Introduction
Efforts made to bankruptcy, bankruptcy and liquidation of companies with financial problems or difficulties are greater than to their prevention and rehabilitation.
Although from the legal point of view it is given a certain possibility of overcoming the crisis through the contest or the extrajudicial preventive agreement, very little has been investigated about how to carry out this recovery.
As in the case of a disease, the main thing is a good diagnosis that, reaching the root cause of the inconveniences, allows to overcome not only the situation but also to restructure the company in its essence.
Those who try to solve the problem of the company by resorting to financial measures and agreement do nothing more than attack the symptoms and postpone the recurrence of the fundamental problems.
One would have to wonder how many companies that resort to the contest manage to emerge stronger from this situation, and how many are those that can continue to exist after five years. With total security, the situation faced by these companies is even more serious than those that existed before their first call to tender.
The lack of a global vision of the problem, where the internal processes of the company and its relationship with the environment are addressed, prevents the company from being redirected into a state of harmony and balance that allows it to continue generating value.
An examination of each facet of the organization is essential to discover the reason for its problems and thus find the appropriate remedies for its rehabilitation. But much more important than achieving rehabilitation is prevention. Planning activities and continuous diagnosis and evaluation work are essential to avoid falling into a situation of financial imbalance, and if such a situation occurs, discover it quickly enough, knowing how to also recognize the main causes in order to avoid the risk. progress of "financial disease".
The economic, financial and equity indices or indicators of a company show only one situation and its interrelationships, but do not show the root causes that generate the inconveniences. Without reaching these causes, it is impossible to find a solution to the imbalances.
Just as in a cut diamond depending on the perspective we adopt, the image we perceive will be, in the same way our perception of the problems and inconveniences of a company will depend on the point of view we adopt for its analysis and understanding, although all these perceptions and these points of view converge in a single nucleus that is the company.
The life cycle of organizations
Organizations have a life cycle comprised of a succession of phases. Thus, they are born, grow, age and die, responding in each of these phases to predictable patterns of behavior. In each of these phases, these patterns manifest themselves in the form of difficulties, tensions, struggles or evolutionary transition problems that the system has to overcome. The system often fails to resolve them, giving rise to imbalances that require external intervention.
Organizations like living organisms have their life cycles, suffering the struggles and difficulties of each stage of the organizational life cycle.
While in the first phases of the life cycle we have the existence of abundant energy and flexibility, as this cycle passes the organization loses energy and flexibility, becoming more bureaucratic, cautious, and stagnant.
Thus, some organizations are suffering from hardening of the arteries and stiffness in the joints. In many cases the victims are still young when the progressive disease of organizational arthritis strikes. They gradually become stiff and inflexible.
But while in living beings this cycle cannot be prevented, and can only try to extend the period of time of each stage, in organizations it is feasible to fight against the trend. That is why it is feasible to adopt measures to resist trends or, recognizing the symptoms, adopt the appropriate measures to revive and strengthen the company.
The danger of the first stages is the lack of control, which can lead to wasting energy or resources, or to undertake activities of high risk without measuring the consequences, being one of the reasons for the high number of companies that die in their early stages. But in older companies, excessive controls and bureaucracy, excessive formalism, being trapped in the triumphs of the past, tend to stagnate them, preventing rapid readjustment and adaptability to new market and environment conditions.
Some companies develop their different phases quickly, while others do so very slowly. In the former it is feasible to avoid the acceleration of the processes that lead to its rapid extinction, while in the latter it is possible to give rise to the cultural changes necessary to prolong its stages of strength and energy.
Each phase has its symptoms of diseases or conflicts typical of organizational development, knowing how to interpret and adopt the appropriate measures is what will prevent the breakdown and imbalance that will end up making a dent in corporate finances.
Lack of focus
In the decathlon an athlete receives the award for being the most complete, but if he competed with the best in each of the activities such as running, jumping or javelin throwing, he would lose by a lot. In business activities, no prize is awarded for being the most complete and venturing into many activities will make you lose in each of them against the best.
As in the case of a laser that concentrates energy allows cutting steel, in the same way a company that concentrates its energies has greater power in the market. Many companies by blurring lose this power. The question is why? Well, because nobody is good at everything. And even being better in many activities, it is always more profitable to focus on those that generate a greater absolute and relative performance.
Thus many companies begin to add new lines and even internal activities. This generates an accumulation of waste of resources, increases internal disorder, loses position in the market, they become confusing for their clients regarding their value offer.
Companies are out of focus in the search for growth, for which they constantly add new markets, new products, new services, new lines, acquire companies. While growth may be an admirable goal, the pursuit of growth for growth's sake is a serious strategic mistake. This quest for growth is the main reason why many companies lose focus.
Call it line extension or diversification or synergy or any other recognized management philosophy, the drive to grow has caused companies to blur. That is why a company like IBM can have $ 63 billion in revenue and still lose $ 8 billion, or General Motors can have $ 133 billion in revenue and $ 23 billion in losses.
It is not just the pursuit of growth that creates blur in an organization. The blurring itself appears as a natural phenomenon. A business almost always begins with a very focused focus on one product, service, or market. Over time, it becomes unfocused by offering too many products and services for too many markets and at too many different price levels. Losing his sense of direction, he doesn't know where he is going and why. The statement of its strategic mission is gradually losing meaning.
In small companies, excess diversification makes losing control of the rotation of the various products and at the same time prevents concentrating energy on those activities that generate greater profitability. The 80/20 principle is clear about this. 80% of the activities or products generate 20% of the profits, while the other 20% of activities, products or services give rise to 80% of the profits. It is here, in the loss of resources and energy in the many trivial, instead of concentrating the efforts in the few vital, where the cause of the disengagement and financial imbalance lies.
Refocusing the company by detaching itself from all those activities, products and processes that generate low returns or losses is of fundamental importance to cut the drain on resources.
Inefficient and ineffective business management
Not achieving the objectives set for the organization is serious, but it is even more serious not to be effective, but to do it efficiently. Like the orthopedic surgeon who cut a leg faster and at a lower cost, but cutting the wrong leg. Many companies carry this very special and particular way of doing business, which is to put all the effort and dedication to be as efficient as possible by doing the wrong thing.
However, it is not only important to achieve the objectives, but they must also be achieved with the least use of resources, that is, efficiently. Achieving such efficiency implies firstly avoiding the generation of waste or waste, and secondly detecting it and proceeding to its systematic elimination.
Many companies obtain great benefits in times of economic boom, but they do not obtain all the benefits that are feasible to achieve due to indifference and lack of controls. When the good times are over, that same behavior leads them to significant losses, not counting on the resources that they could have conserved from the high profit times.
Thus, it can be seen that inefficiency prevents the generation of better returns in good times, and generates greater losses in bad times. A good use of resources would allow higher profits in the boom stage that when saved would balance the results of less fruitful stages. But at the same time being efficient reduces the losses of a lean period and even makes it possible to generate profits.
It is this lack of ability to think about changes (waste in Japanese), to focus on them, preventing, detecting and eliminating them, which ends up increasing liabilities, weakening the flow of funds and generating losses for the organization.
Strategic errors and lack of adaptation to changes
Failure to recognize one's own strengths and weaknesses and those of competitors, failure to capture and understand opportunities and threats in a timely manner, lack of sensitivity to understand changes in the market and in the economy, makes organizations lose balance.
Balance and harmony both internally and with the environment, which it must have to avoid incurring in unfortunate tactics and strategies. Looking is not the same as seeing. Many look at the passing of events, but few see the reason for them. An entrepreneur must have the ability to see.
Failure to see the change in cycles in time leads companies to misplaced investments in terms of both time and form and objectives. This causes a mismatch (it is no longer framed) between their income and financial commitments.
Wanting to go up to a cycle that is ending is another serious business mistake, or else consider that if they obtained strong profits with certain resources, it is convenient to double or triple the resources allocated to it. All resource allocation must be proportional and balanced both with the size of the market and with the financial capacity of the company.
All of this is directly related to both the lack of capacity for effective decision-making and for optimal risk management. Not being aware of restrictions, losing sight of the odds, and not adopting safeguards inevitably lead to lack of control and financial disaster.
Serious internal control shortcomings
It cannot be controlled without having a good information system at the same time. Having information is essential both to control and to make effective decisions. Therefore one of the crucial issues is to start by monitoring the effectiveness of the information system.
Signing checks believing you have resources that you don't really have is quite common. Many see in the bottomless check fraud, when in reality there is more an attitude of fraud product of not adopting the measures conducive to having a reliable information system.
Regarding the fraudulent acts that lead a company to its disappearance, on the one hand we have the person or persons implicated as scammers, but we also have the serious shortcomings of internal control that made such fraud possible.
The lack of internal control not only leaves room for fraud, it also leads to incorrect decisions, failure to comply with legal regulations, failure to adopt the minimum measures in terms of insurance, waste of resources and loss of customers and consumers.
Improving controls is essential when trying to stabilize finances. It is impossible to stay afloat until the holes through which resources are happily lost are plugged. Working harder is useless if part of the income leaks out as a result of a lack of internal control.
Irrational behavior
In a continuum between rationality and irrationality as extremes, there are no totally rational or irrational entrepreneurs. Rather, they are located closer to one extreme than the other. Being aware that others adopt irrational attitudes is rational, timely and correct, making irrational decisions is inopportune and suicidal. Recognizing the emotionality that drives the decisions and attitudes of clients, suppliers, employees, and members of society is necessary, otherwise it would be acting out of context, but this should never lead the employer to act under emotional impulse and merely intuitive (regardless of the importance of intuition). Knowing how to take advantage of the emotions of others is something useful, in addition to taking measures to avoid falling into this attitude.
An entrepreneur cannot buy a machine for a matter of status, he must buy it after a deep analysis about the benefits that it will bring for the future of the company, methodically comparing its returns with those offered by other suppliers.
Pursuing size, volume, status, presence, is a very common inclination in human beings in their search for power and recognition. The question is to become aware of this inclination to avoid incurring it. Thus, before each decision, the employer or manager must ask himself about the reason for it, and if he is not acting under an emotional and irrational inclination.
The excitement leads entrepreneurs to expensive advertisements beyond their true returns, just by showing themselves to the broad television audience in search of recognition. Others hire more staff than necessary just to be kind or want to satisfy someone. Many are inclined towards bigger buildings, more computing, everything bigger, modern and of the latest generation, beyond real and authentic and logical needs.
The uncontrolled and irrational use of resources can only herald a ruinous end, something that is seen in both small and large entrepreneurs. Not knowing how to recognize and control their own patterns of behavior leads entrepreneurs to deep imbalances.
How to prevent and correct problems
If the root causes of financial imbalances and inconveniences are taken into account, not only a list of errors or shortcomings that should not be incurred may be drawn up, but also a list or questionnaire intended to periodically monitor and evaluate the company.
Among the main issues that must be controlled and verified continuously and systematically we have:
- The analysis of our paradigms and those in force in society at a given moment The needs of the market, the shortcomings or strengths of our competitors, verifying and analyzing the situation of our company against them Permanently monitor technological changes, cultural, social, political, and economic. Search in these changes for the existence of threats and opportunities for our company. Keep the organization within manageable proportions, thereby seeking harmony between the various sectors, activities and processes of the organization. Question what each employee or sector does. Why? Your real need.
The value they add to the end consumer.
- Wondering about the need or rationale for each activity and process. Analyze if it is done in the most efficient way. Is there fluidity in vertical and horizontal communication? Are offices kept open to receive staff? Are there ways to receive suggestions, alerts or comments? Is the directory interested in contacting staff? Do you regularly visit their workplaces? If there are problems, do the bosses go to visit the real workplace? Is there a policy and system for continuous improvement? Is progress made controlled? How many hierarchical levels are there? Can they be reduced? Are there sectors that are not strategic can be outsourced? How focused or unfocused is the organization? It is regularly verified that decisions are based on the mission, values,Company objectives and plans? Is there a continuous planning state? The decisions are mostly intuitive or rational, based on data analysis? Are statistics of internal operations and external changes kept? In what phase Are the company's products and services in terms of their life cycle? How many new products or services the company launches annually on the market? What percentage of the revenues correspond to the products and services launched in the last five years? Is it monitored? quality and poor quality costs? Is there a system in place to prevent,detect and eliminate waste? Is a survey and evaluation of internal control carried out on a regular basis? How effective are the information systems? Is there a participatory philosophy? Is it really fulfilled? What is the level of customer and employee turnover? What is the level of versatility of our employees? How flexible is our production system? What is happening with the levels of quality, productivity, costs and times of reply.How bureaucratic are our administrative processes? How much of the overall cost and / or budget are absorbed by office costs? How productive are bureaucratic-administrative activities? How close or distant are employees and managers in their daily behavior and interrelation Is there resistance to change? How strong is she? Are there contradictions between what the management proclaims and its subsequent actions? Does the policy of prizes and rewards are in contradiction with the objectives set? Over time do the same problems continue? Have the root causes been resolved or not? What is the work environment? Is the quality of the work environment regularly monitored? Apart from the financial audit, operational, social,cultural and administrative? Is creativity and innovation promoted? Does the company culture adapt to the current situation of the environment? Are the strategic plans adequate? Or should they be changed? Our reasoning responds to mechanistic or systemic criteria? How committed are the employees to the progress of the company? Is the progress of the company regularly reported to all staff? The staff participates in the profits of the company ? Are there regular training and training plans for staff? What is the positioning of the company and its products in the market? Is there a management of the brands? At board meetings there is a thoughtful and free expression analysis? lean (or lean) is our production process? How efficiently is the flow of funds managed? Are there budgets forTreasury? A cost-benefit analysis is always applied at all times? Is our marketing strategy adequate or not? How competitive are we in the market? How good is our internal control system? How high is the quality of our products, services and processes? How correct are our decisions? Do we have elements to calculate the various probabilities? We make decisions based on probabilities? How well or poorly do we manage the various risks? Is there learning management in the company? How Does the number of suggestions from employees evolve? How many Quality Control Circles are formed in the company? What percentage of the company's staff participates in the Quality Control Circles? Is the reason for the changes in indicators and ratios really known financial,economic and financial assets of the company? What is the degree of centralization of the company? Owners and managers abide by the successes of the past? How much inertia weighs in the decisions of senior management and directors? better functioning of the company or are they a stumbling block in the communications, information and motivation of the staff? The staff know the plans, objectives, values,and company policies? Are all staff kept abreast of the results obtained? Is there an agile information and alert system? Are deviations between what was planned and what was obtained analyzed? Are Statistical Process Control implemented? Decisions are made based on a Statistical Process Control? The cause or reason for the departure of employees and customers is analyzed? The company is focused on production, sales or marketing? Do you really know the current secrets of the business? Recognize the points and aspects keys to the business, and how are they evolving? How many transcendent changes have occurred in recent years in the activity, and which are expected to take place in the coming years? How compatible are the sectoral objectives with the objectives of the company as a whole ?to sales or marketing? Do you really know the current secrets of the business? Recognize the key points and aspects of the business, and how they are evolving? How many transcendent changes have occurred in recent years in the activity, and which are expected to take place in the next few years? How compatible are the sectoral objectives with the objectives of the company as a whole?to sales or marketing? Do you really know the current secrets of the business? Recognize the key points and aspects of the business, and how they are evolving? How many transcendent changes have occurred in recent years in the activity, and which are expected to take place in the next few years? How compatible are the sectoral objectives with the objectives of the company as a whole?
By dedicating time daily to the above questions and questions, we will be in a position to prevent errors, but also to detect problems and shortcomings in time, finding the solution in them.
Knowing how to ask the right questions and in due course allow us to find the correct answers. Wondering about whether or not we should do it, and in what way; and then ask ourselves if what we did was correct or not; and finally, if the results obtained have been as expected, it is an efficient way to discipline oneself in the good administration of the company and the efficient use of its resources.
Conclusions
It is essential for the good financial performance of the company that each sector as such and the company as a whole carry out effectively and efficiently the activities necessary for its proper functioning.
The harmony and balance of finances are a reflection of the harmony and balance in the activities and processes of the company. A company that produces poor quality goods will generate low demand for its products, leading to lower revenues and high levels of waste. Producing goods with a good final quality, but that are not obtained the first time, generates huge costs for repairs and waste. A high-end product without a good sales system or an ineffective credit system will also generate liquidity problems, which will lead to subsequent problems in solvency.
Therefore, it is not enough to obtain profits, it is also necessary to have a degree of liquidity and solvency adequate for normal operation.
It is not in the financial indices or indicators where we will find the answer to the evils and inconveniences, but in the way in which the company is managed.
Questioning and reflecting daily on the progress of the company is the fundamental and crucial task of managers. That is what they are paid for, for them to think, meditate and reasons about the past, present and future performance of the corporation.
Today managers must have not only reactive and preventive capacity, but also proactive. To the extent that the rules of the game can change, their propensity to be totally dependent on the external framework will decrease. It is no longer about working within limits, but working with them.
As in the case of a diabetic, financial problems are the result of a lack of control, discipline and planning. Thus, to the extent that the information systems are incorporated and improved, a more effective control will be feasible, in such a way as to adopt the appropriate and necessary changes to redirect the company's progress. But to be able to carry out the control better, it is necessary to have plans that tell us where we want and should be, in order to continuously make adjustments. How in the case of airplanes knowing where we want to go and where we are allows us to make adjustments to achieve the objective. Discipline is required both for planning and control, but above all to execute actions in such a way as to get as close to the planned objectives as possible.
Bibliography
Financial rehabilitation of companies - Mauricio Lefcovich - www.degerencia.com - 2004
Kaizen. Waste detection, prevention and elimination - Mauricio Lefcovich - www.gestipolis.com - 2004
Traditional companies versus new competitive companies - Mauricio Lefcovich - www.degerencia.com - 2004
Internal audit. A systemic approach and continuous improvement - Mauricio Lefcovich - www.gestiopolis.com - 2003
The little ones and the causes of their failures - Mauricio Lefcovich - www.degerencia.com - 2004
Kaizen Finance - Mauricio Lefcovich - www.winred.com - 2004
