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Home / Business / Management
A Company In Crisis Is In A Nightmare
By:Mike Teng
Crisis is visibly recognised when the company faces credit squeeze, negative profitability, cash flow problems and collection concerns. However, before the full crisis manifests itself the management of failing companies goes through a four stage of crisis development: Hidden or ignorant crisis when senior management overlooks the signals of impending failure; denial and excuse crisis, when the crisis is explained away in the belief that it will disappear and so no action is necessary; financial and blaming crisis, when some token actions are taken as 'stop-gap' measures without implementation of large-scale or radical change; and bankruptcy or surrender crisis, characterised by the inability to take action as the situation may be beyond redemption.
Necessity is the mother of invention. It often requires a crisis to stimulate new initiatives and to persuade management to take radical measures and accept new approaches that they would not normally be prepared to consider. When a man knows that he is going to die in a month, usually his mind becomes much more focused as he has limited time to resolve outstanding issues in his life.
Once the awareness of the onset of a crisis, the company needs to adopt changes similar to those of a sick and dying patient. As outlined by Elisabeth Kubler Ross, MD, in her classic book On Death and Dying, those stages begin with denial and progress through anger, bargaining, depression and acceptance.
Hidden and denial crises might first surface when shareholder or subordinates question the company's latest results or when a creditor such as a banker points to a disturbing decline in sales. The management's normal reply may be "We have seen this before. There is a little hiccup in the economy and our business is seasonal. Nothing has gone wrong." There is a prevailing ignorant and apathetic response towards the impending crisis.
Anger on management's part, during the financial crisis, is sometimes manifested in defensive posture, particularly when the level of criticism becomes amplified. Bargaining is a last-ditch effort on management's part to regain control. This stage shows itself as a variation of blaming, because the remedies that management contemplates are beyond its means and the management blames it on the poor economy. The CEO may be asking for some more credit from the bank or waiting for a white knight to save the company from certain death.
When bargaining has failed, depression sets in. Creditors and bankers start to demand payments; next customers, suppliers and good employees defect. As the bankruptcy stage sets in, managers begin to accept its fate. They simply give up. The acceptance stage is marked by a sense of forthright preparedness for the inevitable. This is the time when management has to accept that it is unable to do the job and surrender to the unpleasant circumstances. They are either to be ousted unceremoniously or let the company enter into bankruptcy proceedings. Thus this final stage is usually followed either by failure or successful recovery usually led by a new management team.
In today's market, crises are very rampant and can hit at any time. No one in Asia in 2004 have predicted or pre-empted the devastating economic impact of SARS epidemic. Several Asian economies were literally crippled as people feared for their lives and shunned public places and curtained all overseas travels. The crux of a good crisis management is to be prepared at all times. The Asian governments got wiser in 2004 and although there were some isolated reports of SARS infections, another major disaster or crisis was averted due to better control and preparation.
Wake up and be prepared for crisis can strike at anytime
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Article keywords: crisis, credit squeeze, profitability, cash flow, failing company, change management, turnaround
Article Source: http://www.articles2k.com
Dr Mike Teng (DBA, MBA, BEng) is the author of best-selling book, "Corporate Turnaround: Nursing a Sick Company back to Health." He is known as the "Turnaround CEO in Asia" by the media.
http://www.corporateturnaroundexpert.com;
http://www.corporateturnaroundcentre.com
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