Today's corporate restructuring requires a new approach.

• Author: Niles, David
• Position: Strategy

Prior to the recent great recession, restructuring efforts traditionally focused on balance sheet and cost considerations. Companies targeted for turnaround suffered from an over-leveraged balance sheet and bloated cost structure and were prescribed a heavy-handed overhaul.

These restructurings were rigorous, but theoretically simple: refinance debt structures, shake up management, cut corporate jets, reduce redundancies in the workforce, shutter unprofitable product lines and so on. As tough as these tasks have been, today's increasingly complex business environment requires a more robust restructuring strategy.

[ILLUSTRATION OMITTED]

Today companies must move beyond the old restructuring model and toward a whole system framework--one that combines traditional balance sheet treatments with anticipatory strategy, aggressive market analysis and comprehensive operational improvement initiatives.

Borders Group Inc., the beleaguered media retailer that recently filed for bankruptcy, is a prime example of a firm clinging to the old restructuring model as it faces new and complex challenges--and failing as a result. On paper, the firm's plight appears typical: an over-leveraged balance sheet rife with burdensome and ill-advised real-estate investments, an inefficient sales force and a plethora of accumulating debts.

Borders responded to these ills with several rounds of management restructurings, closure of hundreds of branches and by attempting to restructure its debt. In other words, a typical restructuring two-step. But these efforts fell short. Investors declined to contribute new capital, publishers refused to restructure their contracts and emergency loan commitments (including a $550 million financing package from GE Capital) failed to stem the firm's downward spiral.

[ILLUSTRATION OMITTED]

Under these crushing pressures and despite its restructuring efforts, Borders filed for Chapter 11 bankruptcy protections in mid-February.

What went wrong? Why did yesterday's tried-and-true restructuring approach fail Borders? First, the company did not prepare for a financial downturn, even as public concern over an emerging financial crisis grew. The global economic meltdown then decimated profits in even the most resilient of retail businesses.

Second, and perhaps more critically, Borders did not anticipate--or react to--tectonic shifts in its customer and revenue profiles. The explosion of online book sales and the e-reader revolution (as pioneered...