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Meaning of Crisis
Crisis refers to sudden unplanned events which cause major disturbances in the Organisation
and trigger a feeling of fear and threat among the employees.
Definition of crisis
According to Barton A Crisis is any event that can seriously harm the people, reputation, or
financial condition of an Organisation
Nature of Crisis
1. Sudden Event: Crisis is a sequence of sudden disturbing events harming the
Organisation.It is a sudden event so that it is a element of surprise to the Organisation.
2. Short Notice:
3. Triggers Fear: Crisis Trigger a feeling of fear and threat amongst the individuals. It
may range from light problem to the severe problem.
6. Quick Response needed: After the hit of Crisis, there may be limited time in which,
managers or owners have to make decisions about what to do. The more is the time taken in
decision-making more is the impact of Crisis.
TYPES OF CRISIS
1. Physical Damage Crisis
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STAGES OF CRISIS
1. The pre-crisis stage:
When someone in an organization discovers a critical situation, they usually bring it to the attention of
their supervisors/managers. This is known as either the pre-crisis warning or precursor. At this point in
time, the critical situation is known only inside the organization and is not yet visible to the general
public.
Consequences of crisis:
1. Poor capital:
Capital represents the financial resources companies use to purchase goods or labor for their
business operations. Crisis frequently have serious negative effects on a companys available
capital, since they must now spend money to restore assets rather than advance business
operations. Large companies can set aside a portion of their operational profits for future
crisis recovery plans.
2. Loss of assets:
Assets are the physical items companies use in business operations. Crisis often renders
physical assets unusable if damage is significant to the business. Large companies can
mitigate the loss of business assets from physical crisis by operating multiple locations with
multiple business assets.
3.Infrastructure destruction:
Another major impact of crisis may be the destruction of infrastructure of the business or the
company. Crisis either physical or non-physical ultimately leads to the misbalanced
infrastructure.
5.Damaged reputation:
Crisis damage reputations because it gives people to think badly of the organization. The
news media and the internet play a critical role as most stakeholders learn about crisis from
news reports and social media. If a reputation shifts from favorable to unfavorable,
stakeholders can change how they interact with the organization.
6. Lack of cashflow:
Most business experiences a lack of cash flow from business operations, which comes down
to two primary reasons. First, customers of the business are cutting spending in light of the
crisis, causing the cash flow coming into the business to slowdown. Because of this lack of
cash flow, many businesses turn to lenders to obtain small business loans or lines of credit.
Managing crisis
Crisis management may be defined as the technique of managing crisis situations. It is the
nature of activities to respond to a major threat to a person, group or organization. Typically,
proactive crisis management activities include forecasting potential crisis and planning how
to deal with them. It often includes strong focus on public relations to recover any damage to
public image and assure stakeholders that recovery is underway.
Step1: Determine the crisis potential:Studies show few organizations critically evaluate the technical, human, natural or contingent
threats they could face. Wise managers do scenario planning on how likely it is their
organizations will suddenly encounter a crisis. This also deals with the organizational
facilities and products i.e. hazardous products. Competition should also be considered. By
considering all these organization can prepare to deal with uncertain and destructive events
and can develop management strategies for the inevitable.
Step2: Develop appropriate crisis teams and centers:Organization should develop teams that take responsibility for previewing each crisis,
developing a strategy to prevent occurrence, and then managing the event should it occur.
Crisis centers are places where teams can assemble and carry out their activities. As teams
develop they should be carefully trained to make decisions and empowered to be able to carry
them out.
Step3: Write a crisis management plan:It implies that to some degree each crisis situation can be managed. This management process
takes place before, during, and after the crisis. This includes anticipating a crisis, developing
and training a crisis team, designing and equipping a crisis center, working through a plan for
each potential crisis and handling media interviews.
Step4: Develop a communication strategy:It is the process of managing the strategy, messages, timing, and distribution channels
necessary to communicate effectively with the media, employees, core constituencies, clients,
customers and stakeholders. The focus of the crisis communications function is to facilitate
the rapid de-escalation of the crisis through timely and effective communication methods.
Step5: Practice and Revise the crisis management:*Practice the plan: An organization that has a plan in place may be tempted to rest, wait
and hope the crisis never hits. But unless the plan is practiced it is like having a football team
that has never practiced.
*Revise the plan: The useful life of a crisis plan is three or four years. Restructuring, new
personnel and new goals require its updating. Every three years the plan should be given a
major revision. That is why annual updates are recommended.
ii)
For each of these channels it is important to maintain a consistent and accurate flow of
information. It should be through appropriate channels and to ensure a common context
across the channels.
Product recalls
ii)
Industrial accidents
iii)
Terrorist incidents
iv)
Protest action
v)
Industrial action
By developing a consistent planning framework that is regularly reviewed can also enhance
the companys capability to manage events more effectively.
9. Effective Spokesperson:
Depending in the nature of markets and the size of the organization, the organization may
need to consider professional help in this area. This may be through hiring spokesperson who
would work on companys behalf or training internal candidates to fulfill the role.
10. Apologize:
Some organizations appear to be institutionally incapable of saying sorry. Demonstrating the
understanding of the difficulties of the situation and its impact on people is necessary to
manage the impact of crisis. Instead of demonstrating empathy with people and, through the
other actions and preparations, demonstrate that the company has acted reasonably as an
organization.
Financial Resources: Managing the finances of the firm in an efficient manner is the
most important aspect of managing a business. It is the process of managing finance
involves cashflow management which is concerned with inflow and outflow of money
in and out of a business.
Natural resources: Any component of natural environment that can be utilized by
man to promote his welfare is considered as natural resource. A natural resource can
be substance, an energy unit or a natural process or phenomenon, e.g..land, soil,
water, forests, grassland etc.
Physical Resource: These are the tangible resource of a business. Physical resource
are the resource that business need to maintain in order to carry out its activities and it
includes things like building, plant and machinery, materials, supplies etc..,
Intangible resource: An overlooked business resource is any intangible resource
such as brand,image,goodwill or patents. Many business have a competitive
advantage and survive by just excelling in brand image.eg: Mcdonalds.
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2)Internal factors:These are factors which affect manpower internally.These includes the
following;
A. Company policies and Strategies: The organization policies and strategies relating to
expansion, diversification, etc..,determine manpower demand in terms of quality and
quantity.
B. Manpower policies:Manpower policies of the company regarding quality of
manpower,compensation level,quality of working conditions, etc..,influence manpower
planning.
C. Job analysis:Detailed study of the job including the skill needed for a particular
job.Manpower planning is based on job analysis which determines the kind of
employees to be procured.
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II.
III.
IV.
V.
VI.
GROWTH DIMENSIONS
Growth dimensions are the methods for the growth of business.
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GROWTH PHASES
Larry E Greiner has identified five stages in the growth of an organization each of which
begins with a prolonged period of peaceful growth
CREATIVITY
In this early stage, there are only few people in the company. They know each other well and
share their experience, knowledge, and information. All relevant issues are discussed among
all people. This is the typical creative start-up culture.
DIRECTION
Now the company is able to direct certain issues and tasks to certain people. Normally,
directives and control are highly centralized at this stage.
DELEGATION
Management delegates some tasks, functions and authorities to other people in the company.
Departments emerge and develop their own dynamics.
CO-ORDINATION
Projects and tasks are coordinated between all parts and departments of the company so that
they are well in tune with each other.
COLLABORATION
The co-operation between all parts of the company is so well organized that they really can
work together effectively in whatever situation.
GROWTH BARRIERS
Following are the main growth barriers for the business.
FINANCIAL BARRIERS
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These are the one of the biggest barriers to growth in business. The saying goes in
order to make money business should be willing to spend money, and this may be
particularly challenging for business.
ORGANISATIONAL BARRIERS
It can also be known as internal barriers these include managerial Capacity and
capability, skills and knowledge, objective of firm among other things. A start-up firm
may be well run by just a couple of individuals but as the company grows in size
fixed personnel will need to be employed to fill those gaps.
EXTERNAL BARRIERS
Michael Porter explains through five forces model the threats firms face when they
want to grow. But these are the same threats a company faces when they want to
grow. Any of these could affect the growth of a business.
SOCIAL BARRIERS
Recent studies have emphasized the need for networking trust and developing social
capital between entrepreneurs as ways if stimulating development and growth of
small enterprises.
LEGAL OR INSTITUTIONAL BARRIERS
Complicated laws rules and regulations can be big barriers when it comes to growth
of small companies. It may be in terms of unsuitable tax system and various
discriminatory legal regulations towards small firms that can really hinder their
capability
SUCCESSION STRATEGIES
Succession planning is described as having the right people in the right place at the right
time.
According to Bohlander and Snell, Succession planning is the process of identifying,
developing and tracking key individuals for executive positions.
Various succession planning strategies are follows;
VALUATION: The rule of thumb is that any time there is a transaction involving all
or part of the business, and then a valuation is recommended.
E.g.: competitors, customers or suppliers.
When appraising a company, a valuator generally uses one or more of the following
approaches,
1. Asset Approach: looks at the market value of the assets on the
balance sheet. It can also take into account items such as goodwill
2. Market approach: compares a business to recent sale prices of
similar companies in same and similar industries and conditions
(company size, geographic area etc.)
3. Income approach: looks at the income the business can produce. This
approach utilizes projections and other economic factors.
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BUY-SELL AGREEMENTS: These are a useful and flexible way to plan for
ownership succession. A Buy-sell agreement is a legally binding agreement between
or among shareholders and the company that requires the shareholders or the
company to purchase the stock of the business owner.
There are three types of buy-sell agreements;
1. Stock Redemption: It occurs when the business itself purchases stock from
the existing shareholders.
2. Cross Purchase: It is between shareholders. Agreement is to purchase the
shares of one another upon certain trigger events
3. Wait and See plans: These plans combine the redemption and cross purchase
strategies. They first allow the other shareholders to purchase stock and then
require the company to redeem the remaining shares.
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TRUSTS: These are widely used in estate and succession planning. The basic benefit
of trusts is that the assets contributed by business owners to some trust can be
excluded from their estates. This will reduce the size of the estate and the amount of
taxes paid.
SALE TO EMPLOYEES: These are two basic methods of doing so. The most
common is the employee stock ownership plan. An ESOP is a very flexible, tax
advantaged tool in succession planning. It can be combined with other ownership
succession strategies including majority family ownership or a management buyout.
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EXIT OF BUSINESS
Exit strategies are methods used by companies to discontinue products, business, or
relationships with customers or suppliers. Exit strategies are techniques used by companies to
abandon products, divisions, or even entire industries.
REASONS FOR EXITING
Business owners make difficult decisions all the time in business. One of toughest decisions
can be whether to close their company. Several reasons can exist for closing a business.
Economic Conditions: There are common reason for closing the business. Low
national economic growth often due to a recession or depression directly effects the
company operations.
Low Profits: The inability to generate sufficient business profits is a common reason
to close a company. Business owners spend money on inventory, production over
head and general business expenses in operating a company.
Unavailable Resources: Companies need economic resources to produce consumer
goods and services. Economic resources include land, labour and capital. Land
represents the natural resources found in an economy. Labour represents the human
resources available to convert raw materials into consumer products. Capital
represents money, facilities and other physical assets needed to run a business.
Tough Competition: Competition represents the number of companies in the
economic market competing for consumers. Small business can face difficult
competition when attempting to maintain sufficient market share.
Better Future Goals: If the entrepreneur feels that a better business can be setup that
other opportunities is more exciting and profitable, the closing the current business is
the best option. To start a new venture exiting the ongoing business is very important.
Liquidation: Business data struggling to survive may choose to liquidate their assets.
A common example of liquidation is the going out of business sale. When a
company liquidates it usually marks down the prices of its inventory to sell it quickly.
Friendly Sale: A business owner may choose to sell his or her enterprise in order to
retire or use the proceeds to start a new venture. This often occurs in family
businesses where the operation is passed from one family member to another.
The Life Style Company: In a life style company, the intent of the owner is to make
us possible for himself without planning for future expansion. All profits go directly
into her pocket instead of being put back into the business to help it grow, and
expenses are kept to the bare minimum.
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IPO: An Initial Public Offering (IPO) occurs when a privately owned business
decides to sell shares of stock to the public. This can be highly profitable for the
entrepreneur and investors, as this can generate a large amount of revenue in a short
period of time.
Mergers and Acquisition: with a merger or acquisition, the owner sells the
controlling interest in the business to another party but may still assume a smaller role
in the day to day operation. This strategy is often employed by an owner who wants to
live the business gradually without selling it out right.
Goals: The goals to accomplish in the near term and in the long term are essential
factors to consider in business. A big, dynamic and motivational goals highlight the
odds of success.
Resources: Regardless of the business, market or industry, availability of the right
mix of resources is the key to success. Buyers may also observe that whether the
organization has the right combination of human talent, technology, capacity and
financial resources to achieve the Companies goal.
Management: The quality of management team will generally be of paramount
importance to a purchaser, especially where one is proposing to leave the business at
the time of,or shortly after, a sale. It is important to be able to demonstrate to the
purchaser that there is competent second tire management available to assume
executive control of the business following a sale.
Diverse Customer Base: the old saying do not put all your eggs in one basket
rings true here. Because there is always a risk of losing a customer, the business will
attract more buyers if it has many customers.
Audit Contracts & Agreements: All written contracts should be reviewed to
determine when they expire, whether they are affected by a sale of the business or if
they remain accurately reflect current business dealings and economics.
Regulatory Compliances: a firm needs various permits license and regulatory
compliances to be able to conduct its business. Many of these clearances are difficult
to get, often, there are loan delays in getting such clearances.
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Preparing Documents: entrepreneur must gather all the financial statements and tax
returns dating back 3 to 4 years and to review them with an accountant. In addition,
develop a list of equipment that is being sold with the business.
Business Valuation: once the entrepreneur has decided to sell the business one must
determine the worth of business. The first step for valuation should be to locate a
business appraiser
Appoint financial advisor: there are a number of reasons why it is preferable for one
to engage in the services of a professional advisor to sell the business. These include
the ability of financial advisors to maintain confidentiality, there superior knowledge
of and access to potential purchasers and their negotiation skills.
Demonstration of trustworthiness: If an entrepreneur hides something from the
would be buyer and buyer finds out something disregarding, the buyer may flee out
of fear that one lacks of forthrightness signals that there are also other problems
Resolve Problems: Any pending or threatened litigation, customer complaints or
similar issues that may decrease the value of the business must be resolved.
Update Books: buyers will want to look at past years financial performances. Keep
audited balance sheets and profit and loss accounts of the previous years ready for
scrutiny by prospective buyers.
First Impression: the first impression counts a lot. So, keep the business ready to
impress the buyer at the first instants itself. The buyer should see a neat, orderly place
of business and well maintained books and smooth processes.
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