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The global economy is becoming increasingly unpredictable. The shock of the sub-prime crisis is ebbing, but slowly. Insecurities remain high. A new study shows how smart restructuring can help companies to maintain their competitive edge.
The news isn't good: Financial markets seem volatile and resource prices are on the rise. Following the Sub-Prime crisis in the US, and a rising insecurity in the markets, companies are looking to insulate themselves as much as possible. At the same time, the business cycle in Europe still looks positive. But for how long? A new study by Roland Berger Strategy Consultants shows that many companies have yet to take appropriate steps to prevent their firms from showing signs of strategic crisis. Around 20% of the 1,000 listed European firms with a turnover of EUR 500 million a year are already battling an acute earnings or liquidity crisis. Add to that the falling dollar and arising questions over market stability and difficult times might be just around the corner.
To actively counter negative fall-out, the consultants argue in favor of continuous restructuring measures. The buzzword: Flexibility. Gone are the days of the 'V curve', which dictated an initial downsizing before launching a phase of expansion and re-growth. The integration of global markets no longer allows for this approach.
The news isn't good: Financial markets seem volatile and resource prices are on the rise. Following the Sub-Prime crisis in the US, and a rising insecurity in the markets, companies are looking to insulate themselves as much as possible. At the same time, the business cycle in Europe still looks positive. But for how long? A new study by Roland Berger Strategy Consultants shows that many companies have yet to take appropriate steps to prevent their firms from showing signs of strategic crisis. Around 20% of the 1,000 listed European firms with a turnover of EUR 500 million a year are already battling an acute earnings or liquidity crisis. Add to that the falling dollar and arising questions over market stability and difficult times might be just around the corner.
To actively counter negative fall-out, the consultants argue in favor of continuous restructuring measures. The buzzword: Flexibility. Gone are the days of the 'V curve', which dictated an initial downsizing before launching a phase of expansion and re-growth. The integration of global markets no longer allows for this approach.
For years, European companies could rely on the steady capital flow provided by their banks. With the advent of Anglo-American financing models, companies were faced with additional options, including international and private equity as sources for financing. This, in turn, increased the number of decision makers eyeing company turnover.
The rules of restructuring – particularly in times of crisis – have changed dramatically. Companies can no longer wait or hope to "ride it out" with minimal losses. The authors argue in favor of a comprehensive approach to restructuring led by the CEO, who must communicate changes clearly and effectively. This approach, which combines simultaneous changes in the strategic, operative and financial aspects of a business, can yield impressive results: On average, share prices of companies that have completed extensive restructuring along these lines are 136% higher after two years. The news is even better for the top 20 of the businesses examined: By tackling all areas simultaneously, they were able to produce cumulated, adjusted rates of return of more than 400%.
The rules of restructuring – particularly in times of crisis – have changed dramatically. Companies can no longer wait or hope to "ride it out" with minimal losses. The authors argue in favor of a comprehensive approach to restructuring led by the CEO, who must communicate changes clearly and effectively. This approach, which combines simultaneous changes in the strategic, operative and financial aspects of a business, can yield impressive results: On average, share prices of companies that have completed extensive restructuring along these lines are 136% higher after two years. The news is even better for the top 20 of the businesses examined: By tackling all areas simultaneously, they were able to produce cumulated, adjusted rates of return of more than 400%.
The study highlights the means through which flexibility in these three core areas can be created and maintained, by looking at successful examples from the company's practice in this area. Measures discussed include the creation of a 'learning' organization, and a modular structure of a company's offerings.
think:act CONTENT is an executive publication published eight times a year by Roland Berger Strategy Consultants. It presents expertise and findings based on the consultancy's cutting edge research in a compact format.
If you have questions or comments about this, or any other story, please do not hesitate to contact us:
think:act CONTENT is an executive publication published eight times a year by Roland Berger Strategy Consultants. It presents expertise and findings based on the consultancy's cutting edge research in a compact format.
If you have questions or comments about this, or any other story, please do not hesitate to contact us:
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