Frank Wiethoff
Partner, Management Advisory
Crisis management or crisis reaction - at the latest since Russia's attack on Ukraine, these terms have not only been on everyone's lips politically, but the German economy has also had to deal with this topicagain since then. The geopolitical escalation and the associated emergence of a complex crisis dynamic came highly unexpected for many and confronts those responsible and companies with extraordinary personnel, and social and economic challenges.
But let's be honest - is the issue new? In the wake of the 2008 financial crisis, for example, and more recently in the wake of Corona and the global pandemic situation, unexpected issues - with varying degrees of severity - suddenly came into focus: disrupted supply chains, more difficult access to raw materials, increased energy prices, shrinking or even lost sales markets, increasing currency risks, and heightened sociopolitical pressures suddenly forced companies to make complex decisions and fundamentally rethink their strategic direction.
Looking back over the past few years, it can be seen that many companies are - or should be - almost permanently in crisis mode. In many places, corporate leaders have not recognized this or have only recognized it late, and some CEOs and/or CFOs react only hesitantly, too late or not at all.
What is the focus in times of crisis, and what response is required?
„In complex crisis dynamics, the priority is not to be among the losers. However, in the long term, only those who start the economic upturn with strengthened resilience and newfound momentum for change will be successful.“
What's clear is that anyone who falls into a state of paralysis in highly volatile times, shies away from challenges and leaves options for action unused, will inevitably become a loser in the crisis. On the other hand, those who engage in proactive crisis management from the outset, accept challenges, identify the need for action and implement it in a targeted manner maximize their chances of not only mastering a crisis but also emerging from it as a winner. To do this, it is essential to pursue a holistic crisis management approach during all three crisis phases.
Three phases of crisis management
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1. Measures to secure results in the short term
Immediately after the emergence of a crisis, entrepreneurial action should prioritize the avoidance of distress and the stabilization of the company. To safeguard earnings, costs should be reduced and the company's liquidity secured in the short term. The overriding goal is to bring about a turnaround as quickly as possible to leave behind the business-restricting "survival mode" and make broader entrepreneurial fields of action accessible. Typical measures to safeguard earnings in the short term include reducing personnel and non-personnel costs, halting investments and development projects, adjusting receivables terms and actively using available payment targets. -
2. Measures to ensure flexibility and the ability to act
Building on the short-term crisis measures presented above, the second step for companies is to ensure and further expand their future flexibility and ability to act. The central challenge here is to identify the strongest effects of the crisis and the associated derivation of effective measures and fields of action. The strategic orientation of the organization and the current business model must be critically examined and, if necessary, adapted. Other fields of action include portfolio streamlining, footprint optimization, measures relating to in- and outsourcing, and also the realization of significant cost advantages and economies of scale. The range of options for ensuring the ability to act is wide, but should always be worked out and fine-tuned on an individual basis. -
3. Measures for sustainable growth and recovery
Those who want to emerge from the crisis as winners must already anticipate the future upswing during the crisis and evaluate emerging opportunities in a targeted manner. Companies that succeed in proactively preparing and implementing measures for sustainable growth during the course of the crisis will be able to benefit from a lasting competitive advantage over the competition in the future. Above all, the strategic adaptation of the business model and the holistic optimization of the operating model can contribute to the realization of significant economic competitive advantages.
Crisis Management@BDO – ability to act instead of paralysis
The strong change momentum caused by the crisis offers an extraordinary opportunity to prepare and implement organizational adaptation and further development measures - take advantage of this opportunity! Our Strategy & Business Transformation team supports you on your way through the crisis and helps you to identify your most important fields of action in time, to evaluate them and to implement them at the right time.