finacial management -business failure

8/14/2019 Finacial Management -business failure

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Corporatefailure
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Can you recall fewCorporate failure?


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Corporate

failure

Why ENRON failed?
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Corporate

failure

Poor Corporate Governance

Poor Internal Control

Mislead Market Creditworthiness

Financial Stability
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Corporatefailure90% Organisations do not survive beyond 20 years

of their InceptionIn India Investment Worth $ 60 billion is held in sick units

It takes 8 years until venture may succeed

For Every successful venture there are 2 that fail

Close to 2 million bankruptcy in the world

Between 35 to 85 % of the products fail to make profit

More than 700 major computer firms failed

In 1990 There were more than $ 7 billon losses

among top 200 banks in the world


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What Could be the Symptoms of Corporate Failure?


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Corporate

failureSymptoms

Delay or default in Payment to SuppliersIrregularity in bank AccountDelay or default in Payment to BanksFrequent Requests for Credit

Decline in Capacity UtilizationLow Turnover of AssetsPoor Maintenance of P & MachineryInability to take trade discount

Excessive Manpower TurnoverExtension Of Accounting PeriodMisrepresentation in Fin. statementsDecline In price of Shares & Debenture


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Reasons forCorporatefailureWhen Organization Fail due to

BankruptcyLose Market ShareSlow Low ProfitsLosses for Long periods

LabourStrike

FailureOf MajorProduct

BadInvestment


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Corporate

failureExternal Factors

CompetitionChange In Govt. RegulationsScarcity Of InputsNew technologyShift In Consumers Preferenceetc


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Corporate

failure

Internal Factors

Managerial IncompetenceStructural RigidityLack Of Leadership

etc


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Corporate

failure

Production

Improper LocationWrong TechnologyUneconomic Plant SizeUnsuitable P & Machinery

Inadequate R&DPoor Maintenance

Managerial Incompetence


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Corporate

failure

Marketing

Inaccurate Demand Projections

Improper Product Mix

Wrong Product Positioning

Irrational Price Structure

Inadequate Sales PromotionHigh Distribution Costs

Poor Customer Service


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Corporate

failure

Finance

Wrong Capital StructureBad Investment DecisionsWeak Budgetary ControlInadequate MISPoor Mgt. Of Receivables

Bad Cash ManagementStrained Relations with

Capital SuppliersImproper Tax Planning


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Corporate

failure

Personnel

Ineffective LeadershipBad Labour RelationsInadequate Human RelationsOver Staffing

Weak Employee CommitmentIrrational Compensation Structure


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Corporate

failure4 Major Reasons Of Corporate Failure

1 Life Cycle Decline

2 Trapped by Past Success

3 Inappropriate Mental Models

4 Rigidity in Response to Crises


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Corporate

failure1 Life Cycle Decline

Product Life Cycle


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Corporate


Mass ProdnDisplaced

Agriculture

ServiceIndustryDisplacedMass Prod

Textiles toSteel

Chemicals..

NowComputers

&

Information


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Corporate


Makridakis(1991)

As new technologies emerge, the growth patternshift and New industries and firm appears andprosper.

At the same time, the older ones become lessCompetitive and lose their real or relative advantageThey lose their dynamism and their potential toGenerate adequate return on investment

As they eventually slow down, they are merged intoOther companies, are bought out or stop operatingaltogether


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Corporate

failure2 Trapped By Past Success

Miller -1992

Ironically, the underlying strategies and

processes to both corporate successand failure are often substantially similar

In fact it appears that when taken to excess the same

Thing That drives success -focused, tried and truestrategies, confident leadership, galvanized corporatecultures and Especially the interplay of all these

elements- also cause decline


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Leaders who challenged the

status-quoWinstonChurchill

Leader

Conversion from coalpower to oil power

Oil powered Royal Navyfew knots faster thancoal powered navy

Comments

Paramjit Sharma

A coal-poweredBritish Navy

Challenge
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Corporate

failure3 Mental Models

a)Considering Present information ignoring environmental changes

IBMFocused Attention

On MainframeComputers

Lost Business toApple and CompaqIn personalcomputing


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Corporate

failure3 Mental Models

b) Considering environmental changesas temporary fad

Singer SewingMachine sales

dipped

Could not believeThe change


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Corporate

failure4Rigidity in Response to CRISIS

Rigid Posture decreasesChances of successfulAdaptation and survival


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Corporate

failureAssignment for next week

1 What are Mergers, takeover and amalgamation?..What are important reasons for mergers?Explain few Indian examples with complexities

2 What are the reasons of Corporate failures?Is there few escape routes? Explain

C
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Corporate

failure

thanks

finacial management -business failure

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