I thought to share something about
the corporate stress .
While advising the clients mainly in
stress, I noticed certain common features. These can be used as warning signals
too which may help businessmen to avoid the trap of stress.
Common
Factors :
- A team of highly paid
Executives : In
most of the cases, I noticed that the companies hire highly paid
executives who roam around for more and more salaries. These people are
not committed towards the organisation but they will try to extract more
and more for themselves. They are good at communication skills and that
skill is mainly used in marketing for themselves. Such people boast a lot
and take the credit for every good thing in the organization and blame the
promoter for all the failures. Such people can’t face the tough time and
run away immediately after the warning signals or the promoters also throw
them away once their real capabilities surface. High employee cost adds
fuel to the fire and cause serious losses to the organization.
- Expansion of capacities: Generally the company runs
well at the initial stage of operation. The performance lures the
promoters to expand the business. The confidence turns into over
confidence and hence capacity expansion is always many fold. Such
decisions are generally taken in boom time which does not last long. By
the time the higher capacity is in place, demands slow down and the
selling becomes tough. More capacity reduces margins, increases
competition and the terms of sale are liberal. This situation leads to a
dangerous zone where recovery may be a big issue. Gradually the company
falls in the trap and gets into stress due to low recovery.
- No control or supervision on
the cost part:
When time is good , profits rain and promoters loose the focus from the
costing. This is quite common feature in stress accounts. By the time the
capital starts wiping out, it is too late. The promoters live in different
impression of high margins. The fact that the costing does not support the
business, the capital starts wiping out immediately. The signals come bit
late and by this time the situation goes out of control.
- No change in product mix: The impression that business
is growing, margins are same or higher and fear to move forward leads to
this situation of stress. The management of the company does not try to
different product mix fearing loss. They believe that same product mix
will give same or high margins for indefinite period. They get shock when
suddenly the existing product mix does not yield the same margins or even
resulting into loss. By the time they take action it becomes too late.
- High overheads: No control over costs, high
business development cost and extravagance in day to operations leads to
great damage to the company. This acts as a slow poison because such
expenses can not be curtailed at later stage. The promoters attach their
show off with day to day business and the percolates to the down side.
Executives too spend lavishly. There is no control over expense vis a vis
result.
- Old team which does not allow
the new blood to enter into policy decisions: We noticed that the team which is in place since long
indulge into politics. They don’t allow new team to grow and hence new
ideas are not entertained. Existing team circles around the promoter which
acts as a solid barrier to look into the outside reality.
- Over support by the Bankers: When going is good ,
financiers (Banks particularly) chase a lot to the borrower to take more
money. This is basically done to achieve more business. This provide more
fuel to burn. The over support and carelessness damages the company in
long run as the company becomes highly leveraged and interest burden
increases. If the revenue generation is not same or less than projected,
the stress automatically enters in the company.
- Absence of timely support by
the bankers:
Bankers behave like fair weather friend. When going is good, they offer
more than required funds, but when it is tough they try to pull out of the
company or even destroy the company with sole purpose of recovery.
- Overdependence of the promoters
on key people:
As mentioned above, some people take full control over the promoters and
they call the shots. Such people play politics and never allow others to
enter into the artificial ring. Promoters also get comfort in this ring
but it damages extensively to the company. By the time promoters
understand the situation, it is too late and the company goes into stress.
Later on such team gradually fades away once the situation gets worse.
- Rampant Corruption and
inefficiency in team:
Stress is mainly caused due to inefficiency of the team, Over confidence
of promoters and over flow of funds. In this situation the promoters start
loosing the grip and surrounded by few people who know how to handle the
promoters. These people also start enjoying power of relationship with the
promoters. This results into the rampant corruption and politics. This
results into severe stress and mismanagement in the company. It has been
noticed that certain company officials make more money than the promoters
and run away from the company. They also possess lot of sensitive
information and hence the promoter can not take any action.
- Promoters’ overconfidence in
business development:
This is one of the major reason for stress. Most of the expansion
decisions are taken during the boom time. Promoters feel that the current
success will continue forever and they will be able to get higher success
even if the business expands manifold. The expansion takes away liquidity
from the business and stress starts. Gradually repayment of loans and
interest becomes problematic and huge holes are created in the business.
Thus
common features for stress in a company can be summed up as mis-management,
promoters’ overconfidence, inefficient & Corrupt team and poor cost
control.
CP
No comments:
Post a Comment