, earnings or liquidity – or in several areas at the same time – the success factors of the restructuring are largely defined by their usefulness in the decision-making process by investors and banks with regard to further financing.

Experience shows that lenders in cases like these pay special attention to the catalog of measures in the restructuring strategy. Central factors are the speed of the processes, the sustainability of the initiatives initiated, the involvement and commitment of the top management and the professionalism of the implementation.

The prospects of success of a restructuring concept usually prove themselves in the first weeks of the measure, based on the assessment of the current situation. It is therefore all the more important to start with an optimally designed restructuring strategy.

The five success factors for restructuring

There is no general recipe for successful restructuring. The respective concept depends on the individual situation of the company and the external conditions. Nevertheless, a successful restructuring strategy should contain some important basic elements:

Success factor 1: forecast for the next three years

If a company has no concrete idea of ​​how it will prove itself on the market in the coming years, there is no basis for designing an efficient restructuring concept. It is by no means necessary to have clairvoyant skills: it is about developing case studies for the three possible development scenarios: Best Case, Worst Case and Most Likely.

In this context, one element is one of the indispensable success factors of any restructuring: solid and resilient figures. Without a correct database, any restructuring strategy will inevitably end up because it is based on the wrong conditions and inevitably leads to wrong conclusions.

The budget resulting from the forecasts must also take into account upcoming trends and structural shifts in the market. This becomes particularly important when one-off effects lead to long-term changes in companies and consumers.

The current global corona crisis is a dramatic example of such interference from force majeure. It is already foreseeable today that it will have long-term effects on the corporate landscape and the global economic weather situation.

The airlines, for example, demonstrate how profound the changes will be: Carsten Spohr from Deutsche Lufthansa predicts a fundamental change in the entire industry. This has a direct impact on a significant portion of the existing capacity that is no longer needed.

A promising restructuring concept must be based on the Worst Case scenario in terms of planning and communication. Experience has shown that the other scenarios prove to be too optimistic, especially when it comes to evaluations by banks and capital providers. The precise design of the forecasts is just as important. They must be backed up with a clean planning of the cost centers – this is the only way to reliably identify and optimize critical cost blocks.

Success factor 2: exact target definition

If you do not have a clear idea of ​​what result a measure should ultimately achieve, you cannot design the way to get there. It is therefore important to provide a precise and understandable description of the results.

Depending on the ownership structure, there may be very different solutions. In the area of ​​private equity, for example, one of the main target conditions is to fully service loans and not to violate obligations to banks. This allows the company to be continued or sold at the end of the restructuring. An alternative strategy is to make parts of the company attractive and then sell them.

Owner-managed companies, on the other hand, have completely different interests that play a role in defining the target. But regardless of the underlying interests, this principle always applies: “It is important what comes out in the end.” (Franz-Josef Strauss)

Based on the target definition, key figures are developed, which are reported at regular intervals, ideally weekly. The precision of the KPIs (key performance indicators) summarized on a data sheet is essential. Important indicators include the cost reduction of sales personnel in euros, broken down by business unit. The basic KPIs also include the exact date of closing a location or merging business units at a specific location.

Success factor 3: key account activities

The expansion of key account activities is of fundamental importance for the restructuring. In many cases this involves hiring a key management team. Restructuring not only means reducing existing resources, but also aligning with new perspectives.

Success factor 4: change management

Restructuring can only be successful if the employees understand and support the process. After completing the preparatory work, it is therefore important to pick up the workforce thematically and to make it clear to them why certain steps are unavoidable and what changes are to come.

Success factor 5: consistency and speed

The longer the restructuring process takes, the higher the hurdles to be overcome along the way and the more dramatically the error rate increases. In addition, consistent action is the basis of any successful restructuring. If a location has to close, it cannot be done half-heartedly – it has to be sold or demolished in order not to take its fixed costs as legacy liabilities into the entrepreneurial future.

Conclusion

Restructuring can be used as a measure against entrepreneurial emergencies or as a proactive project to stabilize your own market presence. If there is a restructuring due to deficits in competition, earnings or liquidity, quick and consistent action is essential.

Every restructuring measure – whether reactive or proactive – must be based on precise planning, a well-developed forecast and a precise numerical basis so that the project is well received by banks or capital providers and can be brought to a successful conclusion.

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