When does it become necessary to restructure a company? Rather sooner than later, which is often precisely the problem. You may be familiar with the metaphor of the frog being warmed in a pan of cold water. The premise is that if this is done gradually, the frog will not jump away and die in the water when it becomes boiling hot. Unfortunately, he reacted too late. Even though the metaphor is scientifically incorrect, it is useful here.

Although frequent signs of problems within the company already surface, the need for restructuring arises very gradually. The financial results are often somewhat disappointing at first and may eventually become a major problem. Or the market changes gradually until the moment that the company’s proposition no longer fits and the competitive position has become too weak. Then one day there is the immediate need. Serious liquidity shortages arise, the bank demands intervention, taxes cannot be paid or creditors want to see money today. Perhaps bankruptcy is looming for one or more organizational units. Let’s list the most important indicators; you may recognize some of them.

Indicator 1: Financial

The most obvious reason to carry out a restructuring in the short term is a growing shortage of liquidity and thus working capital. A shortage of liquidity can be caused by persistent losses, loss of turnover or narrower margins, as well as excessive stock positions and/or obsolete debtors. When this also involves, for example, incorrect investments in the recent past, overcapacity or relatively high debts, the problems quickly increase.

The bank is likely to place your business under special management. Financing to solve immediate liquidity problems and make new investments is thus also an issue.

Indicator 2: Market

The conditions of the market in which your company operates can have a major impact on the functioning of your business. Sometimes a market faces (sudden) negative market developments that threaten independent continuity. For example, you can think of:

• Declining demand: Consider, for example, the availability of a better alternative.
• Stricter regulation: For example, the government may decide to require permits or discourage, limit or ban the use of certain substances.
• Prices of raw materials: When rising commodity prices must be passed on, alternatives to your product may become attractive.
• Social development: consider the reduction of CO2 emissions, the trend to eat less meat, or unacceptable working conditions at suppliers to certain industries.

If your company has been unable to respond to changing market conditions in a timely manner, restructuring may be necessary. One particular form of changing market conditions that is becoming more common and causing companies problems is disruption.

Indicator 3: Disruption

Almost every sector is experiencing changing services, innovation in production methods and new business models due to digitalization. But in some sectors, the change is so great that it is called disruption. Disruption literally means disruption or tearing apart. The phenomenon of disruption can have a lot of impact on a particular market and/or sector, because many new players with often innovative technologies can disrupt an entire sector, or bring down existing parties. Disruption thus goes beyond the general digitalization that virtually every organization faces.

High-profile examples of disruption include how AirBnB and Booking.com are impacting the hotel industry, Uber the cab industry, Tesla the car manufacturers and the cloud platforms of Microsoft, Google and Amazon the IT sector.

Disruption results in new business models as boundaries between the digital and physical blur. The convergence of people, processes and objects (through IoT) profoundly disrupts business models. When a company operates in a market redefined by disruption and cannot independently adapt to the disruption in the market, quick action may be necessary. Consider, for example, companies such as Kodak and Nokia that have completely disappeared from the world stage.

Indicator 4: Lack of understanding

Understanding accurate and up-to-date information is essential to properly manage a business and make the right decisions at the right time. The basis is insight into the current performance of the company compared to the budget, insight into the duration of current contracts and insight into the pipeline of new orders. If these types of insights or management information are not in order, there is a greater chance that the wrong decisions will be made or that decisions will be made too late. Nor is it then possible to accurately inform other stakeholders, such as shareholders or the bank.

Indicator 5: Organizational problems

A company is basically a group of people working together to provide products and services and using the company’s resources to do so. The way this operation is organized has an impact on the efficiency, quality and flexibility of the company. This includes, for example, the corporate culture, the method of management and the motivation and expertise of employees.

For example, a reason for restructuring may be due to a poorly run operation, with high costs, long delivery times and inflexibility resulting in dissatisfied customers and declining sales.

In addition, organizational issues include management, employee motivation, the availability of a good flexible shell and the construction of leagues within the team.