Crisis in the enterprise

Crisis in the company is a situation which if tolerated leads to the failure of the company. Inability to implement the basic functions and objectives are usually evident: a relative increase in costs, reduction of number of new ventures or too much debt. Analyzing the phenomenon of crisis, managers can identify three main phases: a potential, hidden and overt crisis. The first phase applies to all enterprises, it is difficult to see, the degree of hazard can be evaluated using early warning systems. Hidden phase, despite its name, is quite evident for those watching carefully the company. Last phase of crisis involves complete disorganization of the company, chaos, and decision-making incompetence.

Due to the place of crisis, we can distinguish:

• crises arising in the areas of management,
• crises arising in the management of people,
• crises arising in the sales area,
• crises arising in the organization,
• crises arising in the production,
• crises arising in logistics and supply,
• crises arising in research and development,
• crises arising in relation to investments,
• crises arising in finance, controlling and planning.

Symptoms of crisis

• In the relationship with the banks:
  • extension of credit lines,
  • increase in the use of promissory notes,
  • increase in debt without sufficient justification,
  • delays in the transmission of financial data,
• In the relationship with suppliers:
  • increasing number of due demands for payment,
  • numerous changes of suppliers,
  • inability to take advantage of discounts,
  • more frequent crossing of maturities,
• In the relationship with customers:
  • increase in the number of low-price sales,
  • increase in the number of complaints,
  • general decline in customer satisfaction,
  • sales personnel turnover,
  • ineffective public relations,
  • reduction in advertising campaigns,
  • In relation to the auditor and tax consultant
  • annual decline in equity,
  • lowered profitability and production efficiency,
  • reduced rate of investment,
  • tendency to overestimate the value of stocks,
• In relation to the authorities:
  • increase in requests for deferment of payment of taxes,
  • increased interest in obtaining subsidies,

Crisis management

Crisis management occurs when managers are dealing with a crisis destroying the organization, and the previous attempts at repair failed. Healing the company should start after preparing its new strategy, structure and operations. Thinking only about liquidity does not guarantee development and success. In crisis management requires a focus on strategic issues. Implementation of the strategy in the crisis therefore requires resolving the situation within the company in relation to the environment, careful planning and decision making.

Examples of Crisis in the enterprise

• Financial crisis: A financial crisis for a company can occur when there is an imbalance in the revenue and expenses of the organization and the company is unable to meet its financial obligations. This can be caused by a decrease in sales or an increase in expenses. A financial crisis can lead to bankruptcy if not addressed immediately.
• Management crisis: A management crisis can arise when a company's leadership fails to respond to changing market conditions, fails to recognize and adapt to competition, or fails to manage operations effectively. This can result in a lack of trust among employees, customers, and suppliers, which can lead to decreased productivity, customer dissatisfaction, and financial losses.
• Market crisis: A market crisis can occur when a company's products or services become irrelevant or uncompetitive in the marketplace. This can be caused by the emergence of a new technology, the changing tastes of consumers, or the growth of new competitors. When a market crisis occurs, the company must find a way to adapt or face potential losses and eventual failure.
• Operational crisis: An operational crisis can arise when a company fails to follow regulations or fails to maintain safe working conditions for its employees. This can result in fines, lawsuits, and other financial losses. It can also lead to a decrease in employee morale, decreased productivity, and customer dissatisfaction.
• Reputational crisis: A reputational crisis can occur when a company's activities or actions damage its public image. This can be caused by negative news coverage, social media criticism, or customer complaints. A reputational crisis can lead to a decrease in sales and customer loyalty, as well as an increase in employee turnover.

Advantages of Crisis in the enterprise

Crisis in the enterprise can be seen as a challenging yet beneficial event as it can be an opportunity to create new possibilities and implement deep changes. Below are a few advantages of crisis in the enterprise:

• It can facilitate a clear analysis of the existing situation and help to identify the underlying problems and weaknesses of the enterprise. This can lead to the development of better strategies and solutions for the future.
• It can provide an incentive for the development of new organizational cultures and practices, which can lead to improved performance and efficiency.
• It can create pressure for innovation and the development of new products and services. This can be a great opportunity for enterprises to remain competitive and develop new sources of revenue.
• It can create an opportunity to implement significant changes in the enterprise, such as restructuring, downsizing or the introduction of new technologies. This can help the enterprise to reduce costs and become more efficient.
• It can help to improve leadership skills, as leaders need to take decisive and timely action in order to resolve the crisis. This can lead to the development of more effective management practices.
• It can help to build a more resilient enterprise, as it can help to identify potential risks and develop strategies to mitigate them. This can help the enterprise to be better prepared for future crises.

Limitations of Crisis in the enterprise

Introducing the limitations of crisis in the enterprise, we can identify the following elements:

• Unrecognized potential risks - Many potential risks that may cause a crisis can be left unrecognized, meaning that the crisis can hit the company unprepared.
• Poor financial management - Without a proper financial plan, a company may face a crisis due to lack of resources and insufficient funds.
• Lack of strategic planning - A company that does not plan for the future is more prone to crisis due to lack of foresight and planning.
• Unreliable market conditions - External market conditions such as economic downturns or competition can cause a crisis.
• Poor understanding of customer needs - A company that fails to understand the needs and demands of its customers may face a crisis due to lack of demand.
• Poor communication and collaboration - Without effective communication and collaboration between different departments, a company may be unable to effectively address a crisis.
• Unsustainable business model - A company that is built on an unsustainable business model may be more prone to crisis due to its inability to adapt.

Other approaches related to Crisis in the enterprise

• One approach to the crisis in the enterprise is to analyze the structure of the company and the way it operates. It is important to identify the factors that caused the crisis and to analyze their interrelationships. Moreover, it is important to recognize the potential risks and to develop strategies to prevent or mitigate the crisis.
• Another approach is to develop a crisis management plan that includes preventive and reactive measures. This plan should identify key players and decision makers, assign responsibilities, and outline the steps to take in the event of a crisis.
• Additionally, companies should ensure that they have the necessary resources and resources to address the crisis and to facilitate its resolution. This includes financial resources, personnel, and technology.
• Lastly, it is important to have effective communication strategies in place to keep stakeholders informed and to ensure the company is able to make decisions swiftly and effectively.

In summary, companies should analyze the structure of their operations and develop strategies to identify and mitigate potential risks. Additionally, crisis management plans should be developed, resources should be allocated, and effective communication strategies should be in place. These approaches can help companies to successfully manage a crisis and to reduce the likelihood of it occurring in the future.

Crisis in the enterprise — recommended articles

Business drivers — Competitive risk — Credit management — Change management — Emergence plan — Organizational change — Business needs — Functional strategy — Organization life cycle

References

• Zheng-chu, H. E. (2003). A Study on the Construction of Enterprise Crisis Management System [J]. Systems Engineering, 3, 006.