1. Introduction
Activity levels and organizational structures may or may not conform. This means for the specific case of a commercial company, that given a certain level of sales or provision of services, said company may have a structure of controls, information, decision making, management, planning and logistics, among others, that allows it to operate effectively and efficiently; that is, it allows you to achieve the objectives with the least use of resources and therefore achieve the highest profitability and competitiveness.
The most common is to record operations that exceed the capabilities of the system, but on other occasions there are usually structures that are greater than the actual needs.
These structures must accompany the growth of the company, supporting it and making healthy operations possible in the medium and long term.
Of course, structural changes must be accompanied or even more preceded by a change of mentality. Thinking small is not the same as thinking big, so entrepreneurs and managers must change the way they think and see the company, the market and the respective strategies based on new needs and requirements.
It can be said that a good part of the business debacle is due to this lack of mental and structural adjustment to the highest operating levels of the company. The other key factor to consider is the lack of updating the company to market requirements, adjusting to technological, economic-financial, political, socio-cultural and consumer changes, among others.
This work will focus on problems related to the gap between structures and levels of operations, keeping their development in parallel with what is called the life cycle of organizations. In this regard, reality teaches that through its development a company must face a series of crises that affect its performance and sometimes threaten its survival. These crises have to do both with the internal development of the company and with the crises generated by external changes.
Internal crises are more or less universal in nature and are fundamentally related to the adaptive tensions that all processes of change bring to organisms of a social nature.
Recognizing the existence of an organizational life cycle characteristic of a structure of processes and offers, as long as they are not readapted over time, and the changes that this entails in internal and external needs, is essential for a correct analysis, diagnosis and treatment of the situation.
2. First steps
An individual or a group of them start an activity on the basis of generating useful added value for consumers, and therefore demandable by them. In this first stage, if it is a small or medium business, the request for advice is usually limited to corporate, tax, labor, accounting and advertising aspects.
Planning is not subject to consultation and is usually the question on which no external party can access. It is an exclusive land of the founders and owners of the company. Who will dare or dare to tell these entrepreneurs what to do with their time and money?
Avoiding bureaucracy, placing the utmost trust in staff, actively participating in all decisions, and doing everything according to the owner's criteria and wishes is classic.
In this first stage it is about making the company known, gaining space and gaining a greater market share every day. This implies sacrifice, and a great care of the expenses on the part of the owners, who control their evolution every day.
That planning, organization, direction and control is carried out responding to instinct and / or experience, asking for advice here and there, without coordination and a total vision of the business. You do not get to have an understanding of the company as a system.
Growth and business opportunities are often limited by both structure and lack of financial capacity. In many occasions the funds are owned, but the necessary structure to accompany decisions and projects is lacking.
In this first stage, the dangers lie in wait: the overconfidence that makes fraud possible, the lack of an adequate information system that prevents monitoring costs and profitability, not having an adequate credit and collection system, and all this added up in numerous opportunities lack of experience.
In larger companies, the past successes of their owners in other activities make them boast of having the virtue or ability to turn any activity into “gold”. With this they take all the steps to easily fall into disaster. Applying approaches that were useful in one activity to others only allows them to learn that this is not always feasible.
3. Opening new paths
Consolidating the company in its early stages, owners and managers begin to better understand the secrets and critical aspects of operations, the staff has more experience and this is seen in the highest levels of productivity.
The question is: what happens if managers still do not get to know the secrets of the activity or their employees do not improve productivity levels?
The answer is: the growth of the company will be limited quickly. To know the secrets and critical points, it is not only enough to accumulate experience, but to study and manage knowledge in the organization, something that is extended to both officials and their staff.
Without this continuous management, mistakes will continue to be made, there will be no continuous improvement, one day something will be done well and the next day the old mistakes will be repeated. Costs will not decrease, customer service levels will not improve, and profitability will trend downward. Customers will soon tire of repeating mistakes and look for new suppliers, other competitors with better prices and quality levels will appear on the horizon with enough strength to displace the company from the market.
The few controls that allowed and made feasible the first stage, begin to turn against as the organization grows. An impetus towards new areas and new products, coupled with new employees, the lack of a strong organizational culture that supports growth and the lack of adequate information and control systems lead to slow growth. Meanwhile, sales can continue to grow, this is thanks to new products, services and customers, and at the cost of the loss of old customers, as well as increased staff turnover. Monetary income tends to outweigh losses, so there is no awareness of the situation. All this is feasible due to the lack of an adequate and effective management control. “Hidden costs” are becoming critical,those that are not shredded in the accounting and in their results table, but that end up affecting the last line of the results table.
At the staff level, a lack or very restricted delegation policy by managers tends to disadvantage customer service, increases costs, preventing officials or managers from concentrating on strategic aspects. In short, managers live "putting out fires."
The amounts that are managed, as well as the number of operations, are too high to be able to operate without due synchronization at both the operational, commercial and financial levels. The mismatches are leaving their scars on financial costs. Excess inventories and supplies, accompanied by growing bank debt, are restricting the ability of managers to maneuver.
Unbridled growth leads to a loss of focus, which consequently brings a continuous degradation in the company's competitiveness.
The question to ask now is: does such a situation always take place in companies during the development of the second phase? For powerful companies with financial potential and the ability to hire experienced officials, it generally must be said no.
But for traditional SMEs it is quite typical to say yes. The owners of the latter, intoxicated with their previous triumphs, and with their current income growth, can only see part of the situation, considering that they do not need or require any type of external support.
And when they request it, they do so only on a financial level, completely unaware of the human and structural aspects of the situation.
It is not possible to really understand the situation, also lacking a lack of systemic vision, which leads to making decisions that end up generating adverse effects.
Thus, if costs increase, they reduce costs through selected suppliers based on the lower price, maintenance activities decrease, they eliminate training hours, and so on in other aspects. They are completely unaware of what strategic activities and costs are. Therefore, the reduction of costs through the limitation or elimination of such activities leads to a second phase of higher costs by monetary units of sales and to a successive degradation of benefits and profitability.
This is how companies find a strong ceiling for their growth.
4. The ceiling: third phase in the life cycle
We have chosen to put a stop to the previous situation through strong controls, a decision that completely ignores the cost of the levels of control. It goes from a stage of strong lack of control with high costs motivated by fraud, errors in decisions due to incorrect information and lack of budgetary controls, to a total reversal, where extremism in controls prevents better customer service, decision-making is They have become even more centralized, and bureaucratic costs tend to increase irrationally.
Bad policy and human resource management begins at this stage to become very expensive. Indiscipline, lack of motivation and lack of teamwork are the daily and natural. No one is willing or able to take the lead. It is at the top but everyone begins to sense the decline, they begin to become aware of the turn in the journey.
There comes a time when the loss of sales and customers are greater than the new customers and their purchases, with which the sales curve begins to decline, and with it the excess of employees, the legal problems that cause their suspension or dismissal, the drop in customer service levels, which further increases the collapse of sales.
5. The fall
Fourth phase: the fall. The best employees have already left the company, and with it their experiences and capabilities. These are replaced by low productivity employees and without any commitment to the company. The level of turnover of both employees and customers is increasing. The levels of quality, productivity, satisfaction, costs and response times, move away from the main competitors.
The best clients are long gone. He begins to make a living from fringe customers, from the most expensive to serve, from the least profitable, from the worst payers.
Loss of focus, and consequently loss of positioning, pride of owners and managers, structural mismatch with the market and the growth of the company, lack of strategic plans and high levels of waste, lead the company to a state on the brink of its disappearance.
Alarms begin to sound in banking institutions, loans are scarce, they become more expensive and with increasingly shorter terms and with greater guarantees.
Pride has prevented its managers from discovering paradigms that were no longer valid to continue running the company.
Believing that what was valid in its first steps could continue to be valid in subsequent steps, added to changes in the environment, end up inflicting a very strong blow to the company. The reaction margins are getting smaller. The more delicate the situation, the more stubborn their managers are in continuing to make wrong policies. They change, but they change for the worse. Ignorance of the company as a system, and of it within a larger system, prevents it from taking effective measures.
6. Permanent Monitoring and Turnaround
There are two ways to avoid this disastrous journey described above. One implement permanent monitoring that continuously monitoring the different ratios, not only financial, but also quality, productivity, customer and employee satisfaction and the situation compared to competitors, allows the company to adopt on time the necessary changes to straighten your gear. How to carry out this monitoring? through the implementation of a Balanced Scorecard; since this not only takes into account the financial aspects but also the quality of the processes, the response of its clients and the degree of understanding of its employees, allowing the setting of strategic and operational goals, being able to follow the approach of the company to the same in the course of time, and thus be able to adopt corrective measures.
On the other hand, the Turnaround or business reengineering, implies a radical change in the vision and management of the company, which allows it to regain its ability to generate economic value. The managers recognize the situation the company is going through, and they look for external support to start a process of financial rehabilitation. They rebuild their finances by regenerating the ability to produce high-value goods and services at a reasonable cost.
"Reengineering a company's business," says G. Schmitt, "using the turnaround means reversing performance, from a stage of decline and failure to one of recovery and success."
The more the company has advanced in the course of its life cycle, that is, the more phases its structural disease has advanced, the faster, more profound and important the changes and restructuring that are implemented must be. There is less room for error and more forceful leadership will be needed.
To put the ship safe in a strong storm at sea requires a good helmsman, that helmsman is the one who must lead the company making the changes in front that are necessary to save the company taking it to a good port.
The leader and effective teamwork are the keys to from there apply the management tools and techniques that are necessary. Without adequate human resources willing to fight to save the organization, it has little chance of saving itself, or being definitively marginalized from the competition.
It is through the turnaround that dysfunctionalities must be detected in time and a drastic turn to the situation must be launched. Making the company competitive again is the objective, and for this it is essential to apply both diagnosis and business reengineering.
7. Conclusions
Companies or entities are not obliged to perish, but as long as their structures are not updated and adapted to the environment, as long as they are forced to travel on roads for which their organizational structure is not adequate, the danger of advancing through the different phases until putting at risk its own existence is a reality.
Being aware of the need to adapt paradigms, structures, processes and products and services to the different realities of the moment is essential to allow the company to continue being competitive. The ability of a company to be competitive and profitable depends on the recognition that the consumer makes of the products and services that it offers and the price that the consumer is willing to pay.
Discontinuities in the external context will force companies to make a constant effort to adapt to different realities, so we can affirm that in the long term, companies must remain in a continuous attitude and readiness for change.
In 1985 Fortune magazine only listed in its list of the five hundred largest companies in the United States, a total of 187 that it had reported in 1955. According to W. Tunstall, the reasons for so many failures or disappearances are largely due Part of the lack of ability of companies to adapt to changes in the context.
Companies like Coca Cola are currently readapting to the situation in the environment; and to this is its permanent success, others such as the Panam airline did not know how to adapt on time, despite its size, ending up disappearing. When the largest company is, the most difficult errors are to correct or the greater the costs of them. For the latter, we can give an example to General Motors and its monumental layoffs.
Chrysler knew how to fall into phases that brought it to the brink of extinction, but found the leader and the necessary work group to save it and give it life and the ability to compete again.
The Encyclopedia Britannica was hacked by its paradigms and lack of adaptation to new technologies and market needs. Encarta, a product from an industry outside the publishing world displaced it in the tastes and desires of consumers.
Xerox was quick enough to recognize the advancement of Japan's Canon and react in time using an exceptional benchmarking strategy.
8. Annex
Symptoms of a quantitative type that indicate the existence of causes that require profound change actions.
- Decrease in profitability. Losses in the bottom line of the balance sheet. Impairments in the contribution margin. Decreases in sales. Increases in manufacturing or service costs. Relative increases in administration, marketing and financial costs. debt indicators. Decreases in the level of investments. Abrupt increases or decreases in inventory levels. Abrupt decreases or increases in dividends. Impairments in equity value.
Among the qualitative symptoms that serve as pre-announcements or warnings of problems we have:
- Disorientations regarding the company's strategy.Absence of clear objectives.Problems in information systems and in management control.Heavy and bureaucratized organizational structures.Imbalances in the allocation of resources.Problems of leadership.Increasing customer satisfaction and Consumers. Decrease in staff motivation and high turnover. Decrease in the quality of products. Decrease in the productivity of resources. Excessive centralization in decision-making. Lack of anticipation of changes in the external context. technological development. Lack of a policy and strategy of prevention and continuous improvement.
9. Bibliography
Life cycles of the organization - Ichak Adizes - Editorial Díaz de Santos - 1988
Turnaround. Business Reengineering - Guillermo Schmitt. Atlántida Publishing House - 1994
Business Financial Rehabilitation - Mauricio Lefcovich - www.gestiopolis.com - 2004
