Transforming the Mittelstand: Fit for Growth for mid-sized German companies

19.12.2018

Introduction

Transformation is something that isn’t just for large, publicly-listed companies. It’s becoming increasingly relevant for the Mittelstand – the name given to the roughly 900 mid-sized companies with revenues of between €500m and €2bn that form the backbone of the German economy.

That’s because such companies are not immune to the threats of digital disruption, urbanization and climate change. In many cases, these Mittelstand companies are actually quite globally oriented and so are directly impacted by fast-changing  market environments. To stay competitive and grow profitably, they too need to  think about transformation.

In a survey of the Mittelstand by PwC last year, 83% of respondents expected growth in their businesses over the next three years. Almost a third predicted double-digit growth. Yet almost 80% were looking at doing potential restructurings in order to  cut costs.

The truth is, many have yet to implement transformation programs. Some that have attempted transformations have even failed to carry them through successfully. In many cases that’s because the type of budgets, resources and expertise needed to implement transformations are often in scarce supply at Mittelstand companies.

In other cases the reason may be that companies are not properly exploiting the natural advantages that such medium-sized business have: relatively small management teams; good transparency across the business; and the fact that  there are usually fewer stakeholders requiring buy-in and approval.

We think there is a way for Mittelstand companies to overcome these obstacles and implement successful transformations and grow stronger, by:

  • taking a more flexible, modular approach, closely involving stakeholders in design workshops;
  • creating strong commitment from an early stage across management; and
  • implementing “quick wins” fast.

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Typical challenges faced by the Mittelstand

Mittelstand companies are held back for a number of reasons. They may not dominate a particular sector and therefore often don’t have the bargaining power with their suppliers that larger, publicly-listed rivals may have. They may have less access to capital; and they may not be able to recruit and retain the type of talent needed, in part because they may not be in market-dominating positions.

If challenged by activist investors, large companies often react with large-scale, multi-year transformation programs, driving functions and business units towards new maturity levels. Mittelstand companies often lack transformation experience, as well as the resources and budget to start such broad, multi-year transformations. We think they therefore need specific solutions that help them address these challenges.

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Transforming the Mittelstand: Fit for Growth for mid-sized German companies

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