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THE TIMELINE AND
PHASES OF
BUSINESS CRISIS
03
Core problems:
• Business leaders react
with a large time
delay
• If the leaders indicate
a crisis, the causes of
the crisis have often
already taken full
effect (and cannot be
remedied in the short
term)
• Permanent risk
analysis required
Crises rarely
(never) come
overnight
0
10
20
30
40
50
60
70
80
90
100
5+ Years 4 Years 3 Years 2 Years 1 Year 0
Identifiability of crises
Turnover in Milion EUR
Source: Roland Berger – based on an Analysis of 800 Restructuring Cases
Crisis in operating
results
Liquidity
Crisis
Objective
identifiability
of the crisis (in %)
Time
Business crises often
unfold in waves.
In the meantime, there
are often deceptive
phases of relaxation
which lead owners and
management to believe
that the crisis has been
overcome.
Simplified
Model of
Crises
Turning Point
End of the crisis
– continued
existence
End of the crisis
- liquidation /
discontinuation of
business operations
Time
Probability
of
survival
The beginning of the crisis
Potential
turning point
Implementation of
restructuring measures
Potential
turning point
Business crises usually
follow a typical course. In
practice, individual
phases can be of varying
length, and sometimes a
phase is skipped. As a
rule, the more advanced
the crisis is, the more
difficult and expensive it
is to resolve. Later in this
module we will deal with
the individual phases in
detail.
The Typical
Course of a
Crisis
Stakeholder
Crisis Strategy Crisis
Product /
Sales Crisis
Earnings
Crisis
Liquidity
Crisis Insolvency
• Sustainable
• conflicts at
stakeholder
level: Blockade
of
• essential
decisions
• Acceptance of
negative
developments
• No clear vision
• Inadequate
customer
orientation
• Products at
maturity
• Missed
technological
developments /
inadequate
vertical
integration
• Company is still
making profits
• Decline in sales
• Price and margin
pressure
• Rising stocks
• Capital tied up
• Capacity under-
utilisation
• Earnings decline
if no counter-
measures
implemented
• Decline in sales
continues
• Company
reacts with
cost-cutting
• Decline in
profit, losses,
decrease in
equity
• Raising capital
becomes more
difficult (credit
rating declines)
• Utilised credit
lines
• Waiver of
discounts
• Increase in
liabilities due
• Payment
delay
• Supply
bottlenecks
• Insolvency
risk
• Impending
insolvency
• Over-
indebtedness
• Occurred
insolvency
Revenue / Profit /Liquidity
Uncertainty
about
succession /
management
No / wrong
mission
statement
No
competitiveness
Consumption
of assets
(decrease in
equity ...)
No
reserve(s) /
financial
scope
Loss of
Decision-
Making
Authority
Weak
leadership
Products not
in line with
the market
Decline in
earnings
Consumption
of liquid
funds
(Impending)
insolvency
Loss of a
major
customer /
order
Claims for
damages
Massive loss
of
receivables
Direct occurrence
of crisis (external triggers)
The entry into a business
crisis is independent of
the crisis phase
"currently" identified.
An immediate entry into
advanced phases - usually
triggered by external
effects - is also possible.
Typical Cause-
and-Effect
Relationships
vs. Direct Entry
Stakeholder
Crisis Strategy Crisis
Product /
Sales Crisis
Earnings
Crisis
Liquidity
Crisis Insolvency
Succession? Succession? Succession? Succession? Succession?
Mission
Statement?
Mission
Statement?
Mission
Statement?
Mission
Statement?
Products? Products? Products?
Equity? Equity?
Liquid
Funds?
Pressure to react
Product / Sales
Within the ideal
typical course of a
business crisis, the
problem areas to be
solved AND the
pressure to react
increase.
Problem
Areas and
Pressure
(examples)
Stakeholder
Crisis Strategy Crisis
Product /
Sales Crisis
Earnings
Crisis
Liquidity
Crisis Insolvency
DELVE DEEPER
Small business in a time of crisis: A five stage model of
business grief – ScienceDirect
Our SECure lead partner Atlantic Technological
University and their team of Simon Stephens,
Christopher McLaughlin, Katrina McLaughlin,
published a fascinating research paper on Small
business in a time of crisis: A five stage model of
business grief.
In the paper, they examine the implications that a
crisis such as that created by COVID-19 has for the
psychological well-being of small business owners.
They use the psychological literature on grief,
specifically, the Kübler-Ross (1969) Five Stage Model
of Grief to examine the impacts.
Journal of Business Venturing Insights,
Volume 16, 2021, e00282, ISSN 2352-6734,
https://doi.org/10.1016/j.jbvi.2021.e00282.
READ
https://www.sciencedirect.com/science/article/pii/S235267
3421000603
DELVE DEEPER
Their review of the literature indicates that although
there are critics of a stage based approach there are also
advocates for the use of stages to help us frame and
understand the manifestations of grief. Data was
collected from forty small business owners based in
Ireland. Data was collected five times over a period of six
months (March–September 2020). The outcome is a five-
stage model of business grief. The findings provide
insights into the emotional relationship between an
owner and their small business. They propose that a
business closure can cause small business owners to
grieve in a manner that aligns with a series of stages and
that these stages can be modelled and illustrated.
Journal of Business Venturing Insights,
Volume 16, 2021, e00282, ISSN 2352-6734,
https://doi.org/10.1016/j.jbvi.2021.e00282.
READ
https://www.sciencedirect.com/science/article/pii/S235267
3421000603

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Module 3 - The Timeline and Phases of a Business Crisis.pptx

  • 1. THE TIMELINE AND PHASES OF BUSINESS CRISIS 03
  • 2. Core problems: • Business leaders react with a large time delay • If the leaders indicate a crisis, the causes of the crisis have often already taken full effect (and cannot be remedied in the short term) • Permanent risk analysis required Crises rarely (never) come overnight 0 10 20 30 40 50 60 70 80 90 100 5+ Years 4 Years 3 Years 2 Years 1 Year 0 Identifiability of crises Turnover in Milion EUR Source: Roland Berger – based on an Analysis of 800 Restructuring Cases Crisis in operating results Liquidity Crisis Objective identifiability of the crisis (in %) Time
  • 3. Business crises often unfold in waves. In the meantime, there are often deceptive phases of relaxation which lead owners and management to believe that the crisis has been overcome. Simplified Model of Crises Turning Point End of the crisis – continued existence End of the crisis - liquidation / discontinuation of business operations Time Probability of survival The beginning of the crisis Potential turning point Implementation of restructuring measures Potential turning point
  • 4. Business crises usually follow a typical course. In practice, individual phases can be of varying length, and sometimes a phase is skipped. As a rule, the more advanced the crisis is, the more difficult and expensive it is to resolve. Later in this module we will deal with the individual phases in detail. The Typical Course of a Crisis Stakeholder Crisis Strategy Crisis Product / Sales Crisis Earnings Crisis Liquidity Crisis Insolvency • Sustainable • conflicts at stakeholder level: Blockade of • essential decisions • Acceptance of negative developments • No clear vision • Inadequate customer orientation • Products at maturity • Missed technological developments / inadequate vertical integration • Company is still making profits • Decline in sales • Price and margin pressure • Rising stocks • Capital tied up • Capacity under- utilisation • Earnings decline if no counter- measures implemented • Decline in sales continues • Company reacts with cost-cutting • Decline in profit, losses, decrease in equity • Raising capital becomes more difficult (credit rating declines) • Utilised credit lines • Waiver of discounts • Increase in liabilities due • Payment delay • Supply bottlenecks • Insolvency risk • Impending insolvency • Over- indebtedness • Occurred insolvency Revenue / Profit /Liquidity
  • 5. Uncertainty about succession / management No / wrong mission statement No competitiveness Consumption of assets (decrease in equity ...) No reserve(s) / financial scope Loss of Decision- Making Authority Weak leadership Products not in line with the market Decline in earnings Consumption of liquid funds (Impending) insolvency Loss of a major customer / order Claims for damages Massive loss of receivables Direct occurrence of crisis (external triggers) The entry into a business crisis is independent of the crisis phase "currently" identified. An immediate entry into advanced phases - usually triggered by external effects - is also possible. Typical Cause- and-Effect Relationships vs. Direct Entry Stakeholder Crisis Strategy Crisis Product / Sales Crisis Earnings Crisis Liquidity Crisis Insolvency
  • 6. Succession? Succession? Succession? Succession? Succession? Mission Statement? Mission Statement? Mission Statement? Mission Statement? Products? Products? Products? Equity? Equity? Liquid Funds? Pressure to react Product / Sales Within the ideal typical course of a business crisis, the problem areas to be solved AND the pressure to react increase. Problem Areas and Pressure (examples) Stakeholder Crisis Strategy Crisis Product / Sales Crisis Earnings Crisis Liquidity Crisis Insolvency
  • 7. DELVE DEEPER Small business in a time of crisis: A five stage model of business grief – ScienceDirect Our SECure lead partner Atlantic Technological University and their team of Simon Stephens, Christopher McLaughlin, Katrina McLaughlin, published a fascinating research paper on Small business in a time of crisis: A five stage model of business grief. In the paper, they examine the implications that a crisis such as that created by COVID-19 has for the psychological well-being of small business owners. They use the psychological literature on grief, specifically, the Kübler-Ross (1969) Five Stage Model of Grief to examine the impacts. Journal of Business Venturing Insights, Volume 16, 2021, e00282, ISSN 2352-6734, https://doi.org/10.1016/j.jbvi.2021.e00282. READ https://www.sciencedirect.com/science/article/pii/S235267 3421000603
  • 8. DELVE DEEPER Their review of the literature indicates that although there are critics of a stage based approach there are also advocates for the use of stages to help us frame and understand the manifestations of grief. Data was collected from forty small business owners based in Ireland. Data was collected five times over a period of six months (March–September 2020). The outcome is a five- stage model of business grief. The findings provide insights into the emotional relationship between an owner and their small business. They propose that a business closure can cause small business owners to grieve in a manner that aligns with a series of stages and that these stages can be modelled and illustrated. Journal of Business Venturing Insights, Volume 16, 2021, e00282, ISSN 2352-6734, https://doi.org/10.1016/j.jbvi.2021.e00282. READ https://www.sciencedirect.com/science/article/pii/S235267 3421000603