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Restructuring a Sick Organisation

Restructuring a Sick Organisation. Two sicknesses Operational Financial sickness Sickness Product is weak and Working capital is or blocked as recover ies are poor or

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Restructuring a Sick Organisation

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  1. Restructuring a Sick Organisation • Two sicknesses • Operational Financial sickness • Sickness • Product is weak and Working capital is • or blocked as recover • ies are poor or • inventories are piled • up.

  2. (2)Process technology Borrowed funds • Are outdated and/or are costly & have • not been swapped • (3)Employee Unproductive • Productivity is down resources and • And /or overemployment • add to sunk costs.

  3. (4)The whole organisation Capital has • Is facing an internal not been • Inertia and employees(esp properly • Senior executives are happy appropriated • With ongoing programmes along various • And/or value drivers • in the org.

  4. (5)Drawbacks & Ruthless expansion • Hurdles in supply takes away all • Chain & distribution resources and ongoing • Chain mgmt. and/or activities suffer • (6)Organisational focus Owners withdraw • Is lost & core disproportionate • competence dividends,without • Is neglected. Bothering for calamities • & inflation

  5. Step 1 Decide clearly on the quantum of financial and operational sickness,with financial parameters. • Step 2 Project the initial doses of finances & operational rectification preferably based on consevative expectations of recovery/ Rehabilitation. Step 3 Chalk out a detailed schedule with alternate decision packages using optimistic,moderate and pessimistic costs & benefits of each action plan of course a rehabilitation committee comprising of operational heads,

  6. Financial engineers and strategists will have to work with focussed homogeneity towards the ultimate goal of less costly and more timely rehabilitation. • Step 4 Decide on rehabilitating benchmarks or ratios (for monitoring & assessing the whole process) as follows: • a)Capacity usage ratios b)Employee productivity Ratios c)BEP (operational & cash)d)debt service charges.e)capital usage (turnover)ratios f) Market share ,product recognition & Brand Image recognitions.

  7. g) Operating cash ratios. h)Earning Ratios. • INITIAL COMMITTED COSTS. • (1)Cost of voluntary retirement scheme • To the excess and unproductive employees. • (2) Loss on sale of obsolete technology,plants and facilities . • (3)Major upgradation or repairs of facilities. • (4)Loss on a/c of clearing difficult receivables to improve cash flows.

  8. (5)Cost of settling disputes or closing non • Viable linkages with suppliers.distributors,agents and subcontractors • (6)Sundry facilities to be made available for gearing up the rehabilitation process. • (7)Capital cost of meeting the claims of ongoing partners and joint ventures. • (8)Legal,counselling and clearing fees. • (9)Cost of managing the rehabilitation process..

  9. (10)Initial cost to be incurred to begin brand building process and restrict further damages caused by competitors,frustrated employees and stakeholders. • (11) Settling various tax dues.

  10. Tending towards sickness • Investment turnover -Bad • Profitability –good • Good health-Investment turnover-Good)Blue • Profitability-Good )chip co. • )Great Co • Sickness-Investment turnover- Bad) Serious Sickness • Profitability-Bad ) Failure & closure • Tending towards sickness • Investment turnover-Good, Profitability-Bad

  11. Structural Reasons of Sickness Demanding Structural Changes-Perhaps the most difficult portion of rehabilitation process is identification of the structural reasons or rather,strategic failures responsible for sickness and garnering structural changes.The most important structural • Reasons may be as follows: • Nature of partnerships with big brand holders • Structure of distribution network and role of distributers. • Product choices based more on govt. subsidies,tariffs and protection. • Decision making levels Reporting levels and Response Time shown by the executives;lack of focused and integrated functioning of various depts. • Economy of scales getting replaced by extra overheads and inefficiencies caused by the growing size of the organisation. • Choice of customers i.e imbalance between wholesale and retail customers,one time and repetitive customers,value conscious and price conscious customers. • Excessive product segmentation leading to a weak corporate identity,small product wise market share,multi products brand to be nurtured,lack of focussed distribution and promotion strategies.

  12. The above structural reasons are to be tackled much more strategically,as any changes to be effected will have a long term influence on the organisation’s performance.Sometimes structural changes may not require much capital,but they require extraordinary caution. • 1 Executive hierarchy,reporting and control • 2 Centralised v decentralised inventory storage and movement. • 3 Employee participation in management • 4 Long term loyalty of vendors,ancilliaries,distribution and agents

  13. 5 Product presentation and responses to perceived value nurtured by customers. • 6 Inter departmental response time,bottle necks and information management. • 7 Relationship with bankers and lenders • 8 Entreprenurial approach to be inculcated by the employees at all levels,supported by the awareness of total quality management and cost leadership.

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