Business crises: When companies start to suffer
When a business enters a critical situation, the problem to be addressed often originates from within.
It’s natural for management to deny internal responsibility, instead emphasizing the impact of external factors, which are harder to verify by definition. This response to sudden critical situations is quite frequent in businesses.
This reaction to sudden emergencies is common in businesses but doesn’t help in identifying the real issue or defining a strategy to address and solve the problem.
Businesses often blame sudden problems on external factors, such as economic recessions, unexpected geopolitical events, and sudden changes in capital markets. A recent example of this was the pandemic, which served as an alibi for businesses that were already suffering from internal problems.
The true origins of crises almost always lie within the business, worsened by external factors that act as a “trigger”. A single external event might make a business crisis more apparent, but the real origin of the emergency can easily be traced back to a series of decisions and behaviours inside a company.
The symptoms of a crisis. What are the red flags?
Several indicators can alert companies to potential crises. A surge in debt and struggle to generate a cash inflow are key factors of a crisis; these elements must trigger a quick and efficient reaction.
During emergencies, companies often enter a critical phase in which debt is increased as the inflow is no longer enough to keep the business in the black. This initiates a domino effect where the business seeks ways to compensate through their shareholders, capital providers and the supply chain.
All these are symptoms that simply cannot be brushed aside. Managing a business crisis needs to be done strategically, through a project of restructuring and adaptation, changing the usual procedures were used before.
Before addressing a crisis however, it is of utmost importance to identify all underlying factors that led to the start of the emergency in the company.
Crisis of business growth: the triggering factors
When a business grows too quickly:
Sometimes, a business goes through an overly accelerated period of growth, depleting financial resources beyond their available reserve. If growth is not adequately balanced with a revaluation of margins and costs, this can lead to a period of growth followed by a steep fall, leaving the business worse off for it.
If the company aims unreasonably high:
There are several cases in recent history where companies have executed acquisitions of colossal measures, which, due to poor integration strategy, led to underperformance and did not deliver the promised financial benefit.
From confidence to oversight:
It is not unusual for a business to have its successful history lose its value and reliability due to a loss of focus on results caused by overconfidence and reliance on past achievements.
In a dangerously self-referential logic, the company no longer dominates the context in which it currently operates but is instead negatively influenced by management or ownership, with tangible pitfalls such as resource wasting.
If a new competitor goes by unnoticed:
It is possible that a company that is too self-centered and focused on specific internal problems does not realize a sudden rise in the market of a new competitor. In such cases, the company’s own successes can be an obstacle of considerable measure, which prevents management from having the vision to identify a change in scenery and acting accordingly. As a result, this leads a business to react too slowly to competition, losing positioning and market share.
So, what is the solution? Choosing to turn the situation around by relying on experts:
Who is in charge of business crises? It is essential to understand when the right moment is to go into “crisis mode,” a phase of restructuring in which preceding business procedures are no longer applicable (even if they were consolidated). It is instead necessary to establish new standards and business practices for the whole organization.
How to handle a business in an emergency? When one shifts their priority towards a turnaround, the keywords to keep in mind are speed, efficiency, credibility, focus, and frugality.
To manage this new period for the company, which is “officially” in a crisis, there needs to be an expert. There is no room for improvising, trials, and, most crucially, mistakes. The most fitting solution is the introduction of an external element, completely detached from the events that preceded the crisis and with solid preparation and experience in project management. This is often a figure that will lead an assignment of around 18 months, a Chief Restructuring Officer (CRO).
EIM’s managers are the most fitting experts for addressing these emergency situations, and here’s why:
- Our managers have extensive experience, proven and tested through years of activity dealing with crises;
- EIM’s crisis managers are well-acquainted with the tools to use during periods of emergency and are therefore ready to deliver tangible results quickly;
- Our capabilities in crisis management are complemented by EIM’s wide variety of experience in project management;
- EIM managers establish business best practices and ensure consistency;
- We define a strategy to be implemented after the emergency is solved, so growth can resume;
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