Question

Research a focal company that has adopted a restructure strategy within last year (that is, 2019). Based on your research:

a) Provide a brief background history of the company.

b) Discuss the underlying reasons why the top management adopted a restructure strategy. What did the top management actually do in that restructure strategy?

c) Discuss the long-term impact on the stock market performance of that company after implementing the restructure strategy. Why was that restructure strategy beneficial or harmful for the shareholders? How about the internal stakeholders of that company?  

Answer 1

Stallions Group was the distributor of multiple brands which was established by Mr. John. They started as a distributor of one brand of mom and kids products, which eventually got extended and included different other brands of such products. The company also started various distribution outlets around the city making it easy for the shops to access them. But the company lacked a proper process and functioning, which eventually led to a lot of revenue loss and fraud in which the company’s employees were involved.

They started selling the products to outsiders for their own benefits and embezzlement of cash was also taking place on an extensive basis. Later on Mr. John who was the founder of the business got concerned regarding the loss of revenue despite of being the sole distributors of major brands in the market and distributing to all the big outlets in the city.

He inquired with certain employees and questioned them about their performance and the reasons why there were no proper records kept for the sale and distribution of the products made from the outlet. He also saw that there were many receipts missing in the book and those were not properly numbered.

This is when Mr. John came to know about the restructuring strategy which can be done for all the legal, operational, ownership structure of the company. This is majorly done by the top management executives and John wanted to restructure the whole operational platform of the company. He also knew that if he does not do the same at this point, this would end in liquidation of the business as the stocks were also crashing at this point.

So John firstly considered the underlying reasons why he should restructure the whole operational process of the company which were as follows:

- Reducing the costs involved which would help them revive the revenue.

- To have more appropriate accounts and the inventory management.

- Implementing a new technology which would require real-time updating of the servers and database which can be audited by the top management at regular intervals thus not losing the control.

- Reduce or decrease the debt that the company has got due to the malfunctioning of the process.

So John decided to start first by calling a meeting of the top management and explaining them the whole situation and his plan for restructuring the company. He should then sit with them and make a plan to implement new software which would help them integrate all the systems at different locations or their outlets.

They should also terminate those employees who were involved in the fraud and embezzlement of cash and hire a new fresh team whom they can use to the fullest.

Stallion Group should also close down those outlets in the locations where there were less sales or distribution and is only adding up to the cost and not producing any revenue. This would help them save the unnecessary cost.

The long term impact of this strategy would eventually reflect in the reviving of the whole business and revenue earned by them. This is because when the unnecessary costs are eliminated and the revenue or the sales and proper expenses are recorded through the software that integrates the whole system, there will be a clear view of the sales happening and brands that are at high demand and not moving.

This will also help in proper inventory management, which would again help them cut and prevent unnecessary costs. And when the revenues and the overall profits as high and the performance of the company itself is improved, the stock’s price would also go up as more investors would be interested in the company. With this Stallion Group can also improve the business and expand the same with more brands and products. They can also start taking the distribution of more product lines which are different from mom and kids products.

Coming to the benefit for the shareholders we can say that there was no harm and was only benefit because with the whole improvement in the operations, performance and profit generation and reduced costs of the company, it was the shareholders who were majorly benefitted as there earning increased and the stock price also increased.

And the internal stakeholders like the employees had to stop their fraudulent activities and all other employees who were genuine was able to work more appropriately and get a payment hike as company was in a better position now.

Now coming to the financiers, they also will get the funds repaid and there would be minimum risk involved with respect to the fund taken by the company.