Chief Restructuring Officers: Time for the movers and shakers to shine

By Alexander Müller, Adrian Pielken, Stefan Treiber and Mortaza Nadjafi

Our restructuring study, published at regular intervals since 2001, analyzes trends and developments and their significance for companies. This year, some 140 expert practitioners took part. Their assessment is clear: Germany's economy is undergoing unprecedented change, and this is putting virtually all industries under huge transformation pressure, especially the automotive and engineering sectors. Three-quarters of survey respondents are therefore seeing a growing number of restructuring cases, and these are also becoming ever larger, more comprehensive, and more time-consuming. Managing this complexity is overwhelming for many businesses. Given the lack of in-house expertise, companies are increasingly calling in external Chief Restructuring Officers (CROs). Experts see this as a positive trend: 92% have found that using a CRO increases the chances of successfully restructuring a company.

Despite some signs that Germany's economy may have bottomed out, the latest economic forecasts indicate that a noticeable upturn cannot be expected in the short term. Companies in distress or at risk of being left standing by more competitive industry peers cannot, then, wait for the market to give them the boost they need. They must take action now, because the pressure to transform their business is growing fast. The current changes – whether technological, geopolitical, or trade policy-related – are more disruptive than have ever been seen before. In many industries, companies still have a long way to go to complete the transformation that will make them fit for the future. Many of them need to fundamentally renew their business and realign their structures in the very near term, and some may even need to abandon their existing business models and develop new ones.

Global disruptions are on the increase, primarily affecting export-oriented industries

The number of restructuring cases in Germany is consequently still rising, as confirmed by 76% of the experts surveyed. Like last year, they see red tape and regulation (63%) as the most significant challenge for companies. This is followed by trade and tariff conflicts (57%) and geopolitical tensions and wars (51%), two risk factors that predominantly hit export-oriented industries. As a result, respondents anticipate the greatest need for transformation and restructuring in the automotive industry (95%) and in engineering (59%).

However, practitioners are seeing not only more restructuring cases but also a different kind of restructuring cases: On the one hand, restructuring is taking longer (62%) and is now larger in scale (34%), and on the other hand, it involves more complexity, both in terms of financing (52%) and stakeholder structures (33%). The reasons for this include increased financing volumes, whereby banks place higher requirements on the restructuring programs, but also the larger number of stakeholders involved nowadays. In addition, given the pressing need for transformation, it is no longer enough to simply bring costs down or develop a new financing structure. Overcapacity needs to be reduced, revenues stabilized, and a sustainable business model developed. The latter in particular was often left too late in the past.

Companies lack crisis-proven restructuring expertise

Of the practitioners who took part in the study, 54% think German companies are ill-equipped to weather an economic crisis and cope with the ongoing transformation. All the more so since the complexity of restructuring also increases the demands placed on those handling it: Most of the experts (88%) see practical experience of crisis and restructuring on the part of leadership personnel as the most important key to success – but after so many years of almost uninterrupted growth, this is something that most companies do not possess in-house.

Next, 71% of the experts consider an ability to enforce the necessary actions to be important to drive forward with change in spite of internal resistance or external uncertainties and to be able to make resolute decisions. Third up are strong communication skills (49%) to communicate the decisions made and to build stakeholder trust.

The experienced external CRO as a game changer in restructuring

This is where Chief Restructuring Officers come in. With their crisis-proven leadership experience and their focus on getting things done, they are often the game changer in a restructuring process: 92% of practitioners report that a CRO has a positive influence on implementation success. In most cases, it makes sense to fill the role with an experienced external crisis manager. This is because their outside perspective allows them to challenge structures and business models much more rigorously. In addition, a freshly brought in CRO will have the confidence of internal and external stakeholders more so than a management team already under pressure – a crucial factor in driving change credibly.

The study reaches a clear conclusion: In the face of unprecedented disruptive change and a multitude of internal and external challenges, German companies are under unparalleled pressure to transform their business. Restructuring is now more complex and raises the demands on management higher than ever. It can be instrumental to success to have a strong external leadership figure who can consistently lead the way, implement changes, and get everyone on board.

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