Restructuring before the emergency happens is the new key to success
Restructuring and turnaround projects have always been implemented only once a company has started to see negative earnings, or even experience a real fundamental financial crisis. In an increasingly dynamic world, however, this view is overly short-sighted. Volatile markets, aggressive competitors and investors, flexible working and digital change mean that changes are taking place with increasing rapidity. As a result, even established companies that are (still) seeing good earnings now face the challenge of securing their existing success at the same time as they are managing the transition to new business models and structures.
Simply waiting and seeing is often the beginning of the end – which most company managers know from their own experience: more than 70 per cent of top managers have already had to establish a new business model for a company or a division. This is one of the results of the Staufen AG „Restructuring“ study, for which around 250 board members and managing directors were surveyed.
But what are the risks that most businesses face? The biggest risks cited by the company leaders surveyed in the Staufen study were high dependencies on particular regions/markets (46 per cent), particular customers (39 per cent) and particular suppliers (33 per cent).
Many companies, therefore, are dependent on factors which, if the market changes or economic conditions are weak, may rapidly trigger crises. This is particularly obvious in, for instance,the automotive industries. The fact that they specialize, to some extent, very narrowly on an individual manufacturer’s model range makes suppliers extremely vulnerable.
Corporate management are generally very well aware of this type of sector-specific dependency and their opinion of their own situation is correspondingly critical: some one third (32 per cent) consider their own company to be highly or even very highly vulnerable to crisis. Only 22 per cent believe that a crisis would only affect them minimally or not at all.
One of the main reasons for this perception is that numerous managers from medium-sized industry have already had experience of financial problems, and have had to take appropriate countermeasures. The learning effect from this is that at least six out of ten businesses prepare themselves and run through crisis scenarios and potential countermeasures on a regular basis.
Predictive Restructuring – Looking ahead
The classic model of restructuring in reaction to crises is no longer acceptable; the next industrial revolution is, after all, already in full swing. Around 90 per cent of German industrial companies anticipate massive changes to their business over the next decade, and in almost half of companies uncertainty prevails over the upcoming upheavals. With good reason, as the “Change Readiness Index” (CRI) established by Staufen reveals. The survey of 421 executives in German companies proves that at the present time only a minority of businesses would be able to reinvent themselves. This situation is aggravated by the fact that most managers overestimate the ability of their companies to make changes. Their own perception of the situation is considerably ahead of the reality.