Mergers and Acquisitions

Assignment
Group 1
Topic : Business Restructuring

Submitted by :
Sayali Badhe M-09-03
Manish Bhaisare M-09-07
Amit Bhinde M-09-12
Vijay Dhone M-09
 Table of Contents

1. Business Restructuring
2. Why Business Restructuring
3. How Business Restructuring
4. Potential of Business restructuring in India
5. Methods of Business Restructuring (Examples)
Business Restructuring

What does Restructuring mean

Corporate restructuring is the process of redesigning one or more aspects of a company. The
process of reorganizing a company may be implemented due to a number of different factors,
such as positioning the company to be more competitive, survive a currently adverse economic
climate, or poise the corporation to move in an entirely new direction. Restructuring refers to
multidimensional process

Restructuring is the corporate management term for the act of reorganizing the legal, ownership,
operational, or other structures of a company for the purpose of making it more profitable, or
better organized for its present needs.

According to a study by the Harvard Business School, corporate restructuring has enabled
thousands of organizations around the world to respond more quickly and effectively to new
opportunities and unexpected pressures, thereby re-establishing their competitive advantage.

Eg: service industry restructuring - Ameritech corporation, Manufacturing industry rstructuring-

Toshiba corporation, some other examples were General Electric, Motorola, Inc., Lockheed
Martin, IBM, LTV, Siemens, and Zenith.

Why do we need Business Restructuring :

Here are some examples of why corporate restructuring may take place and what it can mean for
the company.

Restructuring a corporate entity is often a necessity when the company has grown to the point
that the original structure can no longer efficiently manage the output and general interests of the
company.

For example, a corporate restructuring may call for spinning off some departments into
subsidiaries as a means of creating a more effective management model as well as taking
advantage of tax breaks that would allow the corporation to divert more revenue to the
production process. In this scenario, the restructuring is seen as a positive sign of growth of the
company and is often welcome by those who wish to see the corporation gain a larger market
share.

Corporate restructuring may take place as a result of the acquisition of the company by new
owners. The acquisition may be in the form of a leveraged buyout, a hostile takeover, or a
merger of some type that keeps the company intact as a subsidiary of the controlling corporation.
When the restructuring is due to a hostile takeover, corporate raiders often implement a
dismantling of the company, selling off properties and other assets in order to make a profit from
the buyout. What remains after this restructuring may be a smaller entity that can continue to
function, albeit not at the level possible before the takeover took place.

Alternate reasons for restructuring include a change of ownership or ownership structure,

demerger, or a response to a crisis or major change in the business such as bankruptcy,
repositioning, or buyout.

How Business restructuring is carried out :

Restructuring generally refers to the reorganization of corporate operations to achieve higher

levels of operating efficiency. This can involve the elimination of noncore businesses and
business processes, the consolidation of related operations and business functions and, to a great
extent, reengineering of existing processes.

A company reengineers its operations first by viewing its markets and evaluating its strengths
with regard to those markets. It then determines how it would operate under ideal conditions. In
other words, if it were entering the business from scratch, how would it operate:

The process of reengineering lies in establishing a detailed strategy to transform the operation as
it exists today into the ideal operation it has defined. This process must be performed carefully to
ensure that projects bearing the greatest benefit are pursued first, and that each project will have
a minimum adverse effect on the operation and the transformation strategy.

Executives involved in restructuring often hire financial and legal advisors to assist in the
transaction details and negotiation. It may also be done by a new CEO hired specifically to make
the difficult and controversial decisions required to save or reposition the company. It generally
involves financing debt, selling portions of the company to investors, and reorganizing or
reducing operations.

The basic nature of restructuring is a zero sum game. Strategic restructuring reduces financial
losses, simultaneously reducing tensions between debt and equity holders to facilitate a prompt
resolution of a distressed situation.

Steps which are taken before restructuring :

 ensure the company has enough liquidity to operate during implementation of a complete
restructuring
 produce accurate working capital forecasts
 provide open and clear lines of communication with creditors who mostly control the
company's ability to raise financing
 update detailed business plan and consideration

Valuations in restructuring - In corporate restructuring, valuations are used as negotiating

tools and more than third-party reviews designed for litigation avoidance. This distinction
between negotiation and process is a difference between financial restructuring and corporate
finance.

Examples :

1] Strategic Readjustments (AT&T)

This case involves AT&T. on September 20, 1995 at 9.11 am., the board of AT&T had
approved plans for a strategic restructuring that would separate AT&T into three publicly traded
global companies. Under the plan, AT&T shareholders would receive shares in two other
companies. A fourth business, AT&T Capital Corp., would be sold. This restructuring in the
form of a split-up was accomplished by means of spin-offs to shareholders of two activities.

The AT&T name continued for the Communications Services group, with revenues of about $50
billion. This included the long-distance business, AT&T Wireless (formerly McCaw Cellular
Communications), and Universal Card operations. About 15 percent of Bell Lab employees were
also retained. It also included a newly established AT&T Solutions consulting and systems
integration organization.

The second company was an equipment company called Communications Systems (later
renamed Lucent Technologies). Its production encompassed public network switches,
transmission systems, wire and cable, and wireless equipment whose total revenues in 1994 were
somewhat over $10 billion. Communications products include business phone systems and
services, consumer phones and phone rentals totaling about $6.5 billion. Microelectronics
consisting of chips and circuit boards represented another $1.5 billion of revenues. The
equipment company also included an AT&T Laboratories unit around the core (85 percent) of
Bell Laboratories for research and development in communications services. The equipment
company began with 20,000 of the Bell Lab employees; about 6,000 remained with the long-
distance company.

Splitting off the equipment business from long distance was motivated by the need to separate
AT&T's role as a supplier and a competitor. AT&T's biggest equipment customers continue to be
the seven regional Bell companies. But the Bell companies and the long-distance carriers are
competitors, each seeking to invade the others' telephone services markets.

The third company would be Global Information Solutions (GIS) (later renamed NCR). It was
further announced that NCR would halt the manufacture of personal computers. It would
continue to offer customers personal computers as a part of total solutions, but using outside
suppliers. NCR would continue to support and service all of its current hardware and software
installations and would market its capabilities to all industries, particularly the three key
segments where it has a strong market position - financial, retail, and communications. NCR,
with 43,000 people in more than 120 countries, announced major cost-cutting initiatives that
would eliminate 8,500 jobs.

AT&T had held a vision of a presence in the computer business, because central station
switching equipment units are large-scale specialized computers. But for many years it was
prevented from doing so by a 1956 Consent Decree with the Department of Justice. A part of the
divestiture decree of 1984 gave AT&T increased freedom to compete in other businesses,
including computers. But AT&T had the disadvantage of starting far behind the established
computer companies. The purchase of NCR in 1991 was an effort to catch up. However, the
computer industry itself went through such major dynamic changes that even the former leader,
IBM, was unable to keep up. The acquisition of NCR failed to enable AT&T to achieve its
aspirations in the computer business.

The main reasons for the AT&T split-up can be briefly summarized :- The equipment
business was spun off in the effort to avoid conflicts with its main customers with which the
phone service activities were in competition. Selling off the computer business it was hoped
would improve the valuation multiples for the core AT&T long-distance and other phone
services.

Potential of Business restructuring in India :

In India, corporate houses have recently witnessed an increase of restructuring in different

organizations.
The main reasons for the sudden impetus to restructure in India are as follows :
a) deshackling of strict MRTP
(b) provisions and new government policy of relicensing
c) increased competition is another key element for giving rise to corporate restructuring.
d) mounting pressure on margins have necessitated higher volume of business, resulting in
mergers and acquisitions or the grand concentration of strategy has led to demergers of non
profitable businesses, and
e) all round resource optimization in existing businesses to streamline operational profit and to
stay fit in competition.
However, some organizations have done their restructuring through acquisition and mergers and
some through demergers. There is also corporate restructuring done through changes in corporate
structure and optimization of resources including financial structuring. When the market price of
shares are rising, the companies like to use their shares to acquire other companies. Acquisition
is a process of taking over companies and merging with the entity in order to improve the
margin. Here the advisors of the company may suggest and encourage mergers after taking over
the other company. Demerger is a process of corporate restructuring in which single or multiple
business units are spun off as a new entity. Demerger is just the opposite of merger. In a market
of falling prices, mergers and initial public offers are less popular and the merchant banks, who
normally earn their fees from corporate activity, start to look at demerger possibilities of their
clients There were various corporate restructurings in India during the last few years.

Amongst those some successful corporate restructuring of three Indian companies which
immensely enhanced the shareholders' market value and strengthened their competitive edge in
recent times. These are Reliance Industries Ltd., Larsen and Toubro Ltd., and Siemens Ltd.
For example,

Eg : 1] The acquisition, merger, and demerger of Reliance Industries Ltd. like their acquisition
of IPCL (5) mergers of Reliance Petrochemicals Ltd., and the recent demergers of four entities
like Reliance Communication Ventures Ltd., Reliance Energy Ventures Ltd., Reliance Natural
Resources Ventures Ltd., and Reliance Capital Ventures Ltd. which spun off from Reliance
Industries Ltd. (RIL), and were perhaps the most prominent restructurings in recent times.

Eg : 2] Even the recent demerger of the cement division of Larsen and Toubro Ltd. (L&T),
named Ultratech Cement Ltd., seems to be one of the L&Ts grand strategies to concentrate more
on infrastructure, engineering, energy and turnkey businesses.

Eg : 3] Other kinds of restructuring through structural changes, to improve sales and profit, or all
round optimization of products, processes and systems in Multinational like Siemens Ltd. are
worthy examples of successful restructuring in Indian industry.

Research methodology :

The entire research was carried out into four stages, and each stage was approximately of three
months duration.

 The first stage was solely devoted to exploratory studies.

 The second stage was on annual company report surveys.
 The third was on operational study, and the fourth was on action research.

The objectives of the multilayer studies were

 i) to obtain insights as to why restructuring in organizations is necessary
ii) what relationship exists between restructuring and competitive advantage
iii) examining samples of three successful companies like Reliance Industries Ltd.,
Larsen and Toubro Ltd., and Siemens Ltd. which practiced restructuring
processes successfully
iv) iv) drawing inferences if restructuring could lead to shareholders' market value as
well as competitive advantage.

Restructuring and its implications for business economics :

Restructuring has been a major force in the world economy at least since the 1970s.
Restructuring includes takeovers, mergers, divestitures, spin-offs, split-ups, financial
recapitalizations, and going private transactions. It takes into account :

(1) some overall magnitudes,

(2) implications for business economics.

The total purchase price of merger and acquisition transactions during the period 1980-96 has
been approximately $3 trillion [Mergerstat Review, 1997]. Another measure is how individual
firms have been impacted. By numbers, 57 percent of the firms had engaged in tender offers,
mergers, and/or defensive restructuring between 1982-89 [Mitchell and Mulherin, 1996]. Thus,
more than half the firms followed by a major investment service engaged in restructuring during
an eight-year period.

Methods of Business Restructuring :

The broad types of restructuring are shown in the following diagram :

1. Portfolio and Asset Restructuring :

Broadly these kind of restructuring affect distinctly the asset base or the product/service
portfolios of the organizations in consideration, as also the power and control related
issues. Also, these type of restructuring initiatives are usually undertaken to enhance the
profitability of both the companies in rewarding situation – as in a Merger scenario or
either of the dealing parties , as in the case of acquisitions ,or certain objective decisions
as the divestments of certain businesses to ensure growth and sustainable development.
 2. Capital Restructuring :
Capital is generally the assets, often monetary, that are available to generate more assets.
Thus the liquidity of capital should be high. Restructuring them means reallocating them
to improve their availability (liquidity). The process requires selling assets to buy
different ones in order to improve your capital (monetary) position so that you can
improve your asset position thus enabling you to earn more with them. It is generally
undertaken by companies that are generally doing poorer than expected and wish to
stabilize future performance of their assets.
Capital/Financial Restructuring touches upon the following aspects:

1. Leverage of the Company : This is essentially the Debt/Equity Ratio. Her the companies
have the option of undertaking Debt Restructuring – especially if it is Debt- laden
company (high leveraged company).
Debt restructuring : It is a process that allows a private or public company- or a
sovereign entity facing cash flow problems and financial distress, to reduce and
renegotiate its delinquent debts in order to improve or restore liquidity and rehabilitate so
that it can continue its operations.
2. Investment Pattern : This relates to ability of corporation to identify the various
investments opportunities that would lead to higher returns.
3. FDI Participation : This aspect relates to the change in structure of the shareholding due
to the increasing FDI inflows
4. Divestitures : This aspect relates to divesting divisions and/ or businesses to improve the
financial standing of the organization.

Motives of capital Restructuring:

1. To enhance liquidity
2. To lower the cost of capital
3. To reduce risk
4. To avoid loss of control
5. To improve shareholder value

Benefits of Capital Restructuring :

 1. Greater Financial Position
2. Access to Better/greater technologies
3. Focus on core competencies

3. Organizational Restructuring :

Organizational restructuring hovers around the changes in organizational design. It brings

about changes in decision making, information flow and management style. Though this
restructuring, just like all other restructurings, is initiated by the CEO, it requires the
participation of all hierarchies of an organization, especially the employees. Organizational
restructuring combined with portfolio restructuring and financial restructuring makes
meaningful changes materialize and touches upon the following aspects :

1] Centralization/decentralization of the organization : Functions or units of the

organization may be centralized to create new linkages to better implement the strategy.
Nature of decision makingin the organization may be changed due to the changes in reporting
levels and hierarchy.

2] Organizational Culture : The essential fabric of the firm i.e. its culture is affected as a
consequence of changes in reporting levels and hierarchical levels.

3] Training and Redeployment : Imparting training to the workforce enables the

organization to cope up better with the changing

4) Changes in HR Policies: The current HR policies of the organization need to be changed in

accordance with the changing scenario. The HR department needs enable change management.

5) Rationalization of Pay Structure: The present pay structure should be modified and re-
evaluated to maintain the internal and external equity among the employees.

Symptoms indicating the need for organizational restructuring

 Parts of the organization are significantly over or under staffed.

 Organizational communications are inconsistent, fragmented, and inefficient.
  Technology and/or innovation are creating changes in workflow and production
processes.
 Significant staffing increases or decreases are contemplated.
 New skills and capabilities are needed to meet current or expected operational
requirements.
 Accountability for results are not clearly communicated and measurable resulting in
subjective and biased performance appraisals.
 Personnel retention and turnover is a significant problem.
 Workforce productivity is stagnant or deteriorating.
 Morale is deteriorating

Benefits of Organizational Restructuring

i. Lower cost

ii. Better formulation and implementation of strategies

Issues in Organizational Restructuring

i. Culture

ii. Downsizing

iii. Loss of Employee Morale

The approaches that various companies, large and small, public and private, adopted in their
efforts to restructure in terms of DOWNSIZING differed in terms of how they viewed their
employees.

 One group viewed employees as costs to be cut. These are the "downsizers".
 The other group viewed employees as assets to be developed. These are the "responsible
restructurers."
Strategies for Organizational Restructuring

Various strategies for business restructuring are available. In our study of the subject, we found
out that following strategies play an important role in the business restructuring:
 1. Smart-sizing: It is the process of reducing the size of a company by laying off
employees on the basis of incompetence and inefficiency.

Some Examples

 Acquisitions: HLL took over TOMCO.

 Diversification: Videocon group is diversified into power projects, oil exploration and
basic telecom services.
 Merger: Asea and Brown Boveri came together to form ABB.
 Strategic alliances: Siemens India has got a Strategic alliance with Bharati Telecom for
marketing of its EPABX.
 Expansion: Siemens is expanding its medical electronics division- a new factory for
medical electronics is already come up in Goa.

2. Networking: It refers to the process of breaking companies into smaller independant business
units for significant improvement in productivity and flexibility. The phenomenon is
predominant in South Korea, where big companies like Samsung, Hyundai and Daewoo are
breaking themselves up into smaller units. These firms convert their managers into
entrepreneurs.

3. Virtual Corporation: It is a company that has taken steps to turn itself inside out. Rather than
having managers and staff sitting INSIDE in their offices moving papers from in basket to out
basket, a virtual corporation kicks the employees outside, sending them to work in customer's
offices and plants, determining what the customer needs and wants, then reshaping the corporate
products and services to the customer's exact needs. This is a futuristic concept wherein
companies will be edgeless, adaptable and perpetually changing. The centrepiece of the business
revolution is a new kind of product called a "Virtual Product" Some of the these products already
exist, camcorders create instant movies, personal computers and laser printers have made instant
desktop publishing a reality. And for all these we can obtain cash instantly at ATMs.

4. Verticalization: It refers to regrouping of management functions for particular functions for a

particular product range to achieve higher accountability and transparency. Siemens in 1990
moved from a "function-oriented" structure to a vertical "entrepreneur-oriented" structure
embracing size business and three support divisions.

5. Delayering- Flat organization: In the post world war period the demand for goods was ever
increasing. Main objective of the corporations was production and capacity build up to meet the
demand. The classical, pyramidal structure was well suited to this high growth environment. This
structure was scalable and the corporations could immediately translate their growth plans into
action by adding workers at the bottom layer and filling in the management layers. But the price
paid in the whole process was much higher. The overall process became complicated; number of
middle managers and functional managers grew making the coordination of various functions
complex. Senior/top management was alienated from the front-line people as well as the end
users of the product or service. Decision-making became slower. Hence, a need is felt to attack
the unproductive, bulky and sluggish network of white-collar staff. A powerful strategy would be
to remove the layers of senior and middle management i.e. making the organization structure
flat.

6. Business Process Reengineering: The Business Process Reengineering method (BPR) is

defined by Hammer and Champy as 'the fundamental reconsideration and radical redesign of
organizational processes, in order to achieve drastic improvement of current performance in cost,
service and speed'. Value creation for the customer is the leading factor for BPR and information
technology often plays an important enabling role. Business process reengineering is also known
as BPR, Business Process Redesign, Business Transformation, or Business Process Change
Management.

Hurdles of Business Restructuring

Restructuring is not as simple as "Making the mission statement in the morning, assessing the
corporate strengths and weaknesses in the afternoon and articulating the strategies by evening".
Some of these are discussed below:

Culture: Culture is an important intermediary which determines whether the strategy will or will
not be successfully implemented. Culture either helps or hinders an organization as it seeks to
achieve competitive advantage. The right culture for an organization is the one that best supports
its strategic objectives. The challenge for an organization is thus to assess the fit between the
current culture and the culture required to implement the chosen strategy successfully and to take
steps to change the organization's culture to better align it with what is required.

Inadequate focus and commitment of top management towards change program: Any

change program will be successful only if it gets adequate support and commitment of the top
management. If the top management themselves are not focused or committed the restructuring
will be a failure.

"What is in it for me" attitude: Say in case of a merger or an acquisition, if each party is

concerned only about itself rather than the organization as a whole, the restructuring would not
be effective nor successful i.e. if each party tries to gain benefits for itself at the cost of the
others, the new organization would fail.

Mind set/resistance to change: Any restructuring activity involves some amount of change. Be

it a merger or a joint venture or a takeover, the management as well as the employees require to
align themselves the new structure. If they are not willing to change their mindset, the
restructuring will not be successful.

Lack of involvement of employees: A restructuring activity requires a lot of change: change in

the mindset, change in the working, change in the reporting, a change in the structure, etc. Since
human tendency is to resist change, the best way to incorporate any change is to involve people
in the formation of this change. Failure to do so would invite resistance from them which in turn
will affect a successful restructuring.

Poor planning: As goes the phrase "Well started is half done". If your planning stage itself is
faulty, the whole activity would be affected.

Resource Availability: Resource availability could be another constraint. Lack of availability of

adequate resources could affect the working of the business and affect the restructuring activity
as a whole.
Cost and time: The cost and time involved for the gains to seep through into the organization
may at times make the firm retreat from the process of restructuring.

Poor communication: At times, due to poor communication, the need and benefits of the
restructuring activity has not been percolated to the lower levels of the organization. This in turn
would affect the effective working of the employees and their performance. Unstructured
communication flow, unclear reporting structures, etc, after a restructuring activity, could also
affect the efficient working of the organization.

Analysis of the Cases :

3.1 Restructuring At Lucent Technologies (A Success Story)

Lucent Technologies was a technology company composed of what was formerly AT&T
Technologies, which included Western Electric and Bell Labs. It was spun-off from AT&T on
September 30, 1996.

About Lucent Technologies

 In September 1995, the US based telecom giant AT&T announced that it would be
restructuring itself into three separate companies- a services company(AT&T), a products
and systems company (Lucent technologies) and a computer company (NCR).
 In February 1996, AT&T divested Lucent off into a separate company
 At the time it was spun off, Lucent was already a major player in many business-
mobility, data, optical and voice networking technologies, professional network designs
and consulting services, web-based enterprise solutions which linked public and private
networks and optoelectronics and communications semiconductors
 By 1997, Lucent was the leading telecom equipment maker and was lauded as one of the
biggest success stories of the 1990s.
 Lucent had acquired many technology companies in the late 1990s.
Surfacing of the Problems

 In the late 1990s, as the internet and data traffic businesses gained ground, Lucent lost its
competitive advantage in its core business of telecom equipment.
 Though Lucent invested in a few Internet and wireless companies after 1996, the
company focused more on its core competencies and failed to evolve in line with the
changing market dynamics towards convergence of voice, data and internet.
 With the growing popularity of wireless technologies, Lucent began to lag behind its
competitors, who were quick to recognize the potential of Internet.
 Compared to its competitors, Lucent had been very slow to respond to it customers? need
for higher-speed optical networking equipment which resulted in a severe blow to its
revenue as well as its market reputation
 By late 1999, Lucent's high priced acquisitions were not earning reasonable profits and
the company was also unable to integrate the operations of the acquired companies
effectively, leading to problems on the corporate culture front.
 The poor integration of corporate cultures led to a major exodus of talent from the
acquired companies, as a result of which, Lucent could not launch new technologies to
match its competitors
 Besides, Lucent had diversified workforce of over 1,38,000 people across its businesses,
and the workforce at each business unit had its own unique culture. Lucent became a hub
of diversified cultures and varied service delivery models. This made it difficult for the
HR staff to integrate the HR functions across the business units and to develop and
implement efficient retention strategies.
 In 1997, Lucent launched a major strategic initiative called "GROWS" an acronym for its
key elements - Global, Results, Obsessed, Workplace and Speed. This initiative promoted
an open supportive and diverse workplace at the company. However, by late 1999, under
McGinn's leadership, Lucent's focus on HR diminished.
 When Lucent had increased its sales to customers, many of them defaulted on their
payments as the technology and telecom industry reeled under an unprecedented slump in
2000, which threw Lucent into a deep financial crisis.
  Analysts and industry observers attributed Lucent's miserable performance to the wrong
strategies and mis-execution by the top management.

In 2001, Lucent announced a new restructuring plan. The plan concentrated on the following
things:

 Elimination of product lines

 Significant cost cuts to the extent of $2bn a year
 Workforce reduction by 10,000 jobs
 Reduction in working capital

Restructuring Activity

In 2001, Lucent came up with the Service Delivery Project Team. The major objective of this
team was to simplify and standardize global HR policies and processes, in order to improve
efficiency throughout the organization, giving HR management a position of strategic
importance in the entire transformation process.

Tiger Team

In Feb 2002, Lucent selected six HR leaders from its domestic and global operations to serve
full-time for six weeks on HR restructuring exercise. The major objective of this team was to
create a road map indicating how the company could meet the financial challenges of its various
businesses, without disrupting the company's day-to-day Hr operations. The Tiger Team
undertook an analysis of Hr operations. The team also studied the possibilities of making HR
activities more efficient through policy changes, automation and process improvements.

Expert Help

Lucent established a Project Management Office to oversee the implementation of findings and
suggestions of the Tiger Team. During the implementation period, the PMO was assisted by
Hewitt Associates.
Focus on IT

Lucent also focused on IT to save on the costs and time consumed in transactional and repetitive
HR activities by transferring them to global IT platforms and regional HR operating centres.

Workforce Reduction

Between 2000 and 2002, Lucent resorted to workforce reduction By early 2003, Lucent had cut
its workforce from 1,35,000 in late 2000 to 45,000 through various means like outsourcing,
spinoffs and lay offs.

Service Delivery Model

Lucent consulted the experts in compensation strategies and policies, staffing and talent
management and also other companies which had been through similar organizational
transformations. Lucent then went through a rigorous strategy setting phase, which helped it to
lay the foundation for its long-term HR vision.

Effects of Restructuring

1. Since the function of the HR organisational segments were clearly defined the decision
making proces became very easy and quick

2. The focus on IT, enabled the company to:

 Manage HR functions efficiently.

 Reduce workforce costs
 Drastically reduced the need for manual interfaces.
 Encouraged employees to take advantage of various online training programs offered by
the company.
 Helped HR business partners to align their working closely with senior managers.

3. A strong shared vision, leadership support and clear communication were responsible for the
success Lucent
4. Lucent not only met cost reduction target but also exceeded its targets through its cost-cutting
initiatives.

Analysis

Proper planning phase: As goes the phrase "Well started is half done" - Lucent went through a
rigorous three-month strategy setting phase, which helped it to lay the foundation for its long-
term HR vision. Because of this Lucent could develop a detailed HR organization structure i.e.
the "service delivery model" which led to its success.

Proper Implementation: Implementation was done only after communicating the changes to

the workforce and in consultation with the employees. This enabled the employees to accept the
change easily.

Strong shared vision and full support of their top management greatly expedited the decision
making process.

Aligned Hr activities to Strategic Business Goals: Lucent tried to standardize global HR

policies and processes, to align it with strategic business goals thus giving HR management a
position of strategic importance in the entire transformation process.

Clear definition of functions: Since, function of the HR organisational segments were clearly

defined, the decision making process became very easy and quick.

3.2 Restructuring At Hewlett Packard

The Hewlett-Packard Company, commonly referred to as HP, is an American information

technology corporation, specializing in personal computers, notebook computers, servers,
printers, digital cameras, and calculators, network management software, among other
technology related products.

Stanford University classmates Bill Hewlett and Dave Packard founded HP in 1939. The
company's first product, built in a Palo Alto garage, was an audio oscillator—an electronic test
instrument used by sound engineers. One of HP's first customers was Walt Disney Studios,
which purchased eight oscillators to develop and test an innovative sound system for the movie
Fantasia.

Surfacing of the Problems

 Notwithstanding the efforts made by the top management to generate synergies across
divisions, the decentralized structure that HP had, till the 1980s, created major problems
for the company.
 HP began to be perceived by users as three or four companies, with little co-ordination
between them.
 In 1990s, HP found that its elaborate network of committees was slowing down its ability
to take quick decisions - slow decision-making. To solve this problem, the then CEO
John Young, dismantled the committee network and also cut a layer of management from
the hierarchy. He further decentralized decision-making and divided the computer
business into two primary groups. One group was made responsible for PCs, printers and
other products sold through dealers and the other for work stations and minicomputers
sold to large customers.
 With the growth in size of operations - 83 different product divisions, the bureaucracy
had increased significantly. This bureaucracy was hindering innovation as well.
 The company's stagnant revenues and the declining profit growth rate in 1998
compounded its problems.
 HP's culture, which emphasized teamwork and respect for co-workers, had over the years
translated into a consensus-style culture that was proving to be a sharp disadvantage in
the fast growing Internet business era.

Restructuring Activity by the New Ceo .Carleton S. Fiorina

 Fiorina began by demanding regular updates on key units. She also injected the much-
needed discipline into HP's computer sales force.
 Sales compensation was tied to performance and the bonus period was changed from
once a year to every six months.
  To boost innovation and new product development, Fiorina increased focus on
"breakthrough" projects. She started an incentive program that paid researchers for each
patent filing.
 Fiorina developed a multiyear plan to transform HP from a "strictly hardware company"
to a Web services powerhouse. To achieve this plan, Fiorina dismantled the decentralized
organization structure.
 Fiorina reorganized the units into six centralized divisions. She expected the new
structure to strengthen the collaboration, between sales & marketing executives and
product development engineers thus helping to solve the customer problems faster. This
was the first time a company with thousands of product lines and scores of businesses
had attempted a front-back approach, a strategy that required laser focus and superb
coordination.

Negative Repercussions

1. Earlier HP's product chiefs had run their own operations from designing of the product to
providing sales and support. In the new set-up, they had a very limited role.
2. In the new structure, the back end product designers would not be able to stay close enough to
the customers to deliver products as per their requirements.
3. While productivity linked commissions to the sales force were intended to boost revenues and
profitability, they only helped in raising sales for low margin products that did little for corporate
profits.
4. The new structure did not clearly assign responsibility for profits and losses. There was less
financial control and more disorder. 
5. With employees in 120 countries, redrawing the lines of communication and getting personnel
from different divisions to work together was proving very troublesome. 
6. The front back reorganization had created confusion internally. 
7. These changes had affected employee morale. Many employees had lost faith in Fiorina?s
ability to execute her restructuring plans.
Analysis

What went wrong at HP?

Improper Implementation of Restructuring Strategies - Sweeping changes were initiated in a

very short span of time without allowing employees time to understand the changes in the spirit
in which they were introduced & adjust to the same.

Improper Allocation of Authority & Lack of Coordination - This can be substantiated by the
following reasons:

 With no authority to set sales forecast, back-end managers were unable to allocate the
R&D funds effectively.
 At the same time, if the back-end colleagues came up with the wrong products - because
of their lack of close association with the customers - the front-end sales representatives
had trouble meeting their forecast, thereby not being able to contribute positively to the
corporate financial objectives.

Top down Management Approach & Autocratic style of Leadership by C. FIORINA -

According to some analysts, the major reason for the shortfall in HP's revenues was Fiorina's
aggressive management restructuring.

Improper Timing: The time chosen for initiating Business Restructuring was inappropriate as
there was a global slowdown in the technology sector.

Lack of Prioritization - Fiorina was accused of being over-ambitious and trying to tackle all of
HP?s problems together at the same time.

Improper Timing: The time chosen for initiating Business Restructuring was inappropriate as
there was a global slowdown in the technology sector.
Comparative Analysis
Lucent Technologies HP

Sweeping changes were initiated in a very

Employee Involvement in Implementation
short span of time without allowing
enabled the employees to accept the change
employees time to understand the changes in
easily. It ensured greater cooperation to the
the spirit in which they were introduced &
management from the employees.
adjust to the same.

Decision making though extremely quick was

Decision making process became very easy and
highly efficient but hardly effective in the
quick.
long run.

Prioritized the need to restructure HR activities

Lack of Prioritization
first

Participative Management restructuring Aggressive Management restructuring

Aligned their working closely with senior Front Back reorganization made work
managers together was proving very troublesome

So what should an ideal restructure take care of?

An ideal restructuring initiative should take care of the following points:
1. Appropriate Timing based on prevailing socio-economic and technological conditions.
2.Functional Integration to create Synergy
3.Employees' and Internal Customers' involvement in the Restructuring Initiative.
4.Prioritizing activities.
5. Pre-planning the revised organization structure and design and working toward this goal in a
systematic manner.

Conclusion

The Indian industry is on the threshold of drastic overhaul, which will have implications on even
the most fundamental aspects of business. We can expect to see overwhelming changes
occurring in a dramatically short period of time.
In such a scenario, it is imperative on Indian Industry to capitalize on the changes in policy in
order to survive in a competitive environment. Interestingly, the change will be both policy
driven and at the same time business-driven. This is where "Restructuring" comes into play as it
offers avenues to adapt to turbulent times competitively.

In most situations human and social capital, or, to put it simple, the way company treats workers
and community, become important sources of competitive advantage. Of course, even the most
socially sensitive companies go through restructuring when they have to. Very often, the purpose
of restructuring is not only financial and economic improvement of enterprise performance, but
also the very enterprise survival. We are far from saying that the companies could and should not
go through restructuring. In many cases, restructuring is the only solution. However, we believe
that restructuring could be carried out in a socially sensitive way. In other words, companies
could try to maximize economic benefits through restructuring and, at the same time, address the
needs of employees and communities.
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