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New-Wave Restructuring

In the 1980's the goal of restructuring was to cut costs and create greater efficiencies. While companies benefited, the shareholder was often left out. Now the goal is to create value for stockholders. Here is how it can be done.

(originally published by Booz & Company)

When today's corporate leaders rely on some key lessons from the late 1980's and early 1990's, they will be better equipped to guide their companies through the challenges of the late 1990's and the new millennium. We believe that learning from the past will help companies ride the new wave of restructuring toward a more competitive and profitable future.

What is still true? Business-as-usual is not an option. Entire businesses must change, not just one unit or functional group. Commitment to change, from the chief executive officer on down, is a top priority.

Having said that, new-wave restructuring for the late 1990's differs markedly from the old wave. While costs remain important factors in new-wave restructuring, companies today are focusing on key strategic goals that will strengthen the entire organization's competitive position, promote profitable growth and create shareholder value. These companies recognize that the benefits of lower costs and improved profitability are easier to achieve when all parts of the organization are moving in the same direction. New-wave restructuring includes changes to the overall business model, not just the cost structure.

There are a number of examples of new-wave restructuring drawn from recent press accounts:

1. The H. J. Heinz Company sliced off some of its products to refocus on the strategic priorities embodied by what it calls Project Millennia. Senior management says the company is focusing on fewer core categories and shedding the other businesses from its portfolio. Why? "To deliver the 21st century early and produce unprecedented competitive strength to ride the global growth wave in terms of brand growth, financial performance and enhanced shareholder value," the company says.

2. The Sara Lee Corporation, which makes, markets and distributes packaged food, consumer goods and household and personal-care products in more than 140 countries, is giving itself three years to tightly focus its business activity and make the corporation more competitive. John H. Bryan, chairman and chief executive officer, said the strategy "will significantly reduce the capital demands on our company, enhance our competitiveness and let us focus even more sharply on our mission of building brands."

3. The Whirlpool Corporation, setting its sights on extending the company's global leadership in major home appliances, is also in the process of fundamentally changing the economics of its business structure worldwide. The plan: to close various manufacturing and service facilities in Asia and Europe, restructure joint-venture relationships in Asia and leave the financing business. David R. Whitwam, chairman and chief executive officer, says the moves "will better position the company for improved business performance in the short term and strengthen the company's capacity to continue to grow its global leadership position in the future."

4. ConAgra Inc.'s plan is almost surgical as it was first described: to close or significantly reconfigure 29 production plants, exit or restructure nine smaller businesses and reduce the company's work force by about 6,600 employees, or 7 percent of its total work force. The target? "To strengthen the company's core businesses and improve ConAgra's profitability." Beyond that, the company said, the actions will help "streamline the company's production base, improve efficiency and make ConAgra more competitive in the marketplace."

Similar actions have been taken by the Campbell Soup Company, the Monsanto Company and the Chase Manhattan Corporation.


We studied hundreds of companies to determine best practices for new-wave restructuring and the impact of restructuring on shareholders. The stock-price variation around the time of restructuring announcements for six sample companies -- Campbell, ConAgra, Heinz, Procter & Gamble, Sara Lee and Whirlpool -- reveals that the impact of restructurings can be significant. These six sample companies exhibited key elements of best practices in the execution of their restructurings.

Clearly, a number of factors infiuence stock-price fiuctuations. To overcome that, we aggregated the stock-price performance of our sample companies and compared the result with the Standard & Poor's 500 index.

For the month following the restructuring announcements, investors bid up the stock prices of the companies well above the rise in the S&P 500. (See Exhibit I.) At that point, the impact of the restructuring announcements might be expected to taper off, but when the restructurings began to look effective, the stock prices continued to climb. (See Exhibit II.)

Higher stock prices, of course, translate directly into greater market capitalization and enhanced shareholder value. In our analysis, we saw the market capitalization rising: an initial burst of 5 percent within a week after the restructuring announcement and 26 percent within eight months. This burst may even begin before the announcement, when the company begins to discuss its ideas with financial analysts. Clearly, Wall Street likes restructuring. It immediately rewards companies that announce farsighted and coherent restructuring plans and holds the values months later if the restructuring plans are implemented well.


The jump in stock prices just from the announcement of a restructuring might get some companies' public relations departments cranked up faster than their line operations. But thanks to significant accounting-rule changes, gone are the days when companies could take large charges for restructuring without working out how the charges would actually be used. Restructuring today requires more preparation and advance decision-making from company leaders.

Stiffer compliance with accounting rules puts significant pressure on companies to live up to their promises of greater performance, increased efficiency and cost savings. The implication: Restructuring for the late 1990's had better be real, with real results. Consequently, corporate America has begun to recognize the potential positive impact of new-wave restructuring and the importance of effectively communicating results.

Increasing globalization of American businesses provides a broader array of restructuring options, including whether to continue expanding or improving the performance of current investments. The extended enterprise, in which a company owns various parts of a supply chain, brings further options. Still, there are some concerns closer to home. Boards of directors are increasingly focused on shareholder value, and have begun linking compensation more closely to stock prices. One side effect is the reduction in the collective wisdom and experience caused by an increased turnover rate for chief executive officers and senior management.


There simply is not a one-size-fits-all approach to successful restructuring. Call them lessons from the school of hard knocks or just best practices, many corporate leaders are studying four concepts to find an easy-to-follow action plan that can be modified to fit any company's needs. Some of these concepts relate to fostering change within an organization, and others relate to the critical skill of communicating effectively with employees and external audiences such as analysts and investors. But all of them can certainly steer a company toward a successful new-wave restructuring and toward improved results.

The four basic concepts, derived from our study of hundreds of restructuring companies, are:

  1. Focus on tangible and significant change in the restructuring.
  2. Establish a unifying theme focused on the future and explain restructuring in that context.
  3. Detail the actions to be taken (personnel reductions, business-unit realignment, etc.) but prepare the business for these actions prior to their announcement.
  4. Make sure that an adequate program is in place to manage and achieve implementation and deliver on promised results.


Each of these concepts is designed to build the crucial support and momentum for the restructuring. This becomes clearer when we take a closer look at the rationale and distinct action items within each concept.

1. Focus on tangible and significant change

Naturally, this change must be above and beyond the day-to-day adjustments every company makes. Front-line employees and mid-to-upper-level managers are all accustomed to making small adaptations to meet the daily challenges of an increasingly competitive marketplace.

Your restructuring effort must embrace larger, more encompassing changes designed to help your organization refocus, evolve and adapt. Some of these changes, though far-reaching in effect, will be one-time in nature.

Keep in mind that the changes implemented must make a tangible difference in the way the organization operates. If the changes are not apparent to your people, they will assume your restructuring effort is ineffective.

By focusing on tangible, significant change, senior management will be viewed as proactive and "on top of" the business challenges by internal and external audiences alike.

2. Establish a unifying theme

The changes you plan to make should be packaged into a compelling and integrated growth message. Employees at every level, as well as analysts and investors, need to see a progressive, integrated series of actions that will lead the company to greater results.

The best-received restructurings have been positioned as being aligned with strategic direction (i.e., how a company intends to seize future growth opportunities), not as ends in themselves.

As mentioned earlier, many restructurings of the 1980's were undertaken to cut costs. But in today's competitive environment, restructurings focused solely on costs are not as well received as more comprehensive programs. If your rationale for restructuring is based on improved strategy to achieve future growth, both internal and external audiences will be compelled to support your efforts.

Announcements from the Procter & Gamble Company, the Campbell Soup Company and the Monsanto Company are good examples. In these cases, senior management spelled out the desire to capture growth opportunities by refocusing the resources of these companies and sharpening their strategic vision.

You should communicate clearly and often with your key audiences, particularly employees. They must be made to feel as though they are an integral part of the restructuring, its successes and the new direction of the company. A lack of steady communication will breed uncertainty and rumors, which can be counter-productive at this critical time.

3. Detail actions to be taken

Your actions and communications must be detailed enough to give everyone a clear understanding of the part they play in making the restructuring work. You must build ownership and appropriate expectations among managers and employees alike. You must also build management accountability and burn change plans into your budget. To achieve your restructuring goals quickly and effectively, you must first prepare the business for the actions you are about to take.

Your change plans, for example, need to go beyond the technical accounting requirements. And remember, accounting rules have become much more explicit and restrictive on taking restructuring charges. (See Exhibit III.)

The challenge is to get as much preparatory work done as possible before the announcements are made. This minimizes the level of personal anxiety felt by employees in the affected units as they await implementations. (See Exhibit IV.) Set performance targets from the start and tie the targets into new operating budgets quickly.

For best results, internal announcements should be made at about the same time as external announcements. This keeps employees from feeling as though they are "the last to know" your plans, which can damage management credibility.

4. Make sure an adequate program is in place

Implementing the changes and various action items of any restructuring program takes time and a concerted effort across the entire organization. Even so, the most successful companies manage the overall restructuring program at the level of chief executive officer or business head to make sure that results are achieved within the expected time frame.

Leaders must adopt and install at every level of the organization a mentality of "long on preparation, quick and relentless on execution." Stick to your time line on all of the key elements of the restructuring and hold managers accountable for their specific items.

Execute some elements of the program right away. This communicates a sense of decisiveness and commitment.

This is also the right time to implement enabling changes such as those to compensation, new skill requirements, and career pathing and expectations, in order to make sure the restructuring steps are sustainable.

As mentioned earlier, clear and steady communications with both internal and external audiences are crucial. They are also key to managing expectations and preparing the organization for the implementation phase. Provide periodic updates to management, to your board of directors and to employees on actions taken and results achieved.


Implementation of a restructuring program typically takes one to three years, depending on the complexity of the change plan.

Procter & Gamble, for example, announced a major restructuring in 1993 and ended its implementation phase about three and a half years later. Campbell Soup and ConAgra, which started smaller programs in 1996, took two and two and a half years, respectively, to complete implementation.

The fact is, companies today are largely more effective at implementing change, thanks to a decrease of re-engineering and related change-management efforts. Companies that have undergone past restructurings are much more confident about launching broad-based programs designed to create structural and cultural changes.


Certainly, the restructuring wave of the past decade made important contributions to the competitive performance of many companies. But restructuring has not suddenly become a thing of the past. In fact, it will continue to be a way of life for many years to come.

By learning and putting to use the best practices of successfully restructured companies, today's senior-management teams will be able to successfully refocus their organizations on key strategic goals. Doing so should help them create greater shareholder value by leading their companies toward better operational and financial results.

That is the promise of new-wave restructuring.

Reprint No. 98408

Gary Neilson,
Gary Neilson is a senior vice president with Booz Allen Hamilton in Chicago. He focuses on assisting Fortune 200 companies with major restructuring and the development of organizational models to increase execution effectiveness.

Deven Sharma,
Deven Sharma is executive vice president for global strategy at the McGraw-Hill Companies, where he is active in the development of new opportunities spanning education, financial services, and information and media services. Prior to joining McGraw-Hill in January 2002, he was a vice president with Booz-Allen & Hamilton.

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