Difference Between Restructuring and Reorganization (With Table)

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It is common to hear words such as restructuring and reorganization are thrown around when a person works in a corporate environment. These are few terms that might confuse the average English speaker working in such environments. Hence, it is essential to understand the differences between the phrases like restructuring and reorganization.

Restructuring vs Reorganization

The difference between restructuring and reorganization is that restructuring includes the process of altering the fundamentals of a business’s activity or resource. Meanwhile, reorganization is used to define the process of modifying few specific business units without impacting the base structure of a business. These are the fundamental differences between the terms.

The word “Restructuring” is quite often used in corporate areas. This term is in practice to define the process of changing a business’s fundamentals to adapt to newer conditions or environments. This act is performed to push an organization to become profitable and able to compete with the current competition in the market.

The word “Reorganization” is another business terminology that can be heard in a company’s surroundings. Organizations tend to use the method of reorganization to stabilize a company without making any significant changes. It allows an organization to clear up and organize their work in a better and more effective manner.

Comparison Table Between Restructuring and Reorganization

Parameters of ComparisonRestructuringReorganization
MeaningChanging the fundamentals of a business.Making simple alterations to the business units.
ReasonTo make a company more efficient and competitive.To make a plan or campaign more effective.
HiringRecruits in different positions are hired.No recruits are usually hired.
PeriodIt is performed with a long-term vision.It is performed for a short-term goal.
ImportanceSignificant changes are made to the business.Insignificant but required changes are made to the plans.

What is Restructuring?

Restructuring is a common term that is mostly used in the corporate field. It means changing the process of fundamentals of a business. A company may use the term restructuring when it aims to adapt to newer conditions or a new environment.

 Restructuring is also used when a company plans to yield better profit and compete with its competitors in their field of business. During the restructuring process, a company may hire different resources. Restructuring of a business organization is performed with a long-term vision.

It plays an integral role in the business. The restructuring also includes completely changing the base structure of a business organization. It also involves modifying the operations part of a company. Some of the types of restricting include merging and acquisitions, divestment, legal restructuring, reduction of cost, adapting to new methods in operations.

 As you can notice, all these are some of the major game-changers in the life cycle of the company. That is why the restructuring process in a business organization is said to have a long-term vision. Organizational restructuring is one tough process as the company should take into account its present condition, its competitors, the trend any many factors before restructuring the process.

What is Reorganization?

Reorganization is nothing but making few and very simple alternations to the business organization. Unlike restructuring of an organization (as it involves a hefty process), reorganization involves simple steps. Reorganization is undertaken as a means to make a plan or a campaign organized by the business organization more effective.

When the company is not in a proper condition and finds it difficult to ends meet, a reorganization process is initiated. Reorganization can be the selling of units of a business or cost minimization or terminating the workers of a company. A company that is on the verge of bankruptcy may be to submit a reorganizational plan as a means to revive the business organization from financial crises.

The reorganizational plan may include big changes in the company, such as replacing the management or reducing the budget, or selling of different divisions of the business organization. In the worst-case scenario, if the reorganizational plan of a business organization fails, then the assets of the company are sold and used for settling the debts created by the company.

Some of the major changes involved in the reorganization of a company are changing the name of the company, spinoff acquisition, or replacing the management of the company. Both the reorganization and the restructuring are a company’s major game-changer.

Main Differences Between Restructuring and Reorganization

  1. Restructuring is performed by changing the fundamentals or base structure of a business. Reorganization is performed by doing low-level modifications to business units.
  2. A company’s efficiency and competitiveness can be transformed by restructuring. The plans or campaigns of a business can become successful by clear and effective reorganization.
  3. The restructuring process generally involves the hiring of recruits from the CEO to the employee. The method of reorganization does not usually require any recruitments. 
  4. The long-term vision of a company plays an influential role in the process of restructuring. Short-term goals are achieved by reorganizing the business’s units.
  5. Restructuring involves significant changes to a business’s basic ideas and fundamentals. Reorganization makes necessary alterations but does not include any significant changes.  

Conclusion

Both the terms reorganization and restructuring are misunderstood by people often as it sounds similar and contains more or less the same meaning, but they have unique features that one needs to be familiarized with. Both the terms reorganization and restructuring are used in the corporate world often as many companies may undergo any one of the processes at least once in the lifetime of the business.

Restructuring involves changing the fundamentals of the business organization. On the other hand, reorganization involves making alterations in the course of the business. A company that is on the verge of bankruptcy may submit a reorganizational plan to overcome the crises.

References

  1. https://www.sciencedirect.com/science/article/abs/pii/0304405X90900636
  2. https://academic.oup.com/applij/article-abstract/11/2/113/163481
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