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Restructuring

RESTRUCTURING

Many traditional brick-and-mortar enterprises have found it necessary to adopt some sort of e-business strategy as the Internet becomes an increasingly powerful venue for exchanging information, as well as for buying and selling products and services. According to market research firm International Data Corp. (IDC), Internet commerce is expected to reach $5 trillion by 2005, with over one billion Internet users across the globe. These figures, coupled with increased competition, have forced many firms to integrate e-business initiatives into traditional business models. Most of the time, this transformation involves some level of restructuring as business methods are changed to adapt to new technologies.

At the start of the new millennium, many dot.com startups and technology-based companies were undergoing major restructuring efforts as well. Low stock prices, difficulty securing investment capital, increased competition, and a weakening U.S. economy were forcing Internet-based firms who experienced great success in the mid-to-late 1990s to restructure operations to remain competitive.

BRICKS-AND-MORTAR TO CLICKS-AND-MORTAR

Many traditional brick-and-mortar enterprises have adoptedor are in the process of adoptingan e-business strategy that will transform them into a click-and-mortar entity. Whether simply creating a company World Wide Web site or developing a plan to provide products and services via the Internet, an enterprise entering the e-business world is faced with changing business models. Adapting to new technology, integrating the new e-business strategy into current operations, and handling new customer relationships, can all result in the restructuring of company operations. According to a May 2000 Software Magazine article, for established companies, "e-business is a new and very different challenge. It cuts to the core of their operations and threatens to disrupt their currently successful and carefully crafted business models."

Office Depot, General Mills Inc., and Victoria's Secret are examples of traditional enterprises that restructured operations as part of e-business initiatives. Office Depot's online business, developed in 1996, has recorded profits each year. Under the leadership of Monica Luechtefeld, the company has become the second largest e-tailer behind Amazon.com with online sales in 2000 reaching $850 million. The firm integrated its Web and store operations, allowing customers to purchase items online and either have them delivered or have them packaged and available for pickup at customer service centers in nearby stores. The Office Depot Web site also allows customers to check inventory at each of its stores. By restructuring both its inventory and distribution operations, adding additional warehouse space and trucks, the firm was able to offer its online customers over twice as many products on the Web than it could stock in its retail locations. The firm also restructured customer service operations at the retail level, which enabled store employees to handle increased business from online customers.

General Mills Inc. also restructured certain aspects of its traditional business as part of its Internet strategy. In the past, the firm conducted its market research by sending its researchers out into the field. In 2001, nearly 60 percent of the company's research was done online. The firm also revamped its purchasing and trucking operations by using Transora, a business-to-business electronic marketplace, to make many of its purchases. It shared trucking services through an online network in order to cut shipping costs. In a joint venture with a California-based research firm, General Mills also began selling market research services via the Web to consumer packaged-goods companies, securing such customers as Nestle and PepsiCo.

Victoria's Secret, a subsidiary of Intimate Brands, was restructured internally when a new division, VictoriasSecret.com, was created as an e-business segment of the firm. The company's marketing and distribution channels were also revamped as part of its push to gain an Internet presence. In 1999, Victoria's Secret offered the industry's first live streaming media fashion show, which logged over 500 million hits in ten weeks. The firm's customer tracking system was also updated to allow the company to record an individual's purchasing history. By integrating its catalog, Web site, and retail outlets, its Web operations secured profits in 2000.

RESTRUCTURING AMONG DOT.COM STARTUPS AND TECHNOLOGY-BASED FIRMS

While many traditional companies focused on restructuring to join the e-business world, dot.com firms and technology-based companies found themselves having to restructure to remain competitive in the markets they once controlled. Faced with a slowing North American economy, faltering stock prices, and increased competition, many in the dot.com industry were scrambling to remain afloat at the start of the 21st century.

Software e-tailer Beyond.com, for example, was one of the first to sell consumer software on the Internet in the mid-1990s. By 2000, however, its stock price had declined dramatically and the firm announced major restructuring efforts. It cut its work-force by 20 percent, replaced top management, and announced plans to shift its focus from retail customers to business customers. Theglobe.com, a leading interactive entertainment and game Web site, also restructured operations. It spun off various holdings and slashed its employee base by 40 percent as part of its reorganization plan.

Exodus Communications, a leading Web hosting firm, was also forced to retool. In order to cut costs, it reduced its workforce by 15 percent and slowed spending. In April 2001, three top executives resigned after losses were posted, leaving the company without key leadership during its shift from providing traditional hosting services to also offering equipment maintenance services and solutions for content distribution and caching, security, performance measuring and monitoring, and networking.

Computer manufacturer Dell Computer Corp. was forced to cut costs as fierce competition caused personal computer prices to fall. The firm reduced its workforce by four percent and slowed spending. Dell restructured its inventory operations, allowing suppliers to access company inventory levels via the Web. Using the new system, inventory was replaced on an as-needed basis which led to a decrease in overstocking. The effort saved $50 million in 2000.

With Carly Fiorina at the helm, Hewlett-Packard also underwent a major restructuring in order to keep pace with those in the technology industry. Fiorina divided the firm into four major groups including computer products, imaging products, consumer sales, and corporate sales. Its marketing division was also restructured to reflect the firm's new focus on providing information tools, infrastructure assistance, and e-services. After the restructuring, H-P released several new products that were key to its vision to become a leading computer supplier for dot.com companies.

As Internet growth is predicted to rise, e-business strategies will, no doubt, continue to become more commonplace among traditional brick-and-mortar firms. The ability to restructure and revamp old business models in both traditional and dot.com firms will be key to successful adaptation. A March 2001 BusinessWeek Online article stated, "over the coming decade, the biggest gains will come from restructuring the way work is done within companies." Erik Bryn-jolfsson, an economist from the Massachusetts Institute of Technology stated in the article, "most of the Net's benefits will come in changes to business practices and organization. What really matters is when companies and markets reorganize."

FURTHER READING:

"25 Leaders for a Dangerous Time." BusinessWeek Online, May 14, 2001. Available from www.businessweek.com.

E-Business Systems Integration Center. "E-Business Strategy." Falls Church, VA: E-Business Systems Integration Center, 2000. Available from sic.nvgc.vt.edu.

Hayes, Ian S. "Hype, Reality, and Vision." Software Magazine, May 5, 2000. Available from www.softwaremag.com.

Hazelwood, Sara. "Beyond.hope? Online Pioneer Not Giving Up." The Business Journal, January 21, 2000.

Hof, Robert D., and Michael Mandel. "Rethinking the Internet." BusinessWeek Online, March 26, 2001. Available from www.businessweek.com.

Mahoney, Michael. "Running Lean and Mean to Survive in E-Business." E-Commerce Times, March 2, 2001. Available from www.ecommercetimes.com.

Volpe, Nicole. "New Strategy For No.1 Dell: Be Ruthless." PlanetIT, May 3, 2001. Available from www.planetit.com.

SEE ALSO: Mergers and Acquisitions; Shakeout, Dot-com

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restructuring

re·struc·tur·ing / rēˈstrəkchəring/ • n. Commerce a reorganization of a company with a view to achieving greater efficiency and profit, or to adapt to a changing market.

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restructuring

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