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10 EARLY WARNING SIGNALS
Over the years we repeatedly observed that the problems encountered by our clientele generally consisted of interrelated combinations of ten basic factors.

These interrelated combinations varied with each client company in structure and intensity. However, rarely would our analysis indicate problems of crisis proportions which fell outside of this ten point matrix. Therefore in 1983, we eventually concluded that most business crisis situations are preceded by actions or events which are actually definable “Early Warning Signals.”

A brief/working definition of each Early Warning Signal is as follows:
#1 – PERSONAL PRESSURE – Business is loaded with personal pressure…sometimes mild, sometimes severe. Mr. McKenna lost his first business during the early 1960’s. The pressure was extreme. During his 30-year Crisis Management Consulting career Personal Pressure was usually obvious at the upper management level of his clientele. It usually manifested itself in unrealistic denial of situational severity and resulted in a functional inability to focus on Profit Improvement.

#2 – FINANCIAL CONFUSION – Sometimes it occurs innocently. But it regularly occurs as evidenced by Worldcom, Enron, Computer Associates, Long Term Capital Management, Penn Central Railroad, General Motors, Ford, etc. Financial Confusion is omnipresent in American Business. This fact negatively impacts profits and inhibits measurable profit improvement. Surprisingly, the corrective process required to negate Financial Confusion is very easy to initiate.

#3 – ADMINISTRATIVE CONTROL – When corporate leaders are not in control who is in control? Sometimes no one is in control! Management theoretically confers with and executes in accordance with the direction of the Board of Directors. Lots of profit disruptive potential exists within this structure. So, who controls a company if the Management & The Board doesn’t? Key and mid-Management people…that’s who! These Key people usually have the answers to Profit Improvement if properly channeled and focused.

#4 – MARKET CHANGES – Markets can change significantly almost without warning. Profits can be decimated and worse, companies can simply disappear. Management must be constantly attuned to subtle Market Changes which might be the precursor to major market shifting.

#5 – “THE PETER PRINCIPLE” – This Early Warning Signal is not self explanatory on its face. “The Peter Principle” was presented in a book, written by Dr. Laurence J. Peter and Raymond Hull. The main point of this book is that “good people eventually rise or are promoted to their respective level of incompetence.” Dr. Peter and Mr. Hull have a powerful point with their theory. When in play, this situation is a definite profit blocker.

#6 – SALES FAILURE – Nothing in business starts until something is sold. Enough sales to operate profitably is a basic component of most business models. Insufficient sales opens the door to corporate crisis due to lack of profitability. As sales go – so goes the profit, all things being equal.

#7 – INTERNAL POWER CONFLICTS – Accounting Vs Sales, Distribution Vs Finance, Management Personalities Vs Management Personalities, Partners Vs Partners, Directors Vs Management etc…are the equivalent of profit cancer. Internal Power Conflicts are self created anti-profit improvement events!

#8 – HOSTAGE SYNDROME – The first time this Early Warning Signal hit Mr. McKenna for what it was, occurred in St. Johnsville, NY. His Client was hostage to a Bank that insisted that a full time CPA be hired to complete audited, monthly financial statements. This same Client was also hostage to a customer who accounted for 50% of gross sales. Between the perpetual audits and a slow paying major customer, profits evaporated and so did his Client. The Hostage Syndrome can definitely impede or eliminate profit improvement…to the point of business extinction.

#9 – MANAGEMENT PERSONALITY – What is the Management Personality of your company? It can be hard charging, hyper analytical, slow to react, impulsive, weak willed, strong willed, kind, brutal, profit motivated etc. A Corporate Management Personality will set the tone for profit or loss, survival or failure. What is the Management Personality of your company? Is it Profit Improvement oriented?

#10 – RAPID GROWTH – Ironically the success and rapid growth of a company can be the precursor of failure. Rapid Growth controlled and managed is a great and coveted event for profit oriented companies. But be careful that rapid growth does not become uncontrollable or worse times could be just around the corner. Some companies focus on growth to the exclusion of Profit Improvement and pay a huge price.

We then gradually developed and perfected a formal and quantifiable system of rapidly evaluating the strengths, weaknesses and Profit Improvement potential of client companies based on this major Axiom. The “Ten Early Warning Signal” AXIOM is the unique glue that solidifies our Profit Improvement concept. Then, through our “Business Health Check-Up” program, the individual and combination factor impact of these Early Warning Signals is computed and analyzed.
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