The end of the world appears to have been postponed indefinitely. Inflation and gas prices are falling. China has lifted its pandemic restrictions and reopened its ports. At the same time, many companies have readjusted and diversified their supply chains. Polycrises have become the new normal. So is it now time to exit crisis mode and concentrate again on day-to-day business?
The desire to leave crises quickly behind and to look ahead is part of the fixed managerial mindset. Crises have a beginning, a high point, and an end. But what if the exceptional case becomes the general rule? At first sight, many sectors are resuming a successful path. In Germany, many DAX companies are posting record dividends, and the order books are full through to April. But the position could dampen down by the mid-year point, as inflation fuels a wage-price spiral. The need for restructuring is likely to increase in the short term. That much is also indicated by the latest PwC CEO Survey1: 73% of the CEOs surveyed are working on the assumption that global economic growth will contract in the coming year. The last time CEOs were that pessimistic was 12 years ago. And according to an Allensbach survey, the general population in Germany is more pessimistic about the future than at any time since the 1950s2.
According to the latest survey by PwC3, 50% of German engineering companies are currently in a financially strained situation.
But is the conventional restructuring toolbox, generally based on cost reductions, still the right choice in times of disruptive transformation? Today’s generation of managers have spent the majority of their careers in a golden decade of growth and negative interest rates, and have only experienced time- or regionally-limited crises. For a very long time, the situation in their core markets was governed by very favorable conditions. But the current poly- or multi-crises demand that CEOs develop new crisis management strategies ̶ and a new view of transformation.
The transformation with which today’s companies are reacting to the disruptions to their business model can only be successful if it is understood not as a process, but as a mindset. Transformation as a mindset means a constant willingness to innovate, to be agile and to question one’s own actions and ways of doing business. Anyone failing to internalize this attitude quickly loses out.
To avoid that, we have identified four drivers that we see as the basis for transformation as a mindset.
Four drivers of transformation as mindset
- 1Leadership
The willingness to accept responsibility and take decisions is vital in phases of upheaval. However, in my view we are currently experiencing the opposite of this. C-level positions are growing exponentially at present: From 2004 to 2020, staff density in C-level positions worldwide has grown by 93%. That only comes about through having more executive portfolios: Chief Diversity and Inclusion Officer, Chief Information Security Officer, Chief Sustainability Officer, Chief Technology Officer, Chief Digital Officer – to name just a few of the new creations in recent
years4. Clear responsibilities are fundamentally right, but an ever-bigger executive board can ultimately lead to a diffusion of responsibility, a lack of competence, and sluggishness in the organization. Particularly in crises, it needs to be clear at all times who is leading – and that is the CEO. - 2Courage and timing
Early and continuous transformation saves organizations from drastic and often futile restructuring measures. The current challenges facing European industry call for fast and bold decisions - even in the face of opposition - and agile and dynamic implementation. Decisive decision makers have rarely been as much in demand as today. The scope for sovereign strategic and forward-looking decisions needs to be exploited, before creditors get involved. - 3Openness and transparency
Surveys of middle and top management repeatedly show that companies generally fail not because of poor products, but because of poor communication, hubris and a culture of fear that inhibit any change of direction5. However, organizations can only remain successful if innovative impulses from within or alerts concerning undesirable developments do not get clogged up in the structures. For that reason, CEOs need to design structures and their communications in such a way that they also allow for divergent views and channel them into productive paths. - 4Focus and bite
In many sectors, the long phase of cheap money was used more for frivolous M&A and share buybacks than to build up strategic resilience. If a crisis has then hit, organizations quickly incline to act before thinking. Things that have been overlooked for years then need to be rectified, ideally to the shortest of time frames. However, organizations can only cope with a certain measure of simultaneous change. Accordingly, focus and prioritization is critical – along with the will to outstrip the competition, even in a crisis. If all the market players are weakened, there is a strong temptation to go with the flow and simply be carried along. But it is precisely in exceptional situations that the cards are shuffled, and opportunities for new champions present themselves.
Never waste a good crisis
CEOs should therefore resist the temptation – whether driven by the zeitgeist or by necessity – to simply delegate the crisis to a Chief Transformation Officer, and should face up to change with courage, a passion for taking an active role in shaping the business model, and a strong but compact team of decision takers. Overcoming a crisis is part of the supreme discipline and core tasks of the CEO. What’s more, delegating corporate strategic challenges to a (newly-created) executive post doesn’t necessarily mean that the problem is solved. By the same token, announcing ambitious targets does not mean that they will be achieved.
Churchill reputedly advised “never waste a good crisis”. There’s a lot of truth in that. Because crises are exceptional situations, in which the familiar temporarily loses its validity. And crises are a window in time in which you can and must rethink things. Those who do not allow themselves to be overwhelmed by the shock of the crises, instead asserting the will to shape things, will emerge stronger from them. But it is even better if you constantly question the processes and aims of your own organization ahead of the crisis, and transform it continuously.
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