Successful Corporate Restructuring – Examples and Lessons Learned

We studied 24 examples of successful companies that underwent major restructuring, and found 6 key factors for their success.

Comprehensive Restructuring

IBM:

1. • In the early 1990s, IBM was struggling with a rapidly changing computer industry and increasing competition. The company underwent a massive restructuring under CEO Lou Gerstner, shifting its focus from hardware to software and services.

• • As a result, IBM avoided bankruptcy and returned to profitability. By 1993, the company had cut its costs by $7 billion and reduced its workforce by approximately 35,000 employees. By the end of the decade, IBM’s market value had increased by $50 billion.

Ford Motor Company:

• • In 2006, Ford launched its “Way Forward” restructuring plan to address declining sales and financial losses. The plan included closing plants, cutting jobs, and introducing new vehicle models.

1. • By 2010, Ford had reduced its debt by $10 billion and returned to profitability, posting a net income of $6.6 billion, a dramatic turnaround from the $12.7 billion loss in 2006.

Apple Inc.:

1. • In 1997, Apple was on the verge of bankruptcy, with a market share of only 4% in the PC industry. Steve Jobs, returning as CEO, initiated a restructuring that included a $150 million investment from Microsoft, streamlining the product line, and focusing on design and innovation.

1. • The introduction of the iMac, iPod, iPhone, and iPad over the following years led to unprecedented growth. By 2012, Apple’s market capitalization had surpassed $500 billion, making it one of the most valuable companies in the world.

General Motors (GM):

1. • Following its 2009 bankruptcy, GM underwent a government-led restructuring. The company streamlined its operations, shed several brands, closed plants, and renegotiated labor contracts.

1. • GM emerged from bankruptcy leaner and more focused. By 2010, GM reported a profit of $4.7 billion, its first annual profit since 2004. In 2013, the U.S. Treasury sold its last shares of GM, and the company’s market cap had grown to approximately $55 billion.

Delta Air Lines:

1. • Delta filed for bankruptcy in 2005, and during its restructuring, it cut costs by renegotiating aircraft leases, reducing labor costs, and streamlining its route network.

1. • Delta emerged from bankruptcy in 2007 and merged with Northwest Airlines in 2008. By 2010, Delta reported a profit of $593 million, and by 2013, it had a market capitalization of over $16 billion.

Netflix:

1. • In 2011, Netflix announced a plan to separate its DVD rental and streaming services, leading to a customer backlash and a significant loss of subscribers. The company quickly reversed the decision and refocused on expanding its streaming service domestically and internationally.

1. • By 2013, Netflix had more than doubled its subscriber base from 23.6 million in 2011 to 48.4 million. Its stock price also soared, and the company’s market cap increased significantly.

From Good to Better

Here are six examples of companies that were already performing well but used restructuring to further drive growth and improve their business:

Google (Alphabet Inc.):

1. • In 2015, Google restructured to create Alphabet Inc., a holding company that separated Google’s core internet business from its other ventures, such as life sciences and investment arms.

1. • This restructuring allowed for more transparency and focus on each of the company’s diverse projects. Alphabet’s market cap continued to grow, surpassing the $1 trillion mark in 2020.

Procter & Gamble (P&G):

1. • In 2014, P&G announced a major restructuring plan to streamline the company by selling, discontinuing, or consolidating around 100 brands to focus on its 80 core brands with the most growth potential.

1. • By 2017, P&G had completed the divestiture of more than 40 brands, resulting in a leaner organization with improved operational efficiency. P&G’s focus on core brands has continued to drive growth, with net sales reaching $71 billion in 2020.

Microsoft:

1. • In 2014, under CEO Satya Nadella, Microsoft began a restructuring process to shift its focus from a “devices and services” company to a “productivity and platform” company, with an emphasis on cloud computing and mobile technologies.

1. • This shift has been highly successful, with Microsoft’s Azure cloud services experiencing significant growth. Microsoft’s market cap has increased substantially, reaching over $1.8 trillion in 2021.

Johnson & Johnson:

1. • In 2018, Johnson & Johnson initiated a restructuring plan to prioritize high-growth areas and streamline operations, including cutting jobs and consolidating facilities.

1. • The restructuring led to improved operational performance and allowed the company to focus on innovation in its pharmaceutical and medical devices segments. Johnson & Johnson’s revenue continued to grow, reaching $82.6 billion in 2020.

PepsiCo:

1. • In 2019, PepsiCo announced a restructuring plan that included reorganizing its management structure, optimizing its manufacturing footprint, and automating certain tasks to improve efficiency.

1. • The restructuring aimed to save the company $1 billion annually through 2023. PepsiCo’s revenue has continued to grow, with net revenue of $70.37 billion in 2020, up from $67.16 billion in 2019.

Cisco Systems:

1. • In 2014, Cisco Systems began a restructuring process to transition from being primarily a hardware company to focusing more on software and services.

1. • The restructuring included strategic acquisitions and a realignment of its business segments. Cisco’s shift towards software and recurring revenue streams has contributed to its growth, with its software subscriptions making up a significant portion of its revenue.

For these companies, the key to restructuring success was to align restructuring efforts with the company’s strategic vision and long-term goals.

Organizational Restructuring – Flattening the Org Chart

Transitioning from a vertical hierarchy to a flat organizational structure can lead to increased efficiency, better communication, and a more agile business environment. Here are six examples of companies that have successfully made this transformation:

Valve Corporation:

1. • Valve, the video game developer known for titles like “Half-Life” and “Portal,” operates without any formal management hierarchy. The company is structured around flat, self-managed teams known as “cabals.”

1. • Employees at Valve can choose which projects to work on, and there are no traditional managers assigning tasks. This structure has been credited with fostering innovation and employee satisfaction.

W.L. Gore & Associates:

1. • The maker of Gore-Tex and other products, W.L. Gore & Associates, is famous for its lattice organizational structure, which is a type of flat organization.

1. • The company avoids traditional management titles and hierarchies, encouraging direct communication between team members. This approach has led to a highly innovative environment and a strong culture of teamwork.

Zappos:

1. • Online shoe and clothing retailer Zappos adopted a flat organizational structure known as Holacracy in 2014. Holacracy is a system of self-organization that replaces the traditional management hierarchy.

1. • While the transition had its challenges, Zappos has reported improvements in employee engagement and a culture that fosters innovation and agility.

Morning Star:

1. • Morning Star, the world’s largest tomato processor, operates on a self-management model with no managers. Employees negotiate responsibilities with their peers and are accountable to the mission, not to a boss.

1. • The company has found success with this model, which they call the “Morning Star Self-Management System,” and it has contributed to their position as an industry leader.

GitHub:

1. • GitHub, the software development platform, initially used a flat organizational structure with no middle managers. Teams were self-organizing, and employees had the autonomy to work on projects they were passionate about.

1. • Although GitHub has since introduced some layers of management due to its growth and acquisition by Microsoft, the company’s early success was attributed to its flat and open structure.

Treehouse:

1. • Treehouse, an online education platform for learning web design, coding, and business skills, experimented with a flat structure known as “no managers” or “flatarchy.”

1. • The company aimed to empower employees by removing traditional management layers, although it later reintroduced some structure to provide more clarity and direction.

It’s important to note that while a flat organizational structure can offer many benefits, it’s not without its challenges. Companies often face difficulties with scaling, decision-making, and maintaining clarity of roles and responsibilities. Each of these companies has had to adapt and evolve their approach to flat management to suit their unique needs and circumstances.

Cultural Transformation

Cultural transformation within a company can lead to increased employee engagement, innovation, customer satisfaction, and ultimately, revenue growth. Here are six examples of companies that have successfully increased their revenue through implementing a cultural transformation:

Saturn Corporation:

1. • Saturn, a now-defunct subsidiary of General Motors, was established with a unique culture focused on teamwork, customer service, and employee engagement. This culture was a significant departure from the traditional automotive industry norms.

1. • The brand quickly gained a loyal customer base due to its no-haggle sales policy and emphasis on customer satisfaction. At its peak, Saturn’s different approach helped it achieve substantial sales figures and a strong market presence.

Southwest Airlines:

1. • Southwest Airlines is renowned for its corporate culture that emphasizes employee satisfaction, fun, and a positive work environment. The company’s focus on culture has translated into high levels of customer service and loyalty.

1. • This cultural commitment has helped Southwest maintain profitability for over 47 consecutive years (up to 2019), a record in the airline industry, with revenue reaching $22.4 billion in 2019.

Apple Inc.:

1. • Under Steve Jobs, Apple underwent a cultural transformation that focused on design thinking, innovation, and creating a seamless user experience. This culture has been instrumental in the development of groundbreaking products like the iPhone and iPad.

1. • Apple’s strong culture of innovation has helped it become one of the most valuable companies in the world, with revenue growing from $8 billion in 2004 to $274.5 billion in 2020.

Microsoft:

1. • Since Satya Nadella became CEO in 2014, Microsoft has undergone a cultural shift from a competitive, siloed organization to one that emphasizes collaboration, growth mindset, and customer obsession.

1. • This transformation has revitalized the company, leading to significant revenue growth, particularly in its cloud services. Microsoft’s revenue increased from $86.8 billion in 2014 to $143 billion in 2020.

Barclays:

1. • After facing several scandals, Barclays embarked on a cultural transformation program aimed at restoring trust and integrity. The program included training, revised values, and a new code of conduct.

1. • The cultural overhaul contributed to a turnaround in the bank’s performance, with adjusted pre-tax profits rising from £5.2 billion in 2013 to £5.7 billion in 2016.

Quicken Loans:

1. • Quicken Loans has a culture centered around innovation, exceptional customer service, and an inclusive environment. The company’s strong focus on employee training and empowerment has led to high customer satisfaction rates.

1. • This cultural focus has helped Quicken Loans become the largest mortgage lender in the United States by volume, with record loan volumes of over $145 billion in 2019.

These examples show that a strong, positive corporate culture can be a powerful driver of business success, leading to increased revenue and sustainable growth. Cultural transformation often requires a long-term commitment and the involvement of every level of the organization, from leadership to front-line employees.

Success Analysis – 6 Key Success Factors in Corporate Restructuring

Successful corporate restructuring requires careful planning and execution. Here are six key success factors, along with lessons learned from the examples provided:

Clear Vision and Strategy:

1. • A clear vision for the future of the company and a well-defined strategy are crucial. This provides a roadmap for the restructuring process and ensures that all stakeholders understand the direction and purpose of the changes.

1. • Lesson from IBM: When IBM restructured in the 1990s, the clear vision to shift from hardware to software and services provided a strong foundation for the company’s successful transformation.

Strong Leadership:

1. • Effective leadership is essential to guide the company through the restructuring process. Leaders must be decisive, communicate openly, and be willing to make tough decisions.

1. • Lesson from Ford: Alan Mulally’s strong leadership and the “One Ford” plan were instrumental in Ford’s turnaround, emphasizing a unified global approach and clear leadership.

Employee Engagement and Communication:

1. • Keeping employees informed and engaged throughout the restructuring process helps to maintain morale and productivity. Transparent communication can reduce uncertainty and resistance to change.

1. • Lesson from Zappos: Zappos’ transition to Holacracy faced challenges, but open communication and commitment to cultural integration helped in managing the change.

Flexibility and Adaptability:

1. • The ability to adapt to new information and changing market conditions is vital. A successful restructuring process may require adjustments to the initial plan.

1. • Lesson from Netflix: Netflix’s quick reversal of its decision to separate its DVD and streaming services showed adaptability, which was key to regaining customer trust and continuing growth.

Customer Focus:

1. • Maintaining a focus on customer needs and satisfaction is important during restructuring. This ensures that business changes do not negatively impact the customer experience.

1. • Lesson from Apple: Apple’s cultural transformation under Steve Jobs focused on design and user experience, which was central to developing products that customers loved and that drove revenue growth.

Financial Management:

1. • Sound financial management, including cost control, investment in growth areas, and careful monitoring of financial performance, is essential to ensure the restructuring leads to improved financial health.

1. • Lesson from General Motors: GM’s restructuring after bankruptcy included cost-cutting measures and strategic investments that helped the company return to profitability and reduce debt.

But Wait, There’s More – Overcoming Barriers to Restructuring

The real question companies must focus on is less about how to restructure – for 1 every c-suite and board member there will be 2 additional opinions – but to focus on the barriers which, according to experience, will inevitably arise.  What are the barriers?

1. Resistance to Change:  Employees may resist changes due to fear of the unknown, potential job losses, or discomfort with new ways of working. This resistance can slow down or derail the restructuring process.
2. Communication Breakdown:  Inadequate communication can lead to misinformation, rumors, and anxiety among employees. Without clear and consistent messaging, stakeholders may not understand the reasons for the restructuring or what is expected of them.
3. Loss of Key Talent:  Restructuring can lead to the departure of key employees who are critical to the company’s success. This can happen due to layoffs, voluntary departures, or a decline in morale.
4. Cultural Misalignment:  The new structure may not align with the existing company culture, leading to conflicts and a lack of cohesion. Cultural integration is often overlooked but is crucial for the success of the restructuring.
5. Implementation Challenges:  Translating the restructuring plan into action can be difficult. Companies may encounter operational disruptions, technical issues, or unforeseen obstacles that complicate the implementation.
6. Customer Impact:  Changes in operations, service levels, or product offerings can negatively impact customers. If not managed carefully, restructuring can lead to customer dissatisfaction and loss of business.
7. Financial Strain:  Restructuring can be expensive, and the costs may exceed initial estimates. Additionally, the expected financial benefits may take longer to realize than anticipated, putting further strain on the company’s finances.
8. Lack of Agility:  Companies may find it challenging to adapt quickly to new information or market conditions during the restructuring process. This can result in missed opportunities or continued misalignment with industry trends.
9. Regulatory and Legal Issues:  Restructuring can involve legal complexities, such as compliance with labor laws, renegotiation of contracts, or regulatory approvals. These issues can delay or complicate the restructuring efforts.
10. Loss of Focus:  The restructuring process can be so consuming that it distracts from the company’s core business activities. Maintaining focus on day-to-day operations is essential to prevent a decline in performance.

To prevent the common problems associated with restructuring and leverage existing strengths, as noted above, planning is essential.  But beyond planning, companies must embrace change management principles – which means investing in the support needed to enable these principles – and utilize change management frameworks to guide the restructuring process. Engage change champions within the organization who can advocate for the transformation and help reduce resistance.  Without a robust communication plan, any efforts are doomed to failure.  This includes regular updates, transparent information sharing, and open forums for feedback. Leverage internal communication channels and leaders who are trusted by employees to deliver messages.

Retaining key talent is critical, and can be done by recognizing high-productivity employees and ensure they are engaged and motivated to stay. Offer incentives, career development opportunities, and a clear vision of their role in the restructured organization.

One of the most difficult areas for companies is to maintain customer-centricity.  The ultimate source of revenue can be easily forgotten.  The customer experience is everything, and remains at the forefront of the restructuring process. Use customer feedback mechanisms and relationships built by sales and service teams to ensure that changes enhance customer satisfaction.

Finally, companies must foster agility, which is to say, reward ideation and out of the box thinking.  Encourage a culture of agility by promoting flexible thinking and quick decision-making. Leverage cross-functional teams and agile methodologies that may already be in place to adapt to changes swiftly.

Successful corporate restructuring is multifaceted and requires a holistic approach that includes strong leadership, clear communication, a focus on customers, financial prudence, and the ability to adapt to new challenges.