Use An Example Of Your Choice To Discuss How ‘Corporate Restructuring’ Transformed Market, Productive And Financial Performance

2143 words - 9 pages

Use an example of your choice to discuss how ‘corporate restructuring’ transformed market, productive and financial performance.

Companies quite often have a need to contract and downsize their operations, or redesign one of the aspects, which might be due to different reasons, such as external factors, increase level of competitiveness or to change company’s direction. All the changes that the company might implement are called corporate restructuring. Usually, corporate restructuring is used when a company’s original structure reached the point when it doesn’t generate the profit, and is no longer efficient. The main aim of a corporate restructuring is to raise company’s profitability ...view middle of the document...

In maturity stage market becomes saturated and product’s demand slows down, only repeated customers purchase this product. ‘Competition becomes intense, leading to aggressive promotional and pricing programs to capture market share from competitors or just to maintain market share’ (Hoftrand, 2007). At this stage, companies should improve products quality or introduce another innovation, because products become more standardized (Porter, 2004). Therefore, demand for the output mainly depends on how company differentiated its product. A maturity of the product is positioned in cyclical market where the volume depends on the demand, because ‘the value added for sales becomes cyclical and cash generation alternates from surplus to deficit’ (Neale, Haslam, Johal 2009). As an example of Caterpillar’s cyclical demand can be explained as a consequence of decline in infrastructural investment in North America, where company was based. Therefore, market where the organization is operating became more cyclical and its revenue decreased. Also, this impact on demand for Caterpillar’s machinery resulted to ‘low capacity utilisation and consequently lower return to capital’ (lecture notes). The competition increased more broadly, where the labour force was cheaper. As a result of maturity demand for heavy machinery in America, Japanese company Komatsu appeared in the market and later started to produce more qualitative good for a smaller price, which lead to increase in its market share and profitability. Speaking about competition, before Caterpillar’s product reached maturity level in cyclical market, based on Porter five forces model the company did not think about rivals and were confident in their dominance in the market. However, after decrease in returns to capital and product consumption, Japanese company Komatsu was serious issue in Caterpillar’s strategy, because they offered bigger variety of product with smaller price and better quality. When the level of competition increased, other companies always should consider this important external factor and do a restructuring, by innovation new products or differentiate the old ones. Unfortunately, Caterpillar ignored this external ‘danger’ and were losing millions every day (Froud, Haslam, Williams, 1998). As I mentioned before, Caterpillar is operation in both – mature and cyclical market, which was restructured, because of low rates of production. Caterpillar’s product reached mature stage, but before that it experienced the long boom in sales. In 1990s Caterpillar had very bad period and therefore it decided to restructure from a functional bureaucratic company into a profit centre company. This means that Caterpillar wanted to better meet the company-wide goals of increased customer responsiveness and customer focus (Hendricks, Defreitas and Walker, 1996). Through restructuring Caterpillar cut about 38,000 jobs from 1979 to 1992. Also, caterpillar had to close their factory for a certain period...

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