Many firms have begun organizational restructuring exercise in recent year to cope with heightened competition. The common elements in most organizational restructuring and performance enhancement programs are described below briefly.
Regrouping of business:
Firms are regrouping the existing businesses into a few compact strategic business units which are often referred to as profit centers. For example, Larsen and Toubro has been advised by Mckinsey Consultants to regroup its twelve businesses into five compact divisions.
To promote a quicker organizational response to dynamic environmental developments, companies are resorting to decentralization, de-layering, and delegation aimed at empowering people down the line. For example, Hindustan Lever Limited has embarked on an initiative to reduce the number of management layers from 9 to 5.
Referred or euphemistically as rightsizing, companies are retrenching surplus manpower. Retrenchment trough Voluntary Retirement Scheme (VRS) seems to be the most popular tool for downsizing the workforce. Tata Iron and Steel Company initiated a massive downsizing exercise in the late 1990s.
Companies are adopting measures like outsourcing non value adding activities and sub contracting. These measures seek to reduce manpower and convert fixed costs into variables costs. Tata Engineering has relied heavily on outsourcing and sub-contracting for its Indica car.
Business Process Engineering:
Joe Peppard and Philip Rowland define Business Process Reengineering (BPR) as follows: BPR is an improvement philosophy. It aims to achieve improvements in performance by redesigning the processes through which an organization operates, maximizing their value added content and minimizing everything else. This approach can be applied to an individual process level or to the whole organization. One of the most widely cited example of business process reengineering is the re-engineering of Ford Motor Company’s account payable department that led to a 75% reduction in manpower.
Enterprise Resource Planning:
The traditional management information systems tended to be fragmented. Enterprise resource planning is a computer based enterprise wide, integrated management information system. It enables management to quickly grasp the system wide ramifications of changes in any function. Aware of the power of information technology to improve planning and control functions, many firms have started work on enterprise resource planning. Mahindra and Mahindra, for example has introduced a comprehensive enterprise resource planning system.
Total Quality Management:
Many firms have realized that quality improvement is essential to reduce cost and improve customer service. Hence initiatives like seeking ISO 9000 registration or getting some other external quality certification are becoming popular. Companies do find that external registration and or certification provide an incentive to improve quality on a continuing basis. WIPRO, for example, has a very ambitious Six Sigma total quality management drive.
Here are some examples which illustrate what goes on when large, complex entities resort to organizational restructuring:
* Asea Brown Boveri, a firm that came into being as a sequel to the merger of two sleepy European engineering companies initiated a major restructuring exercise at, viz. Sweden’s Asea and Switzerland’s Brown Boveri. He reorganized Asea Brown Boveri into 5,000 profit centers, shrank corporate size from 4000 to 200, cut the number of management layers from 7 to 4, and shortened production cycle times up to 50 percent.
* Based on the study by McKinsey, State Bank of India is engaged in an organizational restructuring exercise that seeks to (a) commit the bank to significantly higher standards of financial performance, customer service, and organizational productivity, (b) create four focused business groups (corporate, national banking, international and associates and subsidiaries), (c) set up three new corporate centre positions (Chief Finance Officer, Chief Credit Officer and Chief Development Officer), and (d) redesign circles around two different centers (Commercial and Retail) headed by General Managers.