"Never waste a good crisis" is a frequently quoted motto when the market faces challenging times. However, many crises within companies are self-inflicted, only exacerbated and ruthlessly exposed by adverse market developments. This underscores the importance of identifying internal early warning signs and drivers to successfully navigate companies through turbulent periods.
The obvious indicators, such as declining sales or lack of profitability, often become apparent at a late stage. Prior to this, there are qualitative signs that signal a crisis. Ultimately, it is a combination of unresolved quantitative and qualitative factors that, when viewed holistically, reveal the need for action.
Top management must be able to identify and interpret these signals and their interactions early on and act promptly to avert or effectively manage a crisis. Unfortunately, as our survey of 200 CxOs from manufacturing companies indicates, structural adjustments are often initiated too late, with 71 percent of respondents agreeing.
So, how does a crisis develop within a company, and what are the signs indicating undesirable developments and the need for transformation?
1. Governance and strategy: misguiding vision or missing “big picture”
Unbalanced governance structures within a company are a very early warning sign. Often, incomplete or unclear lines of authority, or missing or vacant committees, impede decision-making processes. Important decisions are delayed or made under false assumptions, leading to an incomplete or unfounded corporate vision and strategy. If top management overlooks or ignores important trends and disruptive developments, and thereby misses growth opportunities, it becomes detrimental to the business. Failure to adapt to new technologies or trends, unsuccessful acquisitions, or poor investments can lead the company into peril. Clearly defined decision-making bodies are essential to achieve a radical realignment of strategy in such cases.