Organisations must rationalise their operations and proceed to restructure. By rationalisation, I refer to cutting costs and setting strategies to generate efficiencies in the operations.
For example, how many telephones and computers does the marketing department really need? Can electricity, rent and administrative costs be reduced by merging departments; for example the credit, sales and accounting departments? Should unprofitable sections be closed?
We then move to reposition the organisation. Repositioning suggests that the organisation needs a pre-assessment of its position in the market, by looking at all internal and external factors, followed by the implementation of an informed action plan that guides its move to a position of competitiveness, profitability and sustainable growth.
Reporting is one of the most critical and undervalued aspects. It suggests the need to communicate to stakeholders, especially staff and trade unions. It is important to establish internal dialogue on what is happening within the organisation and the plans to correct it. Too often, management fails to report to staff until restructuring action is required. As a result, rumours spread like wildfire, and fear and distrust become the norm. It is then left for the trade unions to appear to wage war.
Reporting also includes communicating with the creditors on a regular basis in a transparent and honest manner. Yes, creditors do exert pressure when calling for payments. However, in the long-term, I have found that a better approach is to talk to the creditors and offer realistic payment plans, rather than hide, screen telephone calls and offer excuses.
For example, you may propose that the old account be frozen while you make monthly repayments, and a new credit facility be created where you may pay the balance in full with cash within 30 days. Creditors need to know that they can trust you. Thus, a mutually acceptable proposal is needed.
Refinancing will also be necessary. More than likely, the organisation will have outstanding debts. Management can obtain financing by way of an overdraft facility or loan, depending on the organisation’s ability to provide security and show the bank that the company is viable. At times, the company may need to approach existing and/or potential shareholders for additional funding. The banker also needs to be brought on board, given their experience and knowledge of the business and its environment, and the need to have the bank’s support.
In summary, the above sets out the factors that I usually term the “R words”: reassessing (pre-assessment), being realistic, repositioning, restructuring, rationalisation, revising, refinancing and reporting. Experienced practitioners will tell you that the process is not easy, with daily battles to be fought in the change process and resulting in stress and ulcers. Even when all of these steps have been completed, events beyond the control of management (such as worsening economic conditions) may dampen the plans put forward.
• Dr. Philmore Alleyne is head of the Department of Management Studies, University of the West Indies Cave Hill Campus and a senior lecturer in accounting.
