Smugness breeds complacency and denying this truth may be dangerous for any corporation. Becoming overconfident and content even with wrong decisions or actions and denying this fact for a long period of time may result in financial setbacks leading to bankruptcy. Bankruptcy is never an answer to complacency. If a lie is told a thousand times, it becomes the truth but in the corporate world wrong actions and not accepting reality may lead to huge financial losses. As a matter of fact, the act of declaring insolvency should be the last step when all resources for reviving the business are exhausted.
The state of insolvency does not come overnight but it is the outcome of a negligent and callous attitude towards managing a business. It is a process of incompetency and denial which results in making business sick. It happens due to mismanagement, misappropriation and lack of far sightedness. Companies also enter bankruptcy because of the overconfidence of a few and their haggard meritocracy.
As human beings, before becoming sick we all receive warning signs from our bodies, such as a mild temperature, a cough, feeling cold, a headache, nausea, weakness, pain etc. The moment we acquire these symptoms, we know that something is wrong and we take precautionary measures to overcome the aggravation of the symptoms. If symptoms go beyond our control then we rush to the emergency ward where medical experts examine our body and prescribe medications to control the symptoms or eliminate the disease. In a worst case scenario, a patient can be admitted to an operation theatre or be put in an intensive care unit.
The same way, there are key indexes to measure the performance of a company. These indexes can routinely measure the impact of key management decisions, operational and financial health of an organization. They provide early warning systems in case any part of the business is not performing as per the measure. Based on such warnings, a short-term or long-term correctional strategic plan can be prepared. These strategic plans are executed and monitored till a business reaches the threshold of recovery or has overcome the constraints. In management consulting, I vigorously recommend that prevention is always better than cure. In order to maintain the overall health of the company, a periodical diagnosis or annual check-up is must. The cost of preventing the loss in profit is insignificant in comparison to the cost of fixing a problem.
In a worst case scenario, the turnaround strategy reverses the cause of distress, resolves the financial crisis, achieves quicker improvement in financial performance, overcomes all internal constraints and regains stakeholder’s satisfaction. This is done by diagnosing the root causes by using various tools and techniques.
These tools and techniques include SWOT analysis, PEST or PESTLE analysis, critical success factor analysis, process activity analysis, comprehensive organizational capacity analysis, management capacity analysis, psychometric analysis of employees, value stream analysis, cause & effect or fish bone analysis, balance scorecard, survey, interview, brainstorming etc.
Hence, being complacent and remaining in a state of denial for a long period of time is inevitably going to invite bankruptcy at the cost of shareholders stake and employees futures. In order to prevent the slide towards bankruptcy, it is important to find the malignancy and remove it before it is too late. In my opinion a bankruptcy can be avoided by using the services of an expert in business turnaround which will result in reviving the company, saving jobs and adding value to the local economy.