Restructuring vs. Renewal

Or the longer title: corporate restructuring vs. corporate renewal, hard vs. easy, cosmetic vs. lasting, fake vs. real etc… What kind of a change can produce lasting effects?

Introduction: “Renewal”
A bit more than 10 years ago, while still sitting in the business school classroom I was for the first time exposed to the idea or even to a term of “corporate renewal”, i.e. of the fact that big companies are not necessarily giants destined to milk the markets, feed politically appointed executive fat cats and waiting to be slowly eaten by small and aggressive disruptors. This term was combined with many other “goodies” such as innovation, corporate entrepreneurship, intrapreneurship, creativity etc. in a nutshell, everything that can make big company to behave like a startup. For the first time in my life, I became interested in something else than owning my own company and making it that way. I became interested in a corporate life.

Ok, I will reveal it! The main “culprit” for this shift of paradigm, is a class taught at that time at INSEAD called “Corporate Renewal and Entrepreneurship” based somewhat on the James Collins’s book “Good to Great”.

Restructuring
Sometime about the same time the term restructuring also was more and more entering my vocabulary. This term was mainly in finance classes and in conversations with consultants on how to “fix” some company. The term was describing “fixing” a certain company and trying to make it better in a short amount of time and with the few “key” tips and tricks. This would usually include restructuring of the debt, cutting some costs, firing some people, focusing on this instead of that market etc.

Well, years after, when I got a chance to be involved in both restructuring and renewal… oh boy, did I learn the difference.

In this article (post), I would like to point out the difference between restructuring and renewal (from my point of view). I would also like to remind us all, that as obvious as it may seem, it is too often forgotten that the real value creation can hardly be created overnight. To create long lasting and timely values, yes… it usually takes time.

Metaphor: people and companies
I would dare to make a metaphor, and that would be that the companies are sometimes like people: those who realize that they need to change before they get sick (stop smoking, eat healthier, exercise etc.) they tend to succeed in that change and maintain their health. Those who wait for the last moments, once the health has unfortunately deteriorated significantly and wait for others to tell them and force them to change, those usually do not succeed in their change efforts.

The other day I heard from one physician who advises such measures to patients: to exercise and change their diet habits in order to improve some conditions. One of the main patients’ responses: “Is there a pill I can take instead?”

This is the parallel I would like to make referring to the efforts that are needed in order to really improve the company: it is the change of habits and behaviors (“exercise and diet”) rather than few easy restructuring measures (“the pills”).

How to recognize the renewal vs. restructuring efforts?
Renewals usually come from the inside, instigated by conscientious management, while restructuring is usually instigated from the outside (by the creditors, government if they have some stake, strategic partner that has or wants to acquire the company or someone else like that).

Restructuring is easy, renewal is hard, but what do we gain from each?
While the restructuring measures are usually easy because they are concise, exact, can be implemented without gaining almost any support in the terms of “hearts and minds” from the inside stakeholders (management, employees) and they usually include efforts such as refinancing of some loan, shut down some division and cut costs by laying people off etc. the restructuring measures usually have one flaw planted in their core… and that is the fact that they usually are treating the consequences and not the real causes.

Restructuring attempts are like “yoyo diets”, or like Mark Twain said about quitting smoking: “It is so easy to quit smoking, I have done it thousand times.” Once some restructuring measure is done, it has some short term effect, but no lasting effects are accomplished. Then again companies are attempting some other measure to make some other (usually cosmetic) change that again maybe lasts for a short time and then they attempt something else etc. etc… until the end.

On the other hand, renewal efforts are supposed to focus on the root causes of the problem. What brought certain company to the point that it has such bad debts and/or poor P&Ls or is losing market share. Causes are never easy to discover. They are usually hidden way below the surface, deep in the deepest vaults of the corporate culture.

Hence, the renewal efforts are hard and take time as each of the steps is long and requires lots of patience. First it takes hard and long work to find all the root causes. Then once we found the real causes it takes even more time to eradicate those unhealthy behaviors or other faults. And then once we have healthy inside of the company, we have to go back “outside” to catch up with the market, customers and competition. It is all long time and we know that those customers, markets and competitors are not sleeping. But the changes will be lasting, as now we have a healthy company that can easily find new markets and customers and beat the competition.

This long and exhausting process is the reason why it is so rare and difficult to get the company out of the gutter once it has not done so itself, intrinsically, once this has not been instigated by internal forces. Renewal efforts are demanding and require a lot of patience. In my opinion, that is why no consultants or other “outside” advisors can renew the company. It has to be done by an internal team of dedicated, to a certain point even fanatically dedicated team of extraordinary people who will endure great and bad times and the emotional roller coasters involved in those renewal efforts.

Sometimes it looks like on this term “corporate renewal” that I have learnt years ago… the warning sign should be put on it: “Do not try this at home!” or even “Consults your physician before starting any renewal efforts”.

Please share and comment as I’d like to hear other opinions and experiences from the professionals specializing in this area of management or anyone willing to discuss it.