Enterprise reorganization is essential for companies to adapt to changing market conditions and internal challenges. In today’s business environment, where competition and technological change are occurring at an incredible rate, enterprises are forced to rethink their strategies, organizational forms, structures and processes. Reorganization can take various forms, from a change in the organizational structure to a complete merger or acquisition of companies. This article will look at the main types of enterprise reorganization, its consequences, and examples of successful and unsuccessful reorganization processes in various industries.
What is the Reorganization of Companies: General Information
Company reorganization is a process of structural changes in a company that aims to improve its performance, increase efficiency and adapt to market changes or internal conditions. This may include changing the business model, management structure, operations, or the company’s mission. As a rule, the main objectives of the reorganization include increasing profitability, improving competitiveness and sustainable development. Here are the main types and aspects of reorganization:
1. Mergers
You combine two or more companies into one to create a stronger player in the market.
2. Acquisitions
One company buys another, ultimately taking control of the business and assets of the absorbed company.
3. Divestitures
The company divides its assets, divisions or businesses into separate independent organizational structures or sells them.
4. Debt Restructuring
Includes negotiations on changing the terms of debt repayment or converting debts into shares.
5. Capital Restructuring
Changes in the company’s capital structure, including the issuance of new shares or the conversion of debt obligations into equity.
The Main Aspects of the Reorganization:
1. Financial Restructuring
This includes changing the cost and income structure, possibly through cost reduction, the sale of non-core assets or the search for new sources of financing.
2. Changing the Organizational Structure
Review and change the company’s organizational structure, including management, recruitment and distribution of responsibilities.
3. Optimization of Business Processes
Optimization of production and business processes, introduction of new technologies or working methods.
4. Changes in the Field of Personnel Management
We are changing the corporate culture and human resource management strategy to improve employee motivation and productivity.
Advantages of Reorganization:
- Improving operational and financial stability.
- Increased flexibility and adaptability to changing market conditions.
- Improving competitiveness.
- Business process optimization and cost reduction.
Potential Risks of Reorganization:
- Resistance to change on the part of employees.
- Temporary dysfunctions and uncertainties in the company’s work.
- Significant costs for the reorganization process.
- Risks associated with loss of trust on the part of customers and investors.
Reorganization requires careful planning, analysis of the company’s current state, and a deep understanding of the external and internal environment. A successful restructuring can significantly improve the company’s position in the market, while mistakes can lead to negative consequences, including bankruptcy.
Reorganization of Enterprises in Belarus
In Belarus, the procedure for reorganizing companies is regulated by the state. In particular, state registration of the reorganization of companies (liquidation of reorganized companies) is required. The state also determines the procedure for transferring the property of reorganized companies. Reorganization includes:
- A merger of companies, in which the rights and obligations of companies are transferred to a new company.
- Joining, in which the rights and obligations of the company being joined are transferred to the company. In merger and joining, the rights and obligations are transferred by the transfer act.
- Separation, in which the company is divided into new companies, to which the rights and obligations of the split company are transferred according to the dividing balance sheet.
- Allocation, in which one or more new companies are allocated from a company. The rights and obligations are transferred to them according to the dividing balance.
- A transformation in which a company of one organizational and legal form is transformed into a company of another organizational and legal form. For example, a limited liability company becomes a joint-stock company, to which the rights and obligations of an LLC are transferred by a transfer act, except for those that the JSC cannot fulfil. For example, a joint-stock company cannot buy shares in the authorized capital since the authorized capital of a joint-stock company is not divided into shares.
Who Decides on the Reorganization of the Company?
The company’s management body decides on the company’s reorganization: the general meeting of participants or the owner of the company’s property or the management body, which can make such decisions per the company’s articles of association.
When an Enterprise is Considered Reorganized
The company was reorganized after the state registration of new companies created due to the reorganization.
When an enterprise joins another company, it talks about reorganizing after an entry on the liquidation of the affiliated enterprise (termination of activity) has been entered into the Unified State Register of Legal Entities and Individual Entrepreneurs.
How Creditors are Protected During the Reorganization of Enterprises in Belarus
When reorganizing enterprises, their management bodies, which have decided on reorganization, must notify the enterprise’s creditors in writing. The deadline for such notification has not been determined. Creditors of reorganized enterprises may require: early fulfilment of obligations, termination of obligations and compensation for losses, debt restructuring of enterprises
Enterprises with debt to creditors can include creditors’ representatives in the management bodies and owners.
If the company is in debt to the bank on loans, it has the right to apply to the bank with a request for restructuring the debt on loans.
There is a possibility of debt restructuring on the creditor’s part: the creditor enterprise, which has debtors, can agree with a particular financial institution that acquires debts in the form of assignment by the creditor of the right of claim. A special financial institution issues bonds in the amount of the assigned claims and transfers the money from the sale of bonds to the creditor company. In return, the creditor company transfers the right of claim for obligations transferred earlier to a particular financial organization. This method of financing is called “securitization”.
Reorganization of Capital
Capital may be reorganized while reorganizing the company’s structure (merger, division, joining, allocation, transformation). This applies particularly to a company’s transformation when it changes its organizational and legal form, such as incorporation.
Capital reorganisation can also occur outside the framework of classical enterprise reorganization processes. For example, when expanding the company’s ownership structure, including investors in the ownership structure, redistributing shares in the authorized fund, and selling shares in the authorized fund.
Business Process Reorganization
Business reorganization includes mergers and acquisitions as well as the reorganization of business processes. Such a reorganization is often required to keep up with modern technology and changes in consumer behaviour. Here are examples of successful and unsuccessful business process reorganizations of world-famous (at least at the time) companies.
Examples of Successful Business Process Reorganizations
1. IBM (Technology)
In the early 1990s, IBM faced financial difficulties. Under the leadership of CEO Lou Gerstner, the company changed its strategy to focus on services and software, not just hardware. This allowed IBM to restore profitability and take a leading position in cloud technology and artificial intelligence.
2. Netflix (Entertainment)
In 2007, Netflix switched from a DVD rental business model to a streaming video platform. This reorganization allowed the company to survive changing consumer preferences and become one of the leaders in the field of streaming, creating its own content.
3. Coca-Cola (Food Industry)
In the early 2000s, Coca-Cola reorganized, focusing on diversifying its products and expanding its product range. They launched new drinks, such as healthy juices and tea, which allowed them to adapt to changing consumer demands and increase their market share.
Examples of Unsuccessful Business Process Reorganizations
1. Kodak (Photo)
Although Kodak was a leader in photo printing, the company failed to adapt properly to the digital revolution. The reorganization aimed at transitioning to digital technologies turned out to be insufficient and untimely, eventually leading to bankruptcy in 2012.
2. Blockbuster (Entertainment)
Blockbuster tried to reorganize its business by introducing online rentals and new formats. Still, the company did not have time to adapt to changes in the entertainment industry and competitors such as Netflix. In 2010, Blockbuster filed for bankruptcy.
3. JCPenney (Retail)
In 2011, JCPenney changed its strategy, changing its approach to pricing and deciding to abandon sales. Consumers perceived This reorganisation negatively, which reduced sales and eventually led the company to financial difficulties and bankruptcy in 2020.
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