Management Mistakes as Causes of Corporate
Crises: Countries in Transition
Drago Dubrovski
A corporate crisis can be defined as a short-term, undesired, un-
favourable 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 in-
ternal causes, which as to intensity and appearance vary by company,
the essence of the causes surely lies in the management of the company.
During the period of transition all types of explained management mis-
takes could be found in Slovene corporate systems. Despite the fact that
the hypothesis of an existing pattern of management mistakes which
follows the changes in political and economic environment cannot be
completely reliably confirmed, some outlines of such a pattern are in
spite of all to be seen. If there is really 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 envi-
ronment in countries in transition, this could help decision makers to
form a more grounded choice in the process of appointing new crisis or
restructuring managers, every time according to their most appropriate
competencies.
Key Words: crisis, internal causes, management mistakes,
restructuring, transition, Slovenia
jEL Classification: mio
Introduction
From business practice and academic literature it is well known that
management mistakes can be a prevailing internal cause of corporate
crisis. However, the management mistakes are usually treated as a homo-
geneous group, neglecting that they are actually deriving from different
bases, circumstances and periods. A classification of management mis-
takes is sometimes recommended, especially when crisis solving or radi-
cal changes are needed in a company in order to improve the chances for
further existence and faster development.
Dr Drago Dubrovski is an Assistant Professor at the Faculty
of Management Koper, University of Primorska, Slovenia.
Managing Global Transitions 5 (4): 333-354
In this empirical and comparative article we tried to find and form a
pattern of management mistakes characteristic for a country in transi-
tion. Based on several empirical researches and the author's own strate-
gic management and restructuring consultancy practice in 55 companies
from various branches in Slovenia from 1994-2006, working also as crisis
management, some managerial implications are formed as a conclusion
to the paper. Despite the fact that the hypothesis of an existing pattern
of management mistakes which follows the changes in the political and
economic environment cannot be completely reliably confirmed, some
outlines of such a pattern are in spite of all to be seen.
This article starts with an explanation of definitions of some individ-
ual categories needed, which follows in the empirical part. A connection
between management mistakes and corporate crisis is explained. On the
basis of theoretical background and summaries from empirical findings,
the concluding remarks are formed, together with applicable recommen-
dations for business practice and further theoretical researches by using
the case of Slovenia, which could also be applied in many related coun-
tries in transition.
Crisis and its Characteristics
In everyday reports, various professional studies, entrepreneurial and
corporate papers one can often encounter quotes about natural disasters,
various conflicts, business difficulties of larger and smaller proportions
affecting companies, particular industries and even countries, which are,
in one way or another, linked to crises. A crisis is an often used term
for difficult, dangerous and future decisive situations and refers to an
extremely wide area of natural, social, economic and mental processes
(e. g., political crisis, economic crisis, financial crisis, oil crisis, environ-
mental crisis, moral crisis, crisis of art, crisis of values, health crisis,
middle-age crisis, etc.). In colloquial language the term crisis most of-
ten has a predominantly negative connotation, since it is connected to
most varied unpleasant situations, and difficulties.
In regard to our debate we are interested in a company crisis (i. e. cor-
porate or organisational crisis), referring to business or non-profitable
and manufacturing or service organisations.
A crisis is inseparably connected to contemporary companies (organi-
sations). With the rise of complexity of companies, which is interactively
connected to various social spheres, the possibilities for the emergence
of a crisis rise again, while the range of causes that can lead to a crisis
also rises. If all other crises are added to this domain, we may consent
that a crisis is as 'inevitable as death and taxes' (Fink 1986, 67) in today's
business. '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).
When talking about a company crisis, a crisis can be defined as a short-
term, undesired, unfavourable and critical state in the company which
has derived from both internal and external causes and which directly
endangers the further existence and growth of the company (Dubrovski
2004b; cf. Barnett and Pratt 2000; Barton 1993, 2; Buchalik 2004, 30;
Fink 1986, 15; Heath 1998, 13; Kraus and Becker-Kolle 2004; Lerbinger
1997,4; Mitroff, Pauchant, and Shrivastava 2006,51; Moore and Seymour
2005,	31; Neubauer 1999, 8; Roux-Dufort 2003, 51; Slatter 1987, 61; Smith
2006,	7).
It is exactly from the indicated characteristics of critical circumstances,
in which the management might find itself, that particularities of manag-
ing a company in crisis differ from the 'classical' strategic management.
Crisis management is of short-term nature, by all means, when the sur-
vival of the company must be given priority in comparison to develop-
mental objectives. Crisis management, therefore, is a particular part of
the contemporary strategic management, characteristic of a company in
serious difficulties, when the afore - mentioned characteristics of emer-
gency circumstances are to be accounted for. Due to ever rising turbu-
lences in the internal and external environment, the 'classical' manage-
ment actually acquires a rising number of characteristics of crisis man-
agement.
Hart, Heyse, and Boin (2001) point out that the practice of crisis man-
agement has significantly changed during the recent period, which is in-
dicated by the following characteristics (cf. Boin and Lagadec 2000): the
society has transitioned from the industrial into a more risky one, glob-
alisation enables a more rapid and simplified movement of products,
services, technology, people and information, therefore, in the environ-
ment of such a complex network of links the level of risk increases; if
the level of safety in the society increases, the people and institutions be-
come more vulnerable when something unpleasant, dangerous happens;
instead of a heroic answer to a crisis, multi-domain and cross-border
measures are required (a crisis affects both the local and the regional as
well as the national level, occasionally the multinational as well); instead
of episodic measures during a crisis, a continuous crisis management is
to be developed (preventive and curative treatment and learning from
the crisis).
A crisis, therefore, is an initiator and orienteer of rebuilding a com-
pany. Most often, a prior solution of an acute crisis, which could lead
a company not only backwards but even into a downfall, is a precondi-
tion for the achievement of renewal of a company. Successful renewal of
a company is often a consequence of a previous severe crisis, since re-
constructing the corporate processes and structures that enable efficient
and successful operation would not have taken place if the company had
not been forced to change the (less successful) methods of operation and
strategic orientations.
Here, referring to the supplied and stated definition of a crisis, a crisis
usually emerges due to an intertwined impact of external and internal
causes, and an analysis of these and of their connectivity is of key signif-
icance for healing, i. e. for overcoming crisis.
Symptoms are to be Detected and Causes of Crisis Resolved
SYMPTOMS OF CRISIS
Symptoms are signals which point to or predict a crisis. Their timely de-
tection and response by the company, with proper actions and activities,
can abate consequences the of an already present crisis or even prevent it.
It is, therefore, of extreme importance not to overlook, disregard or un-
derestimate these signals, although they are not to be substituted with the
actual causes of the crisis. Symptoms of the crisis, one may say, simulta-
neously permit various causes of the crisis; they signal - at the same time
- the crisis, yet without being the cause of its origin.
Symptoms occur in different areas and often appear to be combined
and linked together. It is very important to take into account that there
is a time gap between their emergence and occurrence (process, appear-
ance) towards which these signals point. Due to this, it is all the more
more dangerous if the company does not perceive these warning signals
or disregards them. When the signals are perceived, they are to be ana-
lyzed and interpreted in order to determine causes for the emergence of
the events which indicate them, and to do away with or abate the causes
by using proper measures and approaches.
In real life situations, many unsuccessful attempts are made to solve a
crisis due to an inappropriate approach at the very beginning (Augustine
2000, 3; Platt 1998, 133). Numerous assessments of crisis presence and
the measures required to solve it are based solely on various analyses of
accounting reports (balance sheet, statement of condition, statement of
financial flows and consequently derived indicators), while overlooking
the fact that the accounting reports be a solely recorded consequences
of past decisions and it is not necessary that the accounting reports are
trustworthy reflection of the present state of conditions in the company.
The accounting reports are absolutely necessary for the analysis of the
present position of the company, however, they are not sufficient to reach
the decisions for solving a potential state of crisis.
Perception of clear and underscored symptoms of a crisis cannot, in
principle, represent a problematic task in case of a thorough and suffi-
ciently well skilled management (Roux-Dufort (2003, 23) indicates the
following equation of a crisis: 'crisis = accumulation of ruined equilib-
riums + ignorance of management', pointing out the insufficient 'vig-
ilance' of management). Most often, even continuous and direct com-
munication with personnel and with the representatives of organisations
from the environment and repeated presence in the key locations of the
corporate process (visits to consumers and suppliers, warehouse inspec-
tions, inspections of the manufacturing process, etc.) should be sufficient
and can have a beneficial impact, among other factors, on the motiva-
tion of the employees (the so called management by walking-around).
An accurate interpretation of the causes for the emergence of a crisis and
possibilities for its removal is, indeed, a more complex task.
In the period of emergence of a crisis the management plays a vital
significant role in regard to timely and sufficiently watchful perception
of the symptoms indicating a potential crisis. If the management does
not react to these symptoms or reacts incorrectly, the crisis is almost in-
evitable.
CAUSES OF CRISIS
In comparison with symptoms, on the other hand, which only point to
the state of crisis, the causes are actually 'responsible' for the present po-
sition. When talking about crisis solving, one must consequently analyze
and do away with its causes without focusing on its symptoms. The anal-
ysis of proper causes of occurrence of a certain state is of extreme impor-
tance since it identifies those areas (processes, appearances, events) the
effects of which must be restrained and reduced. Addressing the wrong
causes means further useless waste of time, money and effort, which only
intensifies the state of crisis.
In spite of the fact that the literature states various classifications of the
causes of crises (some sources are e. g. Bellinger (1962,58), Buth and Her-
manns (2004), Kraus and Becker-Kolle (2004,15-16), Mitroff, Pauchant,
and Shrivastava (2006, 51), Müller (1986), Pate (1999, 55), Richardson
(1994), Slatter (1987, 25-55), Turner and Pidgeon (1997), Wildemann
(2004,193)), it is nevertheless possible to say that the definitions of the
causes are, more or less, similar but differ in their terminology, time
when they were drafted, the domain that they refer to and the type of
business which is predominant.
The causes of emergence of crises may be divided into: external, and
internal.
The external causes of crises are usually those that have emerged in the
environment of a company, while the latter had no significant influence
on their emergence. Therefore, they are frequently denominated as ob-
jective or exogenous. The internal causes, on the other hand, are those
that have emerged within a company and, hence, are denominated as
subjective and endogenous.
The external causes, therefore, are certain changes in the environment
of a company that have not been timely recognised by the latter and have
not been timely and appropriately reacted to. The same change in the
environment can have an unfavourable and retarding symbol for one
company, while having a favourable and accelerative indication for an-
other. Since the change is the only constant in today's life and business,
crises actually continuously emerge.
Even state aids can be classified among the external causes, in spite of
the fact that the budgetary funds were particularly intended for resolving
or preventing crises, if the management of a company does not prepare
or accept appropriate measures due to the external funds received, but
seems satisfied with cosmetic corrections, which can only postpone the
emergence of a crisis (more on this in the last section).
Examples of the internal causes can be found in the following domains
(Dubrovski 2004a, 37-38):
•	improper competences of the management,
•	retarding organisation,
•	uncompetitive market position,
•	problems in the personnel management domain,
•	over-expensive production,
•	neglected financial function,
•	inefficient informational system, etc.
The listed causes are to be treated as a helping-tool in analysing the
position of a company, since it must accounted for that each company,
along with its processes, products, history and the involved participants,
represents a peculiar corporate system and, therefore, must also be stud-
ied as such.
For the emergence of a crisis the management frequently 'blames'
a particular individual, i. e. the last event (actually the trigger) that is
merely the last drop over the brim; the reasons for the crisis are to be
sought in all other drops that have filled the glass to the top. The motive
is the direct effective cause, while the crisis actually emerges on its basis.
The motive can be lesser, in principle a less significant event that trig-
gers a chain reaction of all other impacts, whereas their roots (causes)
might extend for many years back into the past. As well as in regard to
symptoms, it must be pointed out that the motive is not the fundamen-
tal cause for the crisis but the cause is still to be discovered. Resolving
the crisis, therefore, must not be orientated exclusively towards the mo-
tives, since these would not have been fatal if the factual causes that had
brought about the culmination of problems, i. e. the crisis itself, had not
been previously present.
An analysis of the true causes for the emergence of a certain state
is of extreme significance, since those domains (processes, phenomena,
events), regarding which the effects are to be limited or done away with,
are identified by utilising the analysis. Dealing with erroneous causes
represents a further useless loss of time, money and efforts, which only
makes the critical situation even more acute.
Although the external causes play the key role for the emergence of a
corporate crisis in many cases, those that emerge within a company it-
self nevertheless predominate. The external environment, in principle,
represents the aggregate of uncontrollable variables that have to be ad-
justed to by the company, along with its internal processes, structures,
strategies and the marketing mix, which represent the aggregate of con-
trollable variables. If a company does not adjust to the external variables,
then it may be possible that the internal causes exist for this reason. Or to
put it differently: potential external causes of a crisis can be successfully
eliminated by internal changes (adjustments) in the company.
It was already pointed out in defining a crisis that, in principle, both
internal as well as external causes, when intertwined, brought about
a critical situation (the so called multi-causability of a crisis or also
'polymorphous phenomenon' according to Hensen, Desouza, and Kraft
(2003)). Mellahi and Wilkinson (2004) state that the organizational fail-
ure is connectively influenced by environmental factors (technological
uncertainty, regulatory changes, economic changes), ecological factors
(density, size, age, industry life-cycle), organizational factors (manage-
ment tenure, homogeneity and successions, past performance) and psy-
chological factors (managerial perceptions). According to Hamilton and
Micklethwait (2006,1) the main causes of failure can be grouped into six
categories: poor strategic decisions; overexpansion and ill-judged acqui-
sitions; dominant cEos; greed, hubris and the desire for power; failure
of internal controls at all levels from the top downwards; and ineffectual
or ineffective boards.
When the management merely analyzes the causes it, almost without
exception, overestimates the external causes while underestimating the
internal ones, which is reasonable since the latter are a direct criticism
of the same management up to the point in time in question. Therefore,
in the case of a detailed analysis of the causes, an objective and neu-
tral, - with regard to the implementer -, overview of the causes must be
certainly prepared, which may be most effectively carried out by skilled
consultants, owners, debtors, industrial experts and others, and not be
left to the existing management.
Researches also show that people tend to overestimate their own in-
fluence on successes while they blame failure on external uncontrollable
factors (Mellahi and Wilkinson 2004).
The key cognition in this part of the debate is that the analysis of the
causes of a crisis must not be left solely to the views of the (existing) man-
agement, since its selection of causes can lead to a wrongful resolution of
the crisis, which only deepens the latter.
Management Behaviour in the Crisis Evolution Process
In regard to a company, the consequences of a crisis are visible both in-
ternally as externally. Generally they can be classified into two groups:
•	worsening of the indicators of the business performance (profitabil-
ity),
•	altered behaviour of the involved participants.
Decline causes managers to dislike and avoid one another, conceal in-
formation, and deny responsibility. Secrecy, blame, isolation, avoidance,
lack of respect, and feelings of helplessness create a culture that makes
an already bad situation even worse. Once a company is caught in this
spiral, it is hard to simply stop and reverse direction (Kanter 2003). In a
stressful situation managerial inflexibility usually increases (Slatter 1987,
67) and shortens the time horizon (short-term values become more im-
portant).
When a company faces a critical state, in most cases the behaviour of
internal (employees, the management, unions) and external participants
(owners, debtors, suppliers, competitors, consumers, state institutions)
alters, representing different reactions (even serious conflicts) to such a
state of the company.
Even in a normally operational company natural contradictions in
expressed interests (e. g. employees and owners, insured and uninsured
creditors) exist and are balanced (counter-weighted) in normal circum-
stances. Thus the company actualises the interests of all participants. In
an acute crisis the balances are lost, since each participant attempts to
secure its own interests that can only be achieved by the way of violat-
ing the interest domain of another participant. Contradictions, there-
fore, extremely strengthen during an acute crisis, and the divergence of
interests is more intensified. Regarding their role and position, not all
participants of a company have the same interest nor the same power or
influence. Since individual participants attempt to achieve different ben-
efits, their interest behaviour is also different, both inside the company
as well as outside it, or generally in regard to it.
This cognition is of key importance for crisis healing projects and
must not be neglected nor underestimated by the crisis management in
any case. The emphasised divergence of interest, which is characteristic
of the period when a severe (acute) crisis emerges, even further compli-
cates the already demanding internal and external relations of the com-
pany. Besides this, it must be accounted for that each interest group has
its own indicators, criteria and time frames for judging the successful-
ness of the crisis healing project, which is particulary significant in the
crisis healing phase.
Since the management cannot be directly blamed for the emergence of
a crisis, in connection to the mentioned guidelines for operating in crit-
ical circumstances, the focus must be two key problems that are directly
connected to the level of successfulness, both of preventing crises as well
as healing crises:
• measures are starting to be carried out too late when the possibilities
of a favourable outcome are very limited;
table 1 A pattern of management contribution in different phases
of crisis development
Phases of crisis	Contribution of management
development	Positive	Negative
Successful leadership
Facing real causes of serious prob-
lems and taking actions to sup-
press these causes
Immediate, deep and radical use
of the right combination of crisis
management measures
Crisis emergence
Crisis identification
Crisis healing
Crisis resolution
Performing revolutionary meth-
ods of changes to reach a com-
pany renewal (restructuring,
reengineering)
Unsuccessful leadership
Overlooked or neglected
symptoms, self-deception
Lack of realism, passive-
ness, dealing with inappro-
priate causes or failure to
take right measures
Erroneous, untimely or
insufficiently integral or
radical measures
•	measures are begun to be carried out insufficiently generally and
radically, thus not relieving an acute crisis which even indicates the
down-fall of a company.
If the new management is successful at healing the crisis, the prior
management - which personally often experiences this success as a fail-
ure - attempts to devaluate the latter, so that the prior state of affairs is
represented as non-problematic or the possible achievement of the com-
pany as a consequence of its efforts in the previous period.
The management, therefore, may actually aggravate to the develop-
ment of crisis in:
•	the phase of emergence (unsuccessful leadership),
•	the phase of crisis identification (overlooked or neglected symp-
toms, erroneous causes),
•	the phase of stopping the negative trends (lack of realism, passive-
ness, dealing with inappropriate causes or failure to take measures),
•	the phase of crisis resolution (erroneous, untimely or insufficiently
integral or radical measures).
The emergence and development of a crisis can be significantly influ-
enced by the management, regardless of whether the critical period had
been strated predominantly by the internal or external causes (table 1).
Types of Management Mistakes
The emergence of a crisis is influenced jointly, i. e. parallel and in an in-
tertwined manner by both the internal and external causes (events, phe-
nomena and processes). Very few critical circumstances exist that are an
exclusive consequence of the first or the second type of causes.
Although the state of crisis in the company can be affected by vari-
ous interrelated external and internal causes, which as to intensity and
appearance vary by company, the essence of the causes surely lies in the
management of the company (Clarke, Dean, and Oliver 2003; DiNapoli
and Fuhr 1999, 6; Hamilton and Micklethwait 2006,1; Kraus and Gless
2004,116; Müller 1986,376; Platt 1998,16-17).
The above assertion is confirmed by various researches and even more
by empirical data deriving from analyses of individual cases. Accord-
ing to Bibeault's studies (1982, 35), in 70% of cases the problems can be
attributed to internal causes and, among the latter, the management
predominates. Platt (1998, 16-17) mentions the analysis of causes of
1,335 companies, based on opinions of crisis managers, official receivers,
bankers and other creditors, according to which 87% of causes for the
failure of companies are attributed to internal causes, with 'inefficient
management' in the first place (lack of capital and over-extensive in-
debtedness follow). Such a cause was also indicated in the first place by
the research of the consulting house PriceWaterhouseCoopers (DiNapoli
and Fuhr 1999, 6). Similar findings are mentioned by Müller (1986, 367)
and the Australian study (Clarke, Dean, and Oliver 2003), which hold
that a corporate crisis is actually a 'crisis of the management', since, ac-
cording to them, the management is the most significant cause for the
crisis. Müller even quotes the German banker Hermann J. Abs that bad
sectors do not exist, but poorly led companies (Müller 1986, 617). In the
context of the same findings can be placed the analysis from 30 years ago
by Argenti (1976, 123), which stresses that the very 'bad management'
is the point of departure for all other causes that could have even been
prevented by a 'good management'. Otherwise, Argenti cites 12 different
causes of crises, while, as already mentioned, the inappropriate manage-
ment occupies the first position. Kraus and Gless (2004,116) point out
that at least 2/3 of corporate crises originate from mistakes of the man-
agement both at the operative level (internally) as well as in strategic
guidance (externally).
Management mistakes can be divided into three groups:
•	different acting of the management which proves to be inadequate
or less appropriate, regarding the perceived problem (wrong or bad
business decisions, mismanagement),
•	omission of the correct and timely acting when any decision is
made, despite the fact that actions are necessary (stoppage or redi-
rection of negative flows, lost opportunities, etc.),
•	immoral behaviour (unethical decisions, abuses, deceptions, ac-
counting scandals, criminal offences).
While the erroneous managerial decisions (e. g. unelaborated invest-
ments into new technologies, a takeover of a company), which can be
influenced by external causes, are visible, ascertainable and provable, the
omission to act, on the other hand - which was necessary in a particular
moment - is less ascertainable, although this very group can be consid-
ered as the most dangerous causer of crises. Hartley (2005, 2) divides
management mistakes into two main groups: mistakes of omission (no
action was taken) and mistakes of commission (bad decision, wrong ac-
tions taken, etc.). Evaluation of the successfulness of the management
will often be possible in a longer period by a comparison with the com-
petition or with the average of the industry, while actually one can never
ascertain whether a hypothetically different management would have
been more successful in the same circumstances. What does e. g. an over-
looked business opportunity taken by the competition mean? What does
developmental (technological and programme) passiveness mean? What
does unpreparedness for carrying out fundamental interventions into in-
efficient structures and processes mean? All these cases are not about er-
roneous business decisions, but about a lack of whatsoever decisions and
practices that can trigger a severe crisis as a consequence of their adop-
tion of an erroneous decision.
Sheppard and Chowdhury (2005) pointed out that there are four es-
sential points one needs to know in order to understand organizational
failure:
•	failure is not typically the fault of either the environment or the or-
ganization, but rather it must be attributed to both of these forces,
as failure is the misalignment of the organization to the environ-
ment's realities;
•	because failure involves the alignment - or misalignment - of the
organization and its environment; it is, by definition, about strat-
egy;
•	because failure deals with strategy, we can make choices to acceler-
ate it or avoid falling into its clutches;
•	because organizational failure can be avoided even after a decline -
rapid or prolonged - the ultimate failure of the organization really
stems from a failure to successfully execute a turnaround.
In business literature regarding mistakes of the management various
theoretical debates can be found on the question of how such mistakes
came about. On the one hand, classical industrial organization and or-
ganization ecology scholars have typically assumed a deterministic role
of the environment and argued that managers are constrained by exoge-
nous industrial and environmental constraints leaving them with little
real strategic choice, and hence the managers' role should be ignored.
Sometimes a change is hard to predict and it heightens uncertainty for
key organizational members. Criticism is related with the question of
why it is that firms in the same industry facing the same industry-level
constraints fail while others succeed. In addition, studies have demon-
strated that performance is determined by the firm strategy more than
by the industry.
On the other hand, the organization studies and organizational psy-
chology literature take a more voluntaristic perspective and argue that
managers are the principal decision makers of the firm and, conse-
quently, their actions and perceptions are the fundamental cause of or-
ganizational failure. Critical remarks of the latter are connected with
over-reliance on internal factors (Mellahi and Wilkinson 2004).
Mistakes are a constitutive element of the process of strategic man-
agement and, due to an unpredictable and turbulent environment, will
always exist. There is no 'right' or 'wrong' in making business decisions -
decision-making is not like mathematics where you can prove that some-
thing is 'right'. Business decision-making is far more situational - the
right decision today is really just the 'best decision' based on the cur-
rent situation, what is known, and what the options are' (Kow 2004).
Omissions of the correct and timely acting are of key importance for
further development of a company, when measures, activities, develop-
mental programmes and so on are not being carried out, which repre-
sents a loss of opportunities that would enable further existence, i. e. a
more rapid growth, while simultaneously the competition is taking ad-
vantage of the same opportunities and increasing its power at the cost
of the inactive company. 'Even the most successful organizations make
mistakes but survive as long as they maintain a good 'batting average' of
satisfactory decisions' (Hartley 2005,333).
Empirical Findings
THE CASE OF TRANSITION PERIOD IN SLOVENIA
The period of transition has caused similar macro-economic conse-
quences in all transitional countries. At the beginning of the transitional
period the countries lost markets in Eastern Europe and in the Balkans,
which initially led to a decline in gdp and a higher unemployment rate.
Such circumstances led to a decreased aggregate demand and supply, i. e.
to stagnating economies. The companies from transitional countries,
sometimes facing deep crises, were forced to refocus their operations
towards the markets of the eu, which required integral and drastic re-
structurings. A rapid and expansive privatisation of companies, in state
ownership, was the primary objective of all socialist countries, since it
was expected that the privatisation and autonomy of companies would
trigger an increased interest both on the part of the labour force and on
the part of the management for improvements in efficiency and success-
fulness of ventures.
Slovenia, according to numerous indicators, is completing the tran-
sitional period that began in 1991 with the formal emancipation from
the prior federal country of Yugoslavia and was followed by the formal
transition from the socialistic social order, by the transition from the
one-party party system to the pluralistic parliamentary system and the
transformation of the state (social, public) ownership into the private
(the process of privatisation).
The political changes had profound economic impacts, particularly
for those industries and companies that were entirely or predominantly
oriented to the relatively favourable Yugoslav market, which was practi-
cally completely closed in that period due to the events that followed the
disintegration of Yugoslavia. Therefore, the managements, which were
not accustomed to highly competitive environments typical of global
markets, were forced to seek substitutive markets actually 'over-night',
whereas superior quality, attractive prices and an appropriate marketing
approach had to be provided. It can be concluded from the stated excur-
sus 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.
Profound revolutionary changes both on the domestic as well on the
world scale (globalisation) had brought tremendous pressures on the
existing management. At that time, extensive manufacturing orienta-
tion dominated, typical of all socialistic economies, a spontaneous (ad-
hoc) approach prevailed in comparison to a planned and systematic one.
There was a deficit in knowledge in other domains (primary marketing)
and a poor acquaintance with the international trade (varied among in-
dustries), since most of the transactions were carried out in the internal
(ex-Yugoslav) market.
Consequently, the first stage of the transition (1991-1996) was char-
acterised not so much by erroneous (bad) management decisions but
predominantly by omissions to act, i. e. preparations for and carrying
out measures for an integral strategic restructuring (programme-market,
developmental-technological, manufacturing, financial, personnel, or-
ganisational, informational, etc.). A lack of experience and knowledge
in the field, sometimes also a lack of political will, prevented a more suc-
cessful restructuring of numerous Slovene companies that either ceased
operating or underwent a perspectiveless agony with the help of state
aids.
According to the German model (Treuhandanstalt), the Fund for De-
velopment was established in Slovenia that became the owner of 98 com-
panies, employing 56,000 people, i. e. 10% of all employees. The aggre-
gate loss of these companies, which was defined as irresolvable without
state aids, amounted to approximately 1 billion eur. Until the end of
1993 new management replaced the prior ones in 70% of the cases. Since
the new temporary 'state' managers were insufficiently skilled, a series
of numerous erroneous strategic managerial decisions were taken in these
companies, while in certain instances even immoral deeds were not a rar-
ity. In the companies, which had been in one way or another taken under
the state umbrella, omissions of acting did not dominate, since the tempo-
rary managers were forced to carry out any measures available; however
an abundance of wrong or bad decisions followed as a consequence of
insufficient skilfulness and unorganised operation that could have been
avoided in many cases. Mistakes of the management were 'covered' by
the additional state aid.
After a relatively short period of independence many companies faced
a new shock when Slovenia became a member of the European Union
in 2004 (rules of the eu were actually effective even before, as of the
Stabilisation-Associational Agreement), once again differently experi-
enced among industries and individual companies. Likewise, the story
from the beginning of the transition was repeated once more when many
companies did not adjust their operations to the new circumstances
(omissions of management to act), although, due to the bitter experi-
ences from the past, there were considerably fewer such failures (the rea-
son can also be found in the private ownership of the companies). Those
industries which had been in a more or less healthy state due to the pro-
tectionisms - again having various origins regarding both the Slovene as
well as the former Yugoslav market space where these companies were
dominant (e. g. food-processing industry) - reacted worst. By the acces-
sion to the eu, Slovene companies lost their competitive advantages in
those markets in comparison to other Eu countries.
Types of Mistakes - Is there a Distinctive Pattern?
During the period of transition all types of management mistakes could
be found in Slovene corporate systems, which is not surprising, or con-
tradictory to the other economic environments. The influence (extent)of
these errors differed during individual periods and with regard to the
characteristics of the external and the internal environment, where indi-
vidual companies operated, thus, fundamental typical patterns evolved.
One can ascertain that the omissions of the correct and timely acting
played the key role during the period of transition and erroneous deci-
sions; on the other hand they continued, to a lesser extent, while such
decisions predominated in cases when the company was receiving signif-
icant state aids. The mistakes, are, indubitably, a constitutive part of the
management process. Where the environment is more turbulent, as was
true for Slovenia, there were greater possibilities for mistakes that, in re-
gard to the dramatic changes in the environment, were generally not 'too
extensive' . If a company operates in an industry which is characterised
by a high, above average, growth rate, then the mistakes or troubles that
would represent a severe critical situation in a poorly positioned indus-
try would not have lethal impact. This means that the subjective deci-
sion (the internal cause) was directly connected to the events in the en-
vironment (the external cause). Simplified, it is still true that a company,
operating in a stagnating industry, must make more key decisions in a
short time period and often without an appropriate support, which, all
together, only increases the possibilities for mistakes.
In the second period of the economic part of the transition the ob-
jective for Slovene companies was to increase primarily their competi-
tiveness, i. e. the value productivity and to catch-up with the developed
countries. According to the value-added per-employee indicator (27,000
eur), the Slovene processing industry is lagging behind the average of
the Eu-25 40% (2005), although this varies among industries. Regarding
the fact that Slovenia was the most developed accession country, accord-
ing to most indicators at the point of accession, a comparison with the
'older' members (the Eu-15) would show a lag of 2 to 4 times.
Slovene companies, therefore, will have to boost the development of
products incorporating a higher value added, which, once more, de-
mands complete commitment and skilfulness of the management. On
the average, an insufficient part of the developmental, innovative com-
ponent in products and services of producers is one of the key problems
of the Slovene economy.
International comparisons indicate that the intensity of restructuring
in the processing industry in Slovenia in the second half of the 1990s was
higher than in the eleven out of thirteen countries of the eu (for Ire-
land and Spain the data are missing) and slower compared to the three
transitional countries, for which the data (umar 2002, 24) are available
(Hungary, the Czech Republic, Slovakia). Although the value added per
employee has increased in real terms, the contribution deriving from fac-
tual successful restructuring of companies is far lower, since quite a few
large unsuccessful companies have disappeared in this period and their
absence from statistics had a significant influence on calculation of the
average. Since the value added in real terms is also rising in the eu, Slove-
nia's lagging according to this indicator is not decreasing, taking into ac-
count the afore - mentioned influence of the 'failed' companies. This
practically means that it cannot achieve the Eu-25 average by an evolu-
tionary change. The solution, therefore, can be sought in a revolutionary
change of the economic structure that is ever more being characterised
by sophisticated services. Simultaneously this solution is to be sought
in abandoning and outsourcing the unprofitable mass non-sophisticated
production in individual industries, as well as in individual companies,
where transition into narrower market segments and market niches rep-
resents a real opportunity, likewise in a revolutionary manner. Exactly at
this point a danger lurks again that the restructurings are not sufficiently
rapid, integral and radical, i.e. the danger of omission ofthe correct and
timely acting appropriate and timely reactions by management, which,
due to a required compensation of the lagging regarding the developed
countries, is actually necessary.
table 2 A pattern of management contribution in the Slovene transition period
Period	1991-1996	1997-2003	2004-
Key features	Lost markets, stag-	Programme-market	eu integration,
	nation, deep crises	restructuring, state	higher value added
		aid	is needed
Prevailing manage-	Spontaneous, ad	Introduction of	Planned, systematic
ment approach	hoc approach, lack	planned approach	approach, further
	of strategic manage-	with basic elements	development of
	ment	of strategic manage-	strategic manage-
		ment	ment
Prevailing manage-	Crisis management	Restructuring	'Classical' strategic
ment methods		projects	management
Prevailing types	Omissions of the	Wrong or bad de-	Omissions of the
ofmanagement	correct and timely	cisions; immoral	correct and timely
mistakes	acting	behaviour	acting
When considering crisis management less critically, there are often
opinions to be heard that the latter is typical only of periods of the so-
called transition of the economy, when the weak companies that are al-
legedly in need of crisis management are presupposed to go bankrupt,
while only the successful companies, not operating according to the prin-
ciples of crisis management, are to survive, therefore, the significance of
the latter will diminish. Unfortunately, both the international and the
domestic experience indicate differently. If, presumably, Slovenia com-
pleted its 'period of transition' with the accession to the eu, then the
period of severe crises in companies has not ended, on the contrary, for
many the latter has just begun due to this very reason. A significant lag-
ging of the Slovene processing industry behind the average of the Eu-25
(even more of the Eu-15) indicates that the Slovene management will be
forced to make rapid and often radical and environmentally appropriate
moves in the future, when there will be increasingly less space for man-
agement mistakes that could have been kept secret during the period of
transition (table 2).
Because the environment for conducting business is becoming ever
more complex and turbulent, crises become ever more complex, inter-
related and interdependent as well (Boin and Lagadec 2000). Even small
deviations from the initial guidelines may lead to a rapid escalation of
the problems. Therefore, the measures for remedying the crises are be-
coming more demanding and extensive.
MANAGERIAL IMPLICATIONS
In the economic perspective of transition, the management in Slovenia
played one of the key roles, since they had to operate in circumstances
characterised by the domestic as well as the foreign environment, both
rapidly and drastically changing (globalisation). Beside numerous suc-
cessful restructurings of companies, all types of management mistakes
occurred, which were characterised by certain peculiarities in the transi-
tional period. While the extent of immoral behaviour can be suppressed
on the longer run by a greater assertion of moral codes, on the one hand:
'one natural way to facilitate moral outcomes is through organizational
cultures where certain principles, norms, and values are internalized and
fully motivating' (Smith 2005), and by a more efficient control, better ac-
counting standards and even penal policy on the other, the erroneous be-
haviours (wrong or bad decisions) by the management can be reduced by
their greater skilfulness regarding the complex processes of restructuring
and catching-up with the competition. The omissions of the correct and
timely acting of the management, on the other hand, can be prevented
by a decreased influence of the state.
The omissions of the management, as one of the groups of mistakes,
are otherwise problematic for identification (whether a different man-
agement would have been more successful during the same period),
therefore, strategic alternatives ought to be pointed out, where even the
supervisory body (board) can have a significant consulting role. This
body, however, needs to be properly qualified. If management mistakes
take place during a period of emergence of a crisis, then the mistakes
are not to be given opportunity during the period of crisis healing. The
greater the political influence, the less frequently are management mis-
takes are less frequent visible, since a wider consensus of the participating
sides is usually reached prior to making decisions, while the influence of
omissions of the management is greater. The state aid, therefore, must
not be an abetment to the management for the strategic decisions not to
take place. The lesser the political influence, the more activities will be
required, whereas the mistakes can be more frequent but still less fatal
than the potential passiveness (the failure to act).
Thus, the hypothesis, that the omissions of the correct and timely act-
ing of the management during the transitional period may be more dan-
gerous for a company - since they are more vital for the existence and the
development compared to the classical mistakes - is confirmed in basic
outlines, taking into consideration the related categories as they are ex-
plained and understood in this article. The omissions are only more visi-
ble in the longer run and often scientifically not possible to confirm. The
companies or industries, lagging behind the competition or the previ-
ously set developmental objectives, cannot afford omissions to act even
for the potential cost in the form of mistakes. If there is really a more
or less valid pattern of management mistakes in corporate crises, and if
these mistakes appear differently with regard to changes in the political
and economical environment in countries in transition, this could help
decision makers to adopt a more grounded choice in the process of ap-
pointing new crisis or restructuring managers, every time according to
their most appropriate competencies.
By taking into account many limitations of the mentioned confirmed
hypothesis there remains a lot of space for further and deeper researche.
References
Argenti, J. 1976. Corporate collapse. London: McGraw-Hill.
Augustine, N. R. 2000. Managing the crisis you tried to prevent. In Har-
vard Business Review on crisis management, 1-32. Boston, ma: Harvard
Business School Press.
Barnett, C. K., and M. G. Pratt. 2000. From threat-rigidity to flexibility:
Toward a learning model of autogenic crisis in organizations. Journal
of Organizational Change Management 13 (1): 74-88.
Barton, L. 1993. Crisis in organizations. Cincinnati, oh: South-Western.
Bellinger, B. 1962. Unternehmungskrisen und ihre Ursachen. In Handels-
betrieb und Marktordnung, 49-74. Wiesbaden: Gabler.
Bibeault, D. B. 1982. Corporate turnaround: How managers turn losers into
winners. New York: McGraw-Hill.
Boin, A., and P. Lagadec. 2000. Preparing for the future: Critical challenges
in crisis management. Journal ofContingencies and Crisis Management
8 (4): 185-91
Buchalik, R. 2004. Restrukturierungs-/Sanierungsmöglichkeiten aus der
Sicht der finanzierenden Bank. In Restrukturierung, Sanierung, Insol-
venz, ed. A. K. Buth and M. Hermanns, 30-38. München: Beck.
Buth, A. K., and M. Hermanns, eds. 2004. Restrukturierung, Sanierung,
Insolvenz. München: Beck.
Clarke, F., G. Dean, and Oliver. 2003. Corporate collapse. Cambridge: Cam-
bridge University Press.
DiNapoli, D., and E. Fuhr. 1999. Trouble spotting: Assessing the likelihood
of a turnaround. In Workouts and turnarounds 2: Global restructuring
strategies for the next century, ed. D. DiNapoli, 1-20. New York: Wiley.
Dubrovski, D. 2004a. Krizni management in prenova podjetja. Koper:
Fakulteta za management.
-. 2004b. Peculiarities of managing the company in crisis. Total
Quality Management and Business Excellence 15 (9-10): 1199-207.
Fink, S. 1986. Crisis management. New York: Amacom.
Hamilton, S., and A. Micklethwait. 2006. Greed and corporate failure. New
York: Palgrave Macmillan.
Hart, P., L. Heyse, and A. Boin. 2001. New trends in crisis management
practice and crisis management research: Setting the agenda. Journal
of Contingencies and Crisis Management 9 (4): 181-87.
Hartley, R. F. 2005. Management mistakes and success. New York: Wiley.
Heath, R. 1998. Crisis management for managers and executives. London:
Financial Times / Pitman.
Hensen, T., K. C. Desouza, and G. D. Kraft. 2003. Games, signal detec-
tion, and processing in the context of crisis management. Journal of
Contingencies and Crisis Management 11 (2): 67-72.
Kanter, R. M. 2003. Leadership and the psychology of turnarounds. Har-
vard Business Review 81 (6): 58-67.
Kow, G. 2004. Turning around business performance: Part 2. Journal of
Change Management 4 (4): 281-96.
Kraus, G., and C. Becker-Kolle. 2004. Führen in Krisenzeiten. Wiesbaden:
Gabler.
Kraus, K. J., and S. E. Gless. 2004. Unternehmensrestrukturierung/-
sanierung und strategische Neuausrichtung. In Restrukturierung, Sa-
nierung, Insolvenz, ed. A. K. Buth and M. Hermanns, 115-145. München:
Beck.
Lerbinger, 0.1997. The crisis manager. Mahwah, nj: Erlbaum.
Mellahi, K., and A. Wilkinson. 2004. Organizational failure: A critique of
recent research and a proposed integrative framework. International
Journal of Management Reviews 5-6 (1): 21-41.
Mitroff, I. I., T. C. Pauchant, and P. Shrivastava. 2006. The structure of
man-made organizational crises. In Key readings in crisis management,
ed. D. Smith and D. Elliott, 47-74. London: Routledge.
Moore, S., and M. Seymour. 2005. Global technology and corporate crisis.
London: Routledge.
Müller, R. 1986. Krisenmanagement in der Unternehmung. Frankfurt am
Main: Lang
Neubauer, M. 1999. Krisenmanagement in Projekten. Berlin: Springer.
Pate, R. C. 1999. Business regeneration: Early detection - early interven-
tion. In Workouts and turnarounds 2: Global restructuring strategies for
the next century, ed. D. DiNapoli, 54-73. New York: Wiley.
Platt, H. D. 1998. Principles of corporate renewal. Ann Arbor, mi: The Uni-
versity of Michigan Press.
Richardson, B. 1994. Crisis management and management strategy: Time
to 'loop the loop'? Disaster Prevention and Management 3 (3): 59-80.
Roux-Dufort, C. 2003. Gerer et decider en situation de crise. Paris: Dunod.
Sheppard, J. P., and S. D. Chowdhury. 2005. Riding the wrong wave: Orga-
nizational failure as a failed turnaround. Long Range Planning 38 (3):
239-60.
Slatter, S. 1987. Corporate recovery: A guide to turnaround management.
London: Penguin.
Smith, D. 2006. Crisis management: Practice in search of a paradigm. In
Key readings in crisis management, ed. D. Smith and D. Elliott. London:
Routledge.
Smith, J. D. 2005. Moral markets and moral managers revisited. Journal of
Business Ethics 61 (2): 129-41.
Spillan, J. E. 2003. An explanatory model for evaluating crisis events and
managers' concerns in non-profit organisations. Journal of Contingen-
cies and Crisis Management 11 (4): 160-67.
Turner, B. A., and N. F. Pidgeon. 1997. Man-made disasters. London:
Butterworth-Heinemann.
umar. 2002. Porodlo o razvoju. Ljubljana: Urad za makroekonomske anal-
ize in razvoj.
Wildemann, H. 2004. Sanierungsstrategien. München: tcw.