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Covid, war, energy crisis, inflation. All this is simultaneously present in the modern world economy. Even one of these factors can be enough to cause the economies of entire countries to plummet, and many companies to fail, go bankrupt or cease to exist. Thus, the current situation is “accumulatively unfavorable”. Tamas Dobay, founder and chief controller of control1.hu, took on Computerworld’s questions about crisis management and crisis management success factors with over 20 years of experience.
Computerworld: What are the first signs of an approaching crisis in the life of the company?
Tamas Dobay: There are always good and bad times and seasonal fluctuations in the life of companies, but this can be completely independent of the crisis. Because what is a crisis? This is a situation where there is a permanent, modern disorder in the life of a business from which it cannot get out. Unfortunately, it is not clear by what signs one can draw a conclusion about the approaching crisis. For example, when Lehman Brothers collapsed in 2008, no one predicted that this would lead to serious global problems. Recognized experts said that there was no need to intervene, the incident would not have dramatic consequences. However, it soon became clear that they were greatly mistaken. The Lehman Brothers case shocked the global financial market. Therefore, there are not always clear signs of an approaching crisis. Nevertheless, it is worth and even necessary to keep an eye on the buyers and suppliers markets, their various indicators, price conjuncture, terms of trade, etc. Controlling, ERP and the internal control system help a lot in this. This makes it easy to see what is consistently different from the norm. Particular attention should be paid to adverse symptoms that do not go away even after a long time.
CW: What counts as big time?
Tamas Dobay: He chooses his industry. In the market for consumer goods, i.e. FMCG, short term and long term are considered to be completely different, as in shipbuilding for example. In the FMCG market, the symptoms of a crisis can appear within a few months, while in the shipbuilding industry it can take years.
CW: What about the market for IT devices, electronic goods and parts?
Tamas Dobay: This is one of the fastest changing markets. As a result, all manufacturing activities related to the production or integration of electronic components, such as computers and mobile phones, can change incredibly quickly. If, for example, customers outbid themselves—there have been examples of this—and build up huge inventories, they suddenly cancel their further orders. In such cases, the first reaction of producers is to stop for a while and, as usual, immediately begin to reduce. The number of line and direct workers will almost certainly begin to decline. There have been many examples of major crashes in the electronics industry. Many companies have had to undergo a massive reorganization.
CW: What is the first thing to do if the problems in the company do not subside?
Tamas Dobay: It is essential that we understand the root causes of the crisis. Controlling supports this. In addition, it is necessary to find out and understand what consequences the crisis will have inside the company. Then crisis management should begin immediately. As a first step, companies usually become much stricter about costs, removing the old “looseness”. However, it doesn’t matter which costs are cut. A common reflex, for example, is that marketing costs are reduced because it is a large article and its positive effect is immediately obvious. This is the positive side of moving. At the same time, marketing restraint naturally has a market effect. This is the other side of this step. However, the decline in sales and revenue comes later.
KV: Does the controller support these retreating actions or suggest a flight forward?
Tamas Dobay: I mostly believe in running away. Unfortunately, there are far fewer examples of this than digressions. It is best to create a strategic crisis management plan in advance, before signs of a crisis appear. But it is desirable, for example, to look for niche markets that are not covered by other players and where you can get additional profit. If these options are sufficiently prepared, then, if necessary, a quick exit to the affected areas is possible. I want to note that, as experience shows, the crisis also has a “positive” side, whether it be TNCs or SMEs. Companies are realizing that they can do things much more efficiently and at a much lower cost than before. In other words: it turns out that this product can be produced much cheaper.
CW: Which industries are more or less sensitive to the crisis?
Tamas Dobay: When there is a comprehensive crisis affecting the entire economy of the country, a reflex is triggered, a falling demand for consumer durables. This usually affects the automotive industry, consumer electronics and the real estate market. People put off buying new refrigerators, new cars, or big apartments. This move affects the lives of other participants in the value chain, i.e. businesses serving the industries in question. Experience shows that the luxury market is much less prone to crises and rising prices. I would like to emphasize that the current crisis affecting the global economy is completely different from any previous crisis. Not only is there a war, but next to it there was (is) an epidemic, and now we have to reckon with the energy crisis and inflation. I would not go into a discussion of the reasons for the latter, the fact is that inflation is one of the determining factors in the life and future of companies.
CW: Were you ready for this or can you be ready for any crisis?
Tamas Dobay: To some extent yes, but not quite. For this you need a crystal ball. However, if a company uses, for example, the opportunities provided by controlling, it has a much better chance of coping with crises. One of the cornerstones of controlling is ERP, that is, a properly structured data set. Without it, decisions can only be made on the basis of feelings, which in a crisis situation can be fatal.
CW: How much does the size of a company affect how crisis prone a business is?
Tamas Dobay: In general, the principle prevails that the larger the company, the more stable and crisis-resistant it is. Of course, the big ones also feel the crisis, but they have more room to maneuver against it than the small ones. However, company size alone is not a sufficient condition for a company to survive a crisis. We have seen giant companies fail. As I said, the current crisis is different from all previous ones. We are also fighting an energy crisis that is closely linked to political developments. The result is still unpredictable. The consequences can also seriously affect b for giant companies, but smaller companies tend to be more exposed to adverse environmental conditions.
CW: Could you give a concrete example of successful or unsuccessful crisis management from your own practice?
Tamas Dobay: Even before Covid, we were contacted by a small domestic furniture manufacturer. The young entrepreneur was already in an almost fatal situation. The company had to take loans, it could not feed itself. After we checked the cost structure, it turned out that they miscalculated the cost. After the recalculation, the sales prices had to be adjusted. Of course, this led to the loss of some buyers, but the majority remained, appreciating the good quality. The company is still successfully operating today. Unfortunately, there are other examples as well. Last year, when inflation took over, we were approached by a food company much larger than the furniture industry. They approached me with a request that we calculate their costs due to their rapidly deteriorating results so that their pricing is on a firm basis and they can make appropriate decisions. We started work but couldn’t finish it. The owner approached us and handed over the project to the manager, who, apparently, did not see the point in this. We did not receive the requested data and could not consult regularly. A few months later, citing cost considerations, they abandoned the project, which was probably the worst possible decision in the given macroeconomic conditions. I wonder how long they will last, but without knowing exactly calculated and quickly updated costs, I do not predict a long successful future for them. I will only note in brackets that I have not met a domestic SME, where the cost price would have been calculated correctly – if there is one at all.
CW: What are the key success factors for crisis management?
Tamas Dobay: The most important thing is competent management, because if the problem is not understood at the highest level, nothing good can be expected. But this in itself is not a guarantee of success. The next important success factor is ERP and controlling, with which you can predict what is expected in case of a decision – this is critical in the event of a crisis. Even the best manager is a “lame duck” without exact numbers and information. Last but not least, I would like to mention the organizational structure and corporate culture. When everything is done as usual, almost any organization can cope with everyday life, but when it is necessary to quickly and flexibly respond to changing circumstances in a crisis, it becomes clear whether a company is well or poorly organized. Especially for large companies consisting of several divisions. In these cases, some teams are almost autonomous, every detail of their work hard to see for top management. Thus, the entire corporate culture that affects the organization as a whole is critical. Perhaps the phrase “data is the new oil” sounds familiar. Dealing with a major crisis without quality data and information is likely to be “Mission Impossible”. I have only one piece of advice: measure, measure, measure!
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