Time is money
When crisis looms, reactions must be swift and efficient to avoid losing ground, our most recent Europe-wide survey on restructuring finds.
Time is money, especially in times of crisis. Every unused day can mean millions in lost funds. In spite of these facts, European companies need 16 months on average to react to a given crisis and begin restructuring their business operations, according to a study by Roland Berger Strategy Consultants. The study surveyed the crisis behavior or European top managers of over 2000 companies first in Germany and then internationally over a two year period between 2003 and 2005. The analysis proved that many companies lack the know-how to identify areas of weakness and to successfully steer a restructuring phase.
In general, Western European companies react faster to crises then their Central or Eastern European counterparts. Larger companies also tend to be faster than smaller ones. Retail (average reaction time of 5.3 months) and the consumer goods industry (6.7 months) are typically the fastest industries.
Noticeably, companies in crisis situations rarely used early warning systems: Only one third of the companies with serious cashflow problems had implemented rolling liquidity forecasts. Companies that had early warning systems, in turn, were fastest if they used balance scorecards (average response time of 11.2 months).
Time is money, especially in times of crisis. Every unused day can mean millions in lost funds. In spite of these facts, European companies need 16 months on average to react to a given crisis and begin restructuring their business operations, according to a study by Roland Berger Strategy Consultants. The study surveyed the crisis behavior or European top managers of over 2000 companies first in Germany and then internationally over a two year period between 2003 and 2005. The analysis proved that many companies lack the know-how to identify areas of weakness and to successfully steer a restructuring phase.
In general, Western European companies react faster to crises then their Central or Eastern European counterparts. Larger companies also tend to be faster than smaller ones. Retail (average reaction time of 5.3 months) and the consumer goods industry (6.7 months) are typically the fastest industries.
Noticeably, companies in crisis situations rarely used early warning systems: Only one third of the companies with serious cashflow problems had implemented rolling liquidity forecasts. Companies that had early warning systems, in turn, were fastest if they used balance scorecards (average response time of 11.2 months).
In restructuring situations, 67% believe that the commitment of management is crucial to seeing light at the end of the tunnel. The study also proved, however, that most idealistic visions of restructuring procedures aren't echoed in reality: while 61% of those queried believed that to be successful it has to be the top management's number one priority, only 38% of these companies actually believe that they followed this strategy. 39% (and 51% of the German executives) of European managers think that a holistic concept is the key but only 33% are able to implement such a concept.
German companies are quick to react in times of crises. Almost two-thirds of the enterprises surveyed launched corrective measures within twelve months of the crisis being detected. The European average is 52%, while only 49% of the Eastern European companies react within the first year. "By now, German managers have a high degree of crisis management experience," Roland Berger Partner, Michael Blatz notes. "Much of this has to do with cyclical market developments that force companies to correct their course as soon as possible."
This cannot be said about all European countries, Blatz points out. German managers are also ahead of their game with respect to identifying tricky situations early on. 32% are quick to react when they spot a strategic weakness. This first of a total of three crisis phases is marked by serious shifts in the market and the arrival of new competitors or products on the scene that could force an exit of the company's own products from the market. On average, 29% of European companies react in this first phase.
German companies are quick to react in times of crises. Almost two-thirds of the enterprises surveyed launched corrective measures within twelve months of the crisis being detected. The European average is 52%, while only 49% of the Eastern European companies react within the first year. "By now, German managers have a high degree of crisis management experience," Roland Berger Partner, Michael Blatz notes. "Much of this has to do with cyclical market developments that force companies to correct their course as soon as possible."
This cannot be said about all European countries, Blatz points out. German managers are also ahead of their game with respect to identifying tricky situations early on. 32% are quick to react when they spot a strategic weakness. This first of a total of three crisis phases is marked by serious shifts in the market and the arrival of new competitors or products on the scene that could force an exit of the company's own products from the market. On average, 29% of European companies react in this first phase.
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For those companies who fail to react to these first signs of this strategic crisis turnover problems loom large. But even in this phase only 51% of the German companies surveyed initiate counter-measures – 17% are headed straight for the ominous liquidity crisis. "German companies with a stable balance sheet can usually weather a crisis for two years or so without it being noticed," according to Roland Berger Principal, Max Falckenberg. On average, only 9% of the European enterprises examined would let their company slip into a liquidity crisis before launching corrective measures, while the East European average is higher at 25%. Blatz also advises managers not to hesitate in taking necessary steps: "The longer management waits, the smaller the room for maneuver actually becomes." Quick, concerted action is particularly necessary with respect to a company's finances. But lost time also compounds other risks. "Once a 'crisis virus' begins to spread within a company, a downward spiral can ensue very quickly," Blatz has witnessed.
He is well award of the negative consequences of leaving an obvious problem unattended: "The overall atmosphere in a company suffers, the quality of products and services is affected and customers become dissatisfied. As a result turnover plummets and banks begin to ask critical questions, while good employees begin to look for other jobs – all involved realize the company is going down the drain but no one is ready to put a stop to it."
Management's lack of competent crisis management is often the reason for this destabilizing situation: "The executives must decide which problems must be tackled and how to respond adequately. This creates the necessary room to maneuver and demonstrates the leadership's ability to react," says Blatz. Restructuring thus often begins with a replacement of the top management. Given the fact that 63% of European companies now believe that restructuring is a constant exercise, "fair-weather captains will have a difficult time positioning themselves at the helm of major companies."
If you have questions or comments, please do not hesitate to contact us:
He is well award of the negative consequences of leaving an obvious problem unattended: "The overall atmosphere in a company suffers, the quality of products and services is affected and customers become dissatisfied. As a result turnover plummets and banks begin to ask critical questions, while good employees begin to look for other jobs – all involved realize the company is going down the drain but no one is ready to put a stop to it."
Management's lack of competent crisis management is often the reason for this destabilizing situation: "The executives must decide which problems must be tackled and how to respond adequately. This creates the necessary room to maneuver and demonstrates the leadership's ability to react," says Blatz. Restructuring thus often begins with a replacement of the top management. Given the fact that 63% of European companies now believe that restructuring is a constant exercise, "fair-weather captains will have a difficult time positioning themselves at the helm of major companies."
If you have questions or comments, please do not hesitate to contact us:
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