Staff shortages, disrupted supply chains, rising producer prices, the interest rate turnaround by the ECB: the German economy is under considerable pressure. The situation is very different for medium-sized companies. While some are coping well with the uncertainties, others are finding it much more difficult - especially if there are inefficiencies in processes, controlling and human resources as well as a lack of or incorrect investments in the company.
Then necessary changes need to be made - not least at the level of the business model, which needs to be adapted to changing environments. But what does this mean in concrete terms? And how can companies use adaptation to increase their resilience and crisis resistance in the long term?
Questions for our expert.
It is certainly no exaggeration to say that the current environment is particularly difficult for companies: the highest inflation rate for years, worsening developments such as a shortage of skilled workers and climate change - and all this in the wake of a global pandemic. For most entrepreneurs and managing directors, a situation like this is probably new. What would you recommend to them?
Every entrepreneur should check whether they are correctly positioned in the current mixture of different crises.
"Controlling is particularly important in crisis situations."
The situation is complex, so a package of measures is required to ensure the continued success of the company. The most important measures certainly include
- a review of controlling, in particular the calculations and profitability of the business areas,
- an integrated corporate planning consisting of profit, liquidity and balance sheet planning as well as
- an evaluation of whether additional transformation experience is required.
Controlling plays a particularly important role in crisis situations. As a decision-relevant function in the company, it should alert management to challenges and critical developments at an early stage and provide a reliable forecast. In this respect, controlling is one of the most important instruments of successful crisis management.
In addition, internal company requirements are increasing. This is because scenarios, data and analyses are required at ever shorter intervals by management, shareholders and financial partners. Flexibility and speed are therefore important building blocks for overcoming a crisis.
How?
Changes in the framework conditions must be taken into account in planning and lead to permanent adjustments. The corona crisis has shown this. However, this is currently becoming all the more important due to exploding energy prices, massively disrupted supply chains and rising interest rates.
In addition, a large number of companies have drawn on public funds such as KfW loans during the coronavirus crisis and in the current economic situation. The part of the aid that was utilized as a loan must be repaid when it falls due. This requires sufficient cash flow for the contractual repayments. It makes sense to simulate the effects of internal and external changes and present them in best and worst-case analyses or plans. In this way, companies are prepared for constantly changing circumstances in the future: You engage in effective crisis prevention and make your company more resilient, more crisis-proof.
Controlling should therefore develop various scenarios in order to be able to assess options for action. This allows planning to be updated quickly if the framework conditions change. Do you have an example from your consulting practice?
Yes, of course.
I recently advised a heterogeneous group of companies in the SME sector. As a result of the corona crisis, it had recorded massive declines in earnings and needed a strategic realignment, but also a toolbox to enable it to react more quickly and flexibly to the current crises.
We worked out opportunities and risks based on a quantitative and qualitative assessment of the individual business areas and identified and evaluated synergies between the individual business areas. This resulted in a concentration on the profitable business areas. This was essential for the future success of the Group.
For the problematic business areas, on the other hand - i.e. those with low synergies, insufficient profitability or a low cash flow - options of merger, restructuring and sale were examined.
In addition to identifying short-term measures to improve earnings and liquidity, we also prepared a medium-term integrated planning statement. Within this integrated profit, liquidity and balance sheet planning, scenarios can be simulated taking into account internal and external risk factors. It is very important here that the company regularly updates the scenario calculations, i.e. the forecasts with regard to earnings and cash flow.
Formulating measures is one thing. How did you then implement these measures? Which aspects were particularly important?
The action plans with responsible parties, time frames, improved results, etc. were drawn up in close cooperation with the company. Another key success factor was tracking the implementation of the action plans so that countermeasures could be taken if necessary. A third success factor that should not be neglected was the close cooperation between myself and the management, the shareholders and the financial partners - especially the latter: in this case, this also led to an expansion of the financing framework for the group of companies.
I would say that this last factor is always essential: cooperation with the management, the shareholders and the investors is crucial when implementing measures.
"Companies are then in a position to adjust their corporate management within a few days."
Controlling is therefore a tool for continuously updating and adjusting plans.
Yes. Although I would rather say: a tool for scrutinizing your own processes within the company. Simple financial planning does not provide the insights that help in times of crisis. The challenge is to plan reasonable and reliable scenarios. Only then can appropriate countermeasures be introduced. But this requires extensive digitalization and process integration. Companies that have failed to do this are now facing additional challenges.
And if I have not yet digitalized my company sufficiently: What would you advise me to do?
The main remedy here is integrated planning solutions that look at all relevant areas of the company - and can therefore map profitable simulations and scenarios. Companies are then able to adapt their corporate management within a few days. This becomes all the more important the more uncertain and unpredictable times are.
However, it is important to actually cover all relevant corporate functions - in particular the integration of customer requirements as well as sales and production planning and production processes.
The restrictions of the supply chain and the consistent recording of operating data - including KPIs - must also be taken into account and redesigned if necessary. These measures provide better and more stable planning security.
What restrictions are you thinking about here?
The current supply bottlenecks or disrupted supply chains require an in-depth examination of the operational production and planning processes.
"Quality and price are no longer the only decisive factors."
If bottlenecks lead to production stoppages, orders cannot be processed and new orders may have to be rejected, earnings losses are inevitable.
Production planning and the various supplier levels must be closely interlinked. This is essential because the company's own suppliers also have suppliers who themselves have supply bottlenecks. This multiplies problems in the supply chains. It is important to identify risks and continuously review your supply chains. If necessary, you should rely on local sourcing or a balanced mix of different suppliers. Quality and price are no longer the only decisive factors.
Rather, multifactorial purchasing is emerging, which also includes
- supplier default risks, for example,
- transport safety and
- compliance with environmental and social standards
.
Numerous companies are now also voluntarily committed to sustainability. In these companies, sourcing must of course also ensure that these factors are taken into account by suppliers at all levels.
You have described the role of controlling as a crisis management tool. What about its handling? What skills do you consider indispensable in crisis management?
Crucial above all is prudent and rapid crisis management. In my experience, it is very helpful when companies have managers with crisis experience. They are aware of how essential it is to tackle change quickly. And those who have successfully managed crises in the past not only have the necessary self-confidence, but also remain calm and confident under pressure. Ideally, times of crisis can be used to adapt and consistently restructure operational processes. When companies incorporate risk management into their processes, this is a significant step towards resilience and crisis resistance.
It is important to understand transformation as a team effort: In a crisis, shareholders, directors, management and employees must all pull together. They can only adapt the processes together as a team. This requires a high level of motivation and commitment from everyone involved.
In any case, it may occasionally be necessary to selectively supplement the existing transformation experience within the company - with external consultants or interim managers.
I particularly remember the case of a company where I worked for a year as interim managing director. Within a few months, we turned the company around from a loss-making situation that threatened its existence to a high seven-figure profit.
How was that possible?
The basis of all our measures was
- the rapid creation of a detailed item costing,
- the analysis of customer and product profitability and, of course
- the analysis of production planning and the supply chain.
Based on this, we were then able to streamline products, renegotiate with suppliers and customers and implement price adjustments. In some cases, suppliers were changed and price increases were agreed with customers. In the area of production, we were able to reorganize processes through make-or-buy decisions and achieve significant earnings potential through targeted investments.
Thank you very much for the interview!
Conclusion: Suitable controlling tools are essential for active crisis management
Efficient controlling makes it possible to simulate various scenarios and thus make reliable predictions. Corporate planning can be updated quickly and, if necessary, suitable countermeasures can be initiated.
The key points:
- Controlling has a decision-relevant function.
- Expressive calculations and KPIs make reliable corporate planning (success, liquidity, balance sheets) possible.
- The simulation of different scenarios allows plans to be updated quickly and adapted to changing premises.
- Controlling enables fast and flexible crisis management.
