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Restructuring Processes and Reengineering

Reengineering

The companies pass various life cycles. However, each enterprise gets to a situation when it needs to increase its performance efficiency radically to improve its competitiveness or to a situation when the creditors start exerting pressure for their obligations to be paid. This fact does not concern only the local companies but also big players like Sony, Panasonic, Nokia, General Motors, Saab,… This situation is preceded by lots of symptoms which are often not taken into account or underestimated and which can mean liquidation for the company in the end. 

Some typical symptoms are as follows:

  • Gradual loss of the human potential and personality competences
    • Our experience shows that those companies which require fast restructuring or are threatened by the risk of going bankrupt lack a sufficient amount of skilled working teams and leaders. Some people (the "cleverest” ones) can recognise the approaching problems and uncertainty and often leave the firm to find better conditions. On the other hand it is difficult to employ new skilled employees or young people. Step by step people who have lost the "drive towards the goal” remain in the company and only wait passively for the notice of termination, retirement, a new investor, bankruptcy,… 
    • A typical demonstration of the corporate culture is predominant reactivity and missing proactivity. Although a lot of employees are aware of the need of a change, they consider it unreal or hope that it will be solved somehow. The cause can also be the fact that many leading positions are occupied by unable employees who demotivate the working team. 
    • Another and even worse alternative is when "secret” embezzlement takes place (overpriced purchases, unnecessary services, commissions, …) by the managers (in Slovak we call it "tunnelling”). 
  • The changes on the market are not detected; the customers leave us and go to the competitors.
    • Today the world is changing faster than many of us would wish. A continual change is the only certainty in this turbulent world. Sometimes we are surprised that suddenly our competitors are companies from Rumania and Bulgaria which entered the EU a short time ago. Our firms encounter more and more frequently Turkey, Bosnia and other ambitious regions and we are not speaking about China, India and other Asian economies. This results in outflow of some customers – those to whom we are not able to offer better competitive conditions. A very frequent cause of this fact is our arrogance – how good we are and underestimating new technological solutions. 
  • Decrease of the value added per employee – on the one hand the company struggles with decreasing the turnover, however, at the same time it has to respond to the justified desires of people to have higher salaries. The solution of the arising problems, especially when the position of the Trade Unions is strong, can consume a lot of energy and emits further negative information to the surroundings. 
  • The problems with liquidity emerge – we postpone and prolong the due dates of our obligations and it leads to the loss of our firm’s credibility on the market, we are losing the suppliers´ and invertors´ confidence. It frequently leads to a situation when we have to solve thousands of new problems with missing materials. 
  • The rise and threat of insolvency – new and new creditors accumulate, the company owes to them payments thirty and even more days after the due date, the amount of obligations (also the unpaid ones) is close to the company value or even it has exceeded it.  
  • The gradual decline of the share of new products on the turnover, more than three years – the company was caught in a difficult situation and it has to solve lots of routine problems every day. This is the cause why it forgets about strategic matters. The firm is missing people, time and money to come to the market with something new which would beat the competitors. 

  • Have you recognised any of these symptoms in your company?
  • Do you have a feeling that you are struggling for survival all the time?
  • Do you feel it is impossible to achieve any dramatic improvement of your company’s performance efficiency using the current methods?  
  • Does low performance efficiency of the key processes and high fixed costs trouble you? 
  • Are you struggling with unpaid invoices from your customers and due to this fact you are unable to pay the invoices of yours?  
  • Aren’t you able to fulfil your financial obligations to more than one creditor 30 days after the due date? 
  • Do you have more than one creditor and the obligations (including those unpaid) exceed the value of the property? 

The Way to Making Your Decision

The key question of an reengineering project is to create a motivated action team which is able to realise a set of necessary measures to gain a better competitive ability and not to threaten the ability of the firm to serve the customer effectively and at the same time to fulfil all financial obligations resulting from the directives of the private and public law. 

Procedure


1.   Analytical Phase:
  • Analysing the key process performance efficiency – the goal is to identify the potential for increasing the performance efficiency of individual processes.
  • Analysing the structure of the fixed and variable costs – the goal is to identify those areas where radical cost reduction could be achieved. 
  • Analysing the property, obligations and receivables – the goal is to ensure the financial means for the restructuring phase. 
2.   Realisation Phase:
  • Design of a functional business model – it is necessary to define a business model which will ensure the company’s survival. 
  • Process reengineering – in a very short time it is necessary to ensure:
    • Increasing the business performance efficiency
    • To make purchase more effective
    •  Increasing the production performance efficiency
  • Analysing the number of the working positions, the assessment centres – after assessing the number of necessary working positions the company is able to create resources for financing the new plans in a short time. A very important question is how to occupy the management positions by right people who are able to realise the recovery vision. 
  • Adapting the organisational structure to the redefined processes – the newly defined structure should improve the communication and flexibility in the company. 
  • The process management and motivation system – defining the goal for each top manager and motivation towards the result helps achieve the objective more quickly. 
  • The change of the layout – if we find resources for changing the administration and production layout, this fact can mean a significant saving of the fixed costs. 
  • The projects of changes – support the main restructuring stream. 

Restructuring

As reengineering in a certain phase can require an undisrupted realisation of necessary measures for saving the company and isolation of "financial stresses and pressure of the creditors”, it is needed to enter the process of formal restructuring and to ask the court of bankruptcy for "protection against creditors”. The company IPA Slovakia, s.r.o. collaborates with a network of administration offices under the leadership of Mgr. Richard Koiš, MBA a trustee in bankruptcy and restructuring registered in the list of administrators of the Ministry of Justice of the Slovak Republic with the seat in Ružomberok. After completing the aforementioned analytical phase, the realisation phase contains the phase of entering the process of formal restructuring according to the law No. 7/2005 Coll., about bankruptcy and restructuring as amended under supervision of the restructuring administrator and corresponding court. The following objectives should be achieved:  
  • the debtor will be able to continue the entrepreneurial activities,
  • preserving at least the most important part of the debtor’s company, 
  • a larger space for satisfying the creditors than in the case of liquidation proceedings.

Procedure

If situations assumed by the law about bankruptcy and restructuring for achieving the "protection against creditors” – the formal restructuring develop, part of the analytical or realisation phase will be the participation of the company IPA Slovakia in the creation of a restructuring assessment under supervision of the administrator or restructuring plan under supervision of the plan submitter. A chronology of the formal restructuring process:  
  • the period of preparation and working out of the restructuring assessment;
  • the period of beginning of the restructuring proceedings until approval of restructuring;
  • the period from approval of restructuring until the lapse of time for lodging the claims; 
  • the period for assessing, detecting or denying the claims;
  • the meeting of creditors and election of the creditor committee; 
  • the period of preparation, consultations and participation in working out the restructuring plan;
  • the period of the approval process – the creditor committee, approval meeting;
  • the period of the final assessment of the restructuring plan by the bankruptcy court and decision about its approval or rejection. 

References

ETA Hlinsko, Way Industries, Elektrovod Žilina, Daewoo Praha, Metalurg Dubnica nad Váhom
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