Benefits of Business Restructuring

Chapter 1 - Introduction cont....

1.3 Benefits of Business Restructuring

The benefits of Business Restructuring will be explained through 2 corporate examples: A.B Group and the merger between Dabur & Balsara.

The Aditya Birla group merged group companies, Indo Gulf Fertilizers and Birla Global Finance into Indian Rayon & Industries. The company has been renamed Aditya Birla Nuvo.

The benefits of the above restructuring are stated below:

1. It created shareholder value.
2. It created a company that captures opportunities in the evolving Indian economy through leadership in focussed value businesses and driving high growth businesses.
3. It provided the shareholders of Indo Gulf Fertilizers - so far restricted in its growth due to regulatory uncertainties - a broader canvas to participate in value creation.
4. It also extended the participation of Birla Global Finance shareholders beyond mutual funds into life insurance.
5. With such strong financials, Indian Rayon would be in a better position to tap possible new opportunities.
6. In the emerging environment of consolidation in the mutual funds industry, Indian Rayon's strong balance sheet will help it compete better.

Another most important acquisition that happened is the acquisition of Balsara group by Dabur.

The benefits of this restructuring are as follows:

1. It strengthened Dabur’s position in oral care: Balsara’s were the pioneers in herbal oral care products launched in the seventies. Balsara’s herbal oral care range (Promise, Babool and Meswak) is a good strategic fit for Dabur whose products are also positioned on the herbal platform.
2. Added a new avenue of growth - Household care: Balsara had a diverse portfolio of brands in extremely attractive categories. The acquisition enabled Dabur to enter the Rs.20 billion household care business through well entrenched brands.
3. Enabled Dabur to expand regional presence: 45% of Balsara revenues were from west & south. This complemented Dabur’s regional saliency.
4. Economies of scale from combined business: The acquisition provided several synergies to Dabur on the manufacturing and marketing front.
   • Combined business provided economies of scale in marketing, sales and distribution.
   • Backend synergies in supply chain, operations, purchase, IT, etc.
   • The acquisition also marked Dabur’s entry into niche segments of household care products providing it completely new area of growth.
   

1.4 The effects of restructuring on employees

Employee commitment is affected by radical layoffs related to financial necessities created by restructuring. Business restructuring often has direct implications on the employees.

i. Psychological and cultural: Employees working in various groups inevitably form a group culture by sharing common values, assumptions, fears and goals. This culture forms and nurtures the so called mindsets.

ii. Materialistic: Restructuring can lead to change in an individual.s organisational status and prospects leading to direct materialistic implications. Restructuring often places a requirement to unlearn the old technology and learn new technology and skills. This generates fears amongst the employees. Therefore, the corporate management must consciously try in assuaging undue fears within the employees, while bringing out in clearest terms the objective that made restructuring imperative.

To make corporate restructuring successful at the operating level, it is very important to make an effort towards employee involvement. Employee involvement has to be supported by training as regards skills as well as mindset. This will make employee empowerment successful.