Management mistakes as causes of corporate crises: Managerial implications for countries in transition

Abstract

A corporate crisis can be defined as a short-term, undesired, unfavourable and critical state in a company, which has derived from both internal and external causes and which directly endangers the further existence and growth of the company. Although the state of crisis in the company can be affected by various interrelated external and internal causes, which vary by company as to intensity and appearance, the essence of the causes surely lies in the management of the company. During the country's period of transition, all types of explained management mistakes could be found in Slovene corporate systems. Despite the fact that the hypothesis that a pattern of management mistakes follows changes in the political and economic environment cannot be completely reliably confirmed, some outlines of such patterns are seen, in spite of everything. If there really is a more or less valid pattern of management mistakes in corporate crises and these mistakes appear differently with regard to changes in the political and economical environment in countries in transition, this could help decision-makers, who are in the process of appointing new crisis or restructuring managers, make better choices, every time, according to the managers' most appropriate competencies.

Keywords:

• crisis
• internal causes
• management mistakes
• restructuring
• transition
• Slovenia

Notes

‘Sooner or later, every business will be confronted with a crisis of some type. Its ability to manage the crisis successfully can mean the difference between survival and disaster’ (Spillan, 2003, p. 161).

Cf. for example, Barnett and Pratt, 2000; Barton, 1993; Buchalik, 2004; Fink, 1986; Grünert, 2007; Heath, 1998; Kraus and Becker-Kolle, 2004; Lerbinger, 1997; Leupin, 1998; Mitroff et al., 2006; Moore and Seymour, 2005; Neubauer, 1999; Roux-Dufort, 2003; Slatter, 1987; Smith, 2006.

Roux-Dufort (2003) indicates the following equation of a crisis: ‘crisis=accumulation of ruined equilibriums+ignorance of management’, pointing out the insufficient ‘vigilance’ of management.

Some sources are, for example, Bellinger (1962), Buth and Hermanns (2004), Kraus and Becker-Kolle (2004), Mitroff et al. (2006), Müller (1986), Pate (1999), Richardson (1994), Slatter (1987), Turner and Pidgeon (1997), Wildemann (2004) and www.infoquelle.de (accessed January 31, 2007).

Or also ‘polymorphous phenomenon’ (Hensen et al., 2003). Mellahi and Wilkinson (2004) state that the organisational failure is connectively influenced by environmental factors (technological uncertainty, regulatory changes, economic changes), ecological factors (density, size, age, industry life-cycle), organisational factors (management tenure, homogeneity and successions, past performance) and psychological factors (managerial perceptions).

We debate on the most characteristic and frequent reactions of the management to the emerged situation, while it might not be necessary that, in the case in question, all characteristics are present or in this succession.

Hartley (2005) divides management mistakes in two groups: mistakes of omission (no action was taken) and mistakes of commission (bad decision, wrong actions taken, etc.).

Avoiding adoption of important strategic decisions is, by the way, often typical of a management directly prior to its departure or retirement, when it attempts to avoid possible risks resulting from strategic decisions, which is probably not beneficial for the company.

There is no ‘right’ or ‘wrong’ in making business decisions – decision-making is not like mathematics where you can prove that something is ‘right’. ‘… Business decision-making is far more situational – the right decision today is really just the “best decision” based on the current situation, what is known, and what the options are’ (Kow, 2004, p. 28).

It can be concluded from the stated excursus that the position of an individual company within an industry must be monitored from the perspective of the circumstances in the industry, which can be identical to the economic conditions in the region or the country; it may also be better or even much worse.

‘One natural way to facilitate moral outcomes is through organizational cultures where certain principles, norms, and values are internalised and fully motivating’ (Smith, 2005, p. 163).