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CHAPTER 1 Introduction to Corporate Renewal A recent headline read, "US Airways seeks Ch. 11 Protection" (Greenberger 2002). Days later another headline read, "IBM Cutting 15,600 Jobs" (Business in Brief 2002). Hardly a day passes by without a major company announcing a revitalization campaign or a bankruptcy filing.! These corporate crusades are labeled "corporate renewal," "turnaround management," or "crisis resolution,"2 phrases so new to the business lexicon that they often are used interchangeably. How do companies transform and revitalize themselves? These questions are explored in this book, the aim of which is to educate readers in how the new science of company transformation treats distressed companies to make them healthier and save jobs. Why do companies go bankrupt? This question is answered strategically, legally, and financially. Chapter Organization and Content This study of corporate renewal is arranged into three sections. This first chapter covers the field's basic issues, induding the causes and consequences of business failure. Legal issues relating to bankruptcy are described in chapter 2, while techniques to measure corporate health are described in chapter 3. The fourth chapter examines ethical issues related to financial distress. These chapters ground the reader in the discipline. The middle part of the book is labeled "implementation." The two chapters in this part examine issues related to turnaround management and crisis resolution. Chapter 5 discusses the methods and techniques of turnaround management. It presents a coherent plan to enable a company to assess its position and structure a response. Chapter 6 examines how a downsizing campaign is implemented and identifies its limitations. The final part of the book discusses advanced issues. Advanced 4 Principles of Corporate Renewal legal topics are presented in chapter 7, including a major assignment, preparing a plan of reorganization, for the reader to complete. Chapters 8 and 9 introduce, respectively, the related topics of reengineering and quality. Tax considerations (net operating loss carryforwards and debt forgiveness) and investment issues are presented in chapter 10. The final chapter, chapter 11, presents accounting issues including fresh-start and ABC accounting. A glossary of terms appears at the end of the book. Change and Survival The impetus for change and transformation is survival. Global competition , deregulation, technological change, loss of national culture, and megastores all contribute to the buildup of enormous pressures on businesses. To survive, businesses are instituting a variety of changes including • debt restructuring • laying off both white- and blue-collar employees • downsizing operations • divesting subsidiaries and divisions • reengineering • establishing total quality management programs • engaging in product renewal • rightsizing their workforces • filing for bankruptcy protection Which strategies are necessary and appropriate and at what times is not well understood, either by those being impacted by the changes (managerial and nonmanagerial workers, labor unions, shareholders, and even some employers) or by inquiring observers (politicians and reporters). As a consequence, companies are chastised for taking actions that harm certain employees or current shareholders and not praised for preserving remaining jobs and keeping firms operating and competitive in a global marketplace.3 The origin of this paradox is American society'S unfamiliarity with the processes and potential for company renewal. The Three Levels of Corporate Renewal Corporate renewal draws upon three paradigms: corporate transformation , turnaround management, and crisis management. Introduction to Corporate Renewal 5 1. Corporate transformation occurs when a company, even a healthy one, asks itself two questions: • What are we doing wrong? • What could we do better? 2. Turnaround management occurs when a company with one or several major problems has sufficient time and resources to find solutions. 3. Crisis management occurs when a troubled company approaches the end of its existence. A combination of actions and strategies is recommended in each stage of the renewal process, as is described in table 1.1. Several actions recur in each stage, while others are limited to a single stage of corporate renewal . Actions recommended during turnaround management overlap some used during corporate transformation and others used during crisis resolution. Corporate transformation, turnaround management, and crisis resolution offer a range of management techniques providing solid benefits to every company. Although these management practices may be grouped under the TABLE 1.1. Actions Taken in Each Stage of Corporate Renewal Action Divest subsidiaries and divisions Reengineer processes Establish total quality management program Engage in product renewal Product review and expiration Rightsize the workforce Determine full product costs Reprice products Establish new wage and benefits levels Downsize operations Restructure debt Layoff employees Improve working capital management Extend or compose debts Negotiate partial...

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