In recent years, restructuring has become a higher priority for companies scrambling to change, survive and thrive in a tough economic climate. Top HR professionals responding to a 2003 HRI survey rated corporate restructuring as 21st among 120 people-management issues, up from 48th just two years before.
The most widely used restructuring strategies include strategic alliances, outsourcing, downsizing and layoffs. Offshore outsourcing, in particular, has emerged as a growing but controversial practice, its momentum boosted by advances in technology.
About one-third of U.S. firms surveyed underwent some form of transition, such as a merger, acquisition or restructuring during the previous two years, according to a 2004 study by the Bureau of National Affairs. And reductions in force have been common, reports a study by WorldatWork and Aon Consulting. Seventy-six percent of employers reported conducting layoffs sometime in 2002 and 2003. But not as many businesses were planning such reductions in the near future, according to a 2004 job outlook survey from the American Management Association.
Corporate strategic alliances have boomed. By 2005, U.S. and European firms will derive 40% of all their revenues from strategic alliances, in the opinion of the CEOs of more than 2,000 top U.S. and European firms surveyed by Booz Allen Hamilton.
Merger and acquisition (M&A) activity has also risen. In fact, year-end totals for 2003 marked the first upswing in U.S.-based merger and acquisition activity since the turn of the century.
Much of restructuring activity centers around simplifying corporate operations to focus on core competencies. Under intense pressure to compete for global sales and meet rising customer and stockholder expectations, organizations are limiting themselves to what they can do best and what will help them profit most.
Many firms are concentrating on product design and development, assembly and marketing - and outsourcing the rest. In the 1990s, outsourcing was viewed as a viable method to achieve cost control or economies of scale. At the beginning of the 21st century, outsourcing is a given, and for some it has moved beyond international borders and brought sharp criticism for the loss of U.S. jobs. By 2015, for example, as many as 3.3 million U.S. high-tech and service-industry positions will be relocated offshore, Forrester Research suggests.
Such numbers have stirred controversy and debate, especially in a U.S. economy that in recent years has had difficulty creating jobs. Without job growth, the economic engine sputters, unemployment rises, and market prospects suffer. On the other hand, some economists assert that layoffs and outsourcing are a necessary part of the "creative destruction" cycle that results in more efficient and vibrant businesses, eventually creating a more robust economy. The prospect of outsourcing more IT jobs overseas, for example, may force further advancements in the U.S. David Ellard, CIO at EMC Corp., states, "I think what's going to stay in America is innovation. We have been the innovation driver of all this technology, and I think that will continue to be driven by U.S. workers."
But whatever happens in regard to job growth, it's likely that corporations will go on reorganizing and restructuring at least through 2006. The World Future Society predicts that corporate hierarchies will continue to flatten and the typical large firm in 2006 will have fewer than half the management levels and one-third the managers common in 1990. If the mid-20th-century company was bloated and slow-moving, the 21st-century company will have evolved into a spry competitor much better suited to survive in the modern global business environment.