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Sunday, May 6, 2012

The illeffect of Corporate Restructuring to employees, organization, and the economic.


Introduction
Corporate restructuring has been exercised in corporate companies as early as 1900s and contributed an impactful activity to employees and even stakeholders. Restructuring normally being adopted when the corporation is no longer willing or able to develop or utilizes the capabilities and also its assets which were invested earlier in the past investment decision (Lowell, 2003). Corporate restructuring can take in two forms; Renovative restructuring and redistributive restructuring. The Renovative restructuring mainly contributes to equitable economic growth, while redistributive restructuring benefits certain groups at the expense of others.
The redistributive restructuring involves six forms such as divesture, buyouts, outsourcing, relocation, downsizing and bankruptcy. All this activities of redistributive restructuring initiated with negative approach to certain group of people and vice versa for those who remains or being relocated after restructuring.
Problem Statement
Restructuring approach is a historical revolving process where organization will initially starts with redistributive restructuring and later followed with Renovative restructuring. Downsizing workforce or employees in ensuring to achieve ‘rightsizing’ of the company, or divesting certain departments, even subsidiaries so that the company can invest in a new innovation using remaining work force and assets. Despite of such intention, companies might end up with bankruptcy or total sell-out of the company and some company might stop half way due to lengthy restructuring exercise.
By practice, corporate restructuring entails a divesture of resources in one or more market, activities and locations. On the other hand, companies In can also involve in a substantive downsizing on employment level without having withdrawing its business activities in an area, multiple area or even not abandoning the market and process activity.

The impact of restructuring can contribute a downside economic impact to retrenched labor force, local area, national and global levels. Some big companies such as Peugeot with 198,000 employees, Wal-Mart; 1,300,000 employees or to any 500 fortune companies will only create an enormous negative impact before any Renovative restructuring takes place. In 2002, 13 major corporation in the world had revenues exceeds USD100 billion, of which six are American, three Japanese, two German, one British and one British-Dutch (Fortune 2003). General Motors, General Electric, Ford Motor. Chrysler, ITT, Boeing, IBM Eastman Kodak, Firestone Tire are examples of company distributed in many countries of the world having employment as 2,901,678, will just contributed major negative economic impact to the retrenched work force, national and even global level (Lowell, 2003). An example, in the New Economic boom of late 1990s, Alcatel made number acquisition in North America for Data networking capabilities in voice transmission including optic fiber. However between 2002– 2003, its revenue falls dramatically and cuts its employment from 132,000 to only 60,000; a reduction of 72,000 employees within 2 years and another 18,000 dismissed from their job when they later divest their cable business. Alcatel is a good example of global player involves in many countries in the world with its telecommunication base business including Malaysia.

Research findings

Restructuring might finally ends up with upside impact to remaining employees . However, studies made in Sweden that despite of all the possibilities in having the positive implications, there are negative impact not only to the victims but also to the survivors, on displaced workers. The effect such health, earning for remaining, uncertainty, working environment, even work stress for remaining after redistributive restructuring (Bergstrom, 2005).
 According to Bergstrom, “The intention of restructuring might not always be realized and he suggested that restructuring is insufficient to change the performance and/or cost structure of firms.” (Bergstrom, 2005). He also added that, there are evidence shows that restructuring causes negative effects on survivors. (Bergstrom, 2005).
In Korea, Corporate restructuring contributed a significant effect on workers job insecurity and indirectly significant to their health and health behaviors (Chaekyu, 2003). He added that, the Korean society should revise the strategy of corporate restructuring where the intention is reducing the cost of operation for short term and yet contributing a heavy burden on long-term survival and development of the company. The corporate restructuring has decreases the corporate productivity and weakens the social integration in Korea (Chaekyu, 2003).
Restructuring is a lengthy process which roughly takes one year to complete. According to Audra L. Boone who studied 298 firms in US from 1989-98, found that due to the time period and urgency of resolving critical financial or operational situation, the companies end up with a variety outcomes from being acquired, bankruptcy to taking no observable actions. (Mulherin, 2001).  He added that, from 298 firms propose for corporate restructuring, 70 percent make a definitive proposal to sell either all or part of the company while 30 percent taking a route to be out of play or declaring bankruptcy (Mulherin, 2001). The estimate percent where the corporation able to have full value of the restructuring is only 7.5 percent and the firms that has an average gain from the restructuring is only 5 percent. From the reported percentage, the current methodology of restructuring has not significantly contributing upside impact to the organizations.
According to Dr. Harvey E. Griggs from Central Queensland University, he found out that the corporate downsizing in restructuring has seriously damage the learning capacity of the organizations even with a well-planned ‘brain-drain’ process (Griggs, 2002). This will disturbed the learning curve of the company and a higher cost of operation will be experienced by the organization.
A research being done on Otago Polytechnic, USA; to study the impact of organizational restructuring on the employees commitment.  The research provides a strong evidence to suggest that those survivors demonstrated high potential loss of loyalty and trust in the organization, feeling of insecurity,  confusion over roles and expextations which collectively called ‘survivors syndrome’ (Theissen, 2004).
In Malaysia, restructuring has contributed cases of employees summons employer to the court. There are cases where constructive dismissal became the case where the employees are being transfer to new department and later being dismissed due to incompetency evaluation by employees. The employee claimed that the employer has assigned him to a new task with the ultimate intension to ship him out. This is clear in the case of UMW Engineering Sdn Bhd v Fong Pak Fai (1995) 2 ILR  728 Tuan Tan Kim Song. (Sivagnanam)
Conclusion
From the brief writing above, it is almost certain that Corporate Restructuring has not much contributing towards constructive impact to the organizations, employees national economic due to divestures, retrenchment or bankruptcy action. It has also not  able to induce a positive long term effect to those remaining employees after restructuring.
In most cases the percentage of companies that survived and able to engaged on profitability and sustainability is minimal and yet end up with divesting a portion or all of the company and even proposed for bankruptcy. For that we can conclude research need to be done in developing a new Restructuring Model in ensuring a more justifiable process and effect corporate restructuring for a better corporate sustainability and more equitable economic. It is important to note that any negative impact to employees will induce a back to back impact to a decline in organizational profitability, efficiency, local and regional economic. On the other hand for companies with high number of employees will contribute a more prominent effect even to national and global effects due to divestures, retrenchments and even bankruptcy.

Bibliography

Bergstrom, O. (2005). A Swedish point of view on restructuring. Institute for Management of Innovation and Technology.
Chaekyu, P. (2003). The effect of corporate restructuring on workers health in Korea (Vol. 32). Development and Society.

Griggs, D. H. (2002). Organizational Restructuring - The case of learning organization; contradiction or necessity? Australia.
Lowell, W. L. (2003). Corporate Restructuring. The Oxford Handbook of Work and Organization.

Mulherin, A. L. (2001). Valuing the Process of Corporate restructuring.
Theissen, C. (2004). The Impact Of Organizational Restructuring on Employee Commitment st Otago Ploytechnic. Research for fulfillment of Masters Degree, University of Otago, Dunedin.