Corporate Restructuring

Corporate Restructuring: Organizational and Financial Capital Restructuring – Article from Accenture Restructuring has become proverbial in the global telecom industry, until recently spurred by high investment in capital infrastructure; corporate divestitures, mergers, organizational restructuring and acquisitions; and the rapid growth of venture-fueled start-ups. Now, in a troubled economy, many telecoms equate restructuring with downsizing, counting on cost control to ensure their immediate survival. These companies ask themselves, how? How can we retrench until recovery arrives? Smart organizations ask why? Even in tough times, they see restructuring as an opportunity to reevaluate their market positioning and business objectives and better align their organizational structure and capabilities with those objectives. Of course their efforts must be fiscally sound and income-statement-sensitive. But that does not preclude refocusing and redirecting the organization for long-term positioning. As the New York Times recently reported, 71 percent of the companies that concentrated their restructuring efforts narrowly on cost reduction in the early 1990s missed the profitable growth boom of the late 90s. Changing Competitive Context While capital budgets are expected to decline 15-30 percent this year, U.S. carriers will still invest $60-75 billion. Today, more than ever, those investments must enhance competitive positioning, as well as cost structure. The number of competitors in many sectors may be shrinking, but the nature of competition has changed. Take wireless. Several years ago, competition in any U.S. market amounted to the local RBOC and one other player. Now, encouraged by the recent growth economy, the competition in most U.S. markets includes national and international players like Vodafone/Verizon, Deutsche Telekom/VoiceStream, Sprint PCS, AT&T, Cingular, and Nextel. All offer national coverage and a similar menu of wireless services. To many customers they all look alike. They don’t have to. The proliferation of network elements—routers, servers, data centers, switches, and central office equipment—and ways of combining them offers large telecoms ample opportunity to present a unique profile to the marketplace. The issue is what that profile should look like and how can it be delivered.

Defining Points of Distinction That Attract and Retain Customers In a world where companies, products, and services seem interchangeable, winning organizations will find ways to differentiate themselves in the eyes of current and potential customers. They must determine their points of distinction—unique attributes that differentiate one company from the other players in the market. Differentiation may spring from many sources—among them, product innovation, the operational efficiency that translates into price and flexibility advantage, or superior customer service. Restructuring should improve a company’s ability to deliver its chosen point of distinction. The PC industry demonstrates the power of points of distinction. For 20 years, dozens of companies popped up to manufacture virtually indistinguishable IBM PC clones. Only a handful remain—Dell, Apple, HP, and Compaq, among them. A growing market has room for many no-name clones, but a mature or slowing market does not. As the PC market faltered and consolidation started, companies without clear points of distinction began to fail. Thus, we see Compaq and HP merging. Two survivors enjoy clear points of distinction. Dell is synonymous with operational efficiency and an excellent customer experience. Apple owns product innovation, thanks to early entry into multimedia and desktop publishing and cultivation of a loyal following who pronounced Apples “cool” and dismissed PCs and the clones as machines for pinstripes. Such differentiation remains rare in the telecom industry. Who are the innovators? Who are the price leaders? Do your customers know one company from another? Do they see you as the Apple of telecoms? Remember, your customers have more and more alternatives, from other well-funded carriers to new faces, including non-telcos like AOL Time Warner and EchoStar/Direct TV. As growth stagnates and competitors fight for revenues, points of distinction will loom ever larger. Signs of stagnation abound. Larger firms with history and scale are restructuring to cut costs. Smaller service providers are simply disappearing. Taking the Right Steps to Reorganize The first step is finding an appropriate point of distinction. Fast to market with new products perhaps? Or uniquely targeted and bundled products and services? Or superior operating efficiency? Then you have to align your organization and network to support that differentiation. And the network control infrastructure is key to delivery. Happily, restructuring need not mean spending more, just

spending better. The focus provided by a point of distinction helps set spending priorities and guide investment tradeoffs. While this is clearly no time for extravagant spending on unnecessary projects, failure to proceed with restructuring predicated on the strategic goal of strengthening long-term competitive positioning can spell disaster. Remember the PC clones.