Group Corporate Profile

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What is the real crisis for an enterprise?

 

“The maximum crisis in the growing period of an enterprise is the incompatibility of resources and capacity of the enterprise. With the development, the enterprise will possess more and more resources, insufficient resources can be supplemented instantly. However, affected by the capacity enhancing curve, the improvement of capacity is very slow, which causes the conflict of development of the enterprise. It not only generates huge influences on formulation and execution of strategy, but can be clearly described by lever.”

————Zhang Landing, CYAMLAN Investment

In the globalization tide, the Chinese enterprises cluster has become the focus of the world due to the fast growth of China’s economy in the past ten years in the new century. When we turn our sight to those successful enterprises, we usually neglect the pressure on them because of heated competition, and less people will pay attention that many enterprises are still in loss, operation failure or at the edge of bankruptcy.

If these failed enterprises are willing to introduce modern management approaches and suitable implementation system to participate in market competition, a lot of failure could be avoided easily. In fact, the reality is the opposite. Most of the enterprises are indulged in the happiness of previous profits or success, have totally neglected the crisis that is just in front. Even crisis is appearing little by little, the enterprises are still feeling fine, that they were making money yesterday.

In the whole life evolution of the enterprises, due to rapid development of the economy, the change of development period of the industries are very fast. The economic journey of the developed countries in the past hundred years was completed in China in only a few years rapidly. Certainly, many enterprises ended before experiencing a whole life circle, and those passed the survival period have entered the next stage-growth.

Are companies safe after entering the growth period? In another word, what is the real crisis for an enterprise?

Despite of those uncontrolled external factors, the maximum crisis of enterprise in the growth period is the incompatibility of resources and capability of enterprise. With the development, the enterprise will possess more and more resources, insufficient resources can be supplemented instantly. However, affected by the capacity enhancing curve, the improvement of capacity is very slow, which causes the conflict of development of the enterprise. It not only generates huge influences on formulation and execution of strategy, but can be clearly described by lever.

In the establishment stage, enterprises usually have limited resources, and the requirements on the ability of deploying resources are relatively not high. In this stage, in order to survive, enterprises usually put business expansion on the first, in the range of business direction. Enterprises do not have many staffs, the information channel is quite short, and information transfer is direct, correct and fast, usually the founder makes decision independently. The advantages are high efficiency and strong control over the enterprise. In this period, even judgment mistakes were made, the loss is not big, and they can be turned very fast.

After the enterprise passes the initial establishment period and entered a growing stage, the decision making and the execution levers of the enterprise start to be expanded. A lot of employees are recruited. With the increase of employees, levels are added, and the information channels of the enterprise become longer, and information distortion appears a lot. The loss of failure in decision making or advantages in execution might exceed the total capital invested; even include all the subsequent profits, which are caused by the expanded functions of lever. Enterprise cannot only rely on the decision made by the entrepreneur alone, but must establish effective and suitable strategic implementation system. More generally speaking, this period is the period for team system working, when scientific analysis, decision making and execution is the basic requirements on the enterprise.

The reality is, after entering the growth period, many enterprises are still using the way of one-person decision making by the founder, who has very high random and non-system nature, and the risks of the enterprise are thus embedded. The prominent conflict between more and more resources created and possessed by the enterprise and the ability of the enterprise to control the resources will eventually create the crisis to the enterprise.

Because of this, the requirements on the enterprise’s controlling ability in the growing period are enhanced continuously. With the continuous growth of the enterprise, its resources are getting more and more. The incompatibility of such resources and ability brings a lot more crisis to the enterprise, and thus forms the conflict between resources and capacity. The intelligence of the ancient Chinese has clearly drawn a conclusion that it is difficult to establish a business but hard to keep it going.

How to solve this crisis?

Enterprise shall have planned to supplement its ability with the promotion of the development period and the increase of resources. Enterprise needs to have an open attitude to arrange those important and irreplaceable personnel to participate in training and practice of relevant knowledge and skills as soon as possible, or introduce personnel with relevant knowledge and skills into the enterprise, and keep improving the enterprise’s strategic implementation system.

At the same time, it shall be attended that purely introducing personnel with relevant skills into the enterprise might not be the best solution. Enterprise needs to solve problem systematically. Therefore, entrepreneurs might easily ignore the key point that whether the person introduced is to control the system or to design the system, as the result of the person introduce to drive a car or design the system of a car might be completely different. If we cannot distinguish, we will not only be unable to solve crisis but will accelerate the coming of the crisis.