When Does Restructuring Improve Economic Performance
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F should When Does Restructuring Improve Economic Performance? Edward H. Bowman Harbir Singh Michael Useem Raja Bhadury acing more competitive markets, more demanding shareholders, and more challenging workforces, company executives may ask whether it is time to reorganize the company. In considering such action, a first question is likely to be: “Does restructuring work?” But company leaders push immediately beyond that concern, for the answer is both yes and no-hardly a concrete guide for executive action. After more than a decade of extensive restructuring of large companies, company executives should now be able to address the more complex but pragmatically more important question: “When does restructuring improve economic performance?” Corporate restructuring has, of course, become a staple of management life during the past decade. Numerous firms have reorganized their divisions, streamlined their operations, and spun-off their divisions. As in most strategic decisions, the common driver has been the assumption that such actions spur company performance. For supportive experience, company executives often turn to publicized accounts of restructurings elsewhere that have worked well. They then take their own actions in the name of enhancing productivity, reduc- ing costs, or enlarging shareholder wealth.’ The broad array of restructuring initiatives has fostered an extensive acad- emic research literature on the impact of restructuring. Although many studies have reported that restructuring improves performance, some report no or even negative effects. The diversity in outcomes is to be expected because the rubric The authors would like to thank the Reginald H. Jones Center of the Wharton School for partial support for this study We also wish to thank the editor and two anonymous reviewers for their feed- back on an earlier version of this article. CALIFORNIA MANAGEMENT REVIEW VOL 4 I, NO. 2 WINTER I999 33
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Transcript of When Does Restructuring Improve Economic Performance
Fshould
When DoesRestructuring ImproveEconomic Performance?
E d w a r d H . B o w m a nH a r b i r S i n g hMichael UseemRaja Bhadury
acing more competitive markets, more demanding shareholders, andmore challenging workforces, company executives may ask whether itis time to reorganize the company. In considering such action, a firstquestion is likely to be: “Does restructuring work?” But company leaderspush immediately beyond that concern, for the answer is both yes and
no-hardly a concrete guide for executive action. After more than a decade ofextensive restructuring of large companies, company executives should now beable to address the more complex but pragmatically more important question:“When does restructuring improve economic performance?”
Corporate restructuring has, of course, become a staple of managementlife during the past decade. Numerous firms have reorganized their divisions,streamlined their operations, and spun-off their divisions. As in most strategicdecisions, the common driver has been the assumption that such actions spurcompany performance. For supportive experience, company executives oftenturn to publicized accounts of restructurings elsewhere that have worked well.They then take their own actions in the name of enhancing productivity, reduc-ing costs, or enlarging shareholder wealth.’
The broad array of restructuring initiatives has fostered an extensive acad-emic research literature on the impact of restructuring. Although many studieshave reported that restructuring improves performance, some report no or evennegative effects. The diversity in outcomes is to be expected because the rubric
The authors would like to thank the Reginald H. Jones Center of the Wharton School for partialsupport for this study We also wish to thank the editor and two anonymous reviewers for their feed-back on an earlier version of this article.
CALIFORNIA MANAGEMENT REVIEW VOL 4 I, NO. 2 WINTER I999 33
