What triggered your existential crisis

Cause or trigger of the crisis?

Many companies are in a crisis and have to implement a turnaround process. This only works if the causes of the problem are identified.

Corona-related many companies are currently in an existential crisis, of which all stakeholders only thought a few months ago: The company is in very good health. In this respect, the actual situation differs from "normal" times. In them, existential crises are usually the result of a long-term process in which top management gradually realizes that we have to implement a turnaround.
Usually the reason for this is an operational problem such as

  • sales are falling (sales and revenue crisis)
  • the (fixed) costs are too high (cost crisis)
  • the financing of ongoing business is threatened (financial and liquidity crisis) or
  • the management is unable to act (management crisis).

Management crises

If you analyze the reasons why companies are stuck in an existential crisis, the following course often emerges: A strategic crisis grew out of a management crisis. This led to a sales and revenue crisis, which in turn led to an earnings and liquidity crisis, which in turn triggered the existential crisis. This trend can be observed as an example in the case of many automotive industry suppliers who recently announced a reduction in staff or even bankruptcy. In the past, they often made themselves too dependent on two or three key customers and certain technical problem solutions. And this "strategic crisis" led - even before Corona - to a sales, earnings and liquidity crisis, which occasionally turned into an existential crisis.

Corona as a fire accelerator

Such an alarm system would have failed in most companies during the Covid-19 pandemic, because: (almost) nobody expected this unforeseen event. So it wasn't included in the alarm systems either. Therefore, there is currently a great risk that companies that get into an existential crisis will see the cause for this in Corona alone and will not conduct a more in-depth research into the causes - a phenomenon that can be observed, for example, with quite a few automotive industry suppliers. However, if you deal more intensively with the question of why some companies in the same industry got into an existential crisis and others did not, then it often becomes clear that the Covid-19 pandemic was the trigger of the crisis, but not its (sole) Root cause. It acted like a fire accelerator, revealing latent problems - be it in the area of ​​finance (e.g. equity), market development (e.g. customer structure) or innovation (e.g. digitization, product development). Therefore, companies that prematurely identify Covid-19 as the sole cause of their current existential crisis will not be able to cope with it successfully. Rather, the first existential crisis will be followed by a second because the real causes have not been removed.

Concealed existential crisis

If a company finds itself in an existential crisis, its liquidity is usually threatened. So it is first necessary to restore this so that the company remains solvent. Many companies did this with government aid in the months after the lockdown. This defused their existence-threatening current situation, but not eliminated it. It will come to the fore when government subsidies cease to exist.
Then the hitherto hidden crisis will usually be difficult to solve, because: If a company is in an acute existential crisis (for example because its business model is outdated), potential donors are only partially ready to provide it with the necessary financial resources because They know that the planned renovation will take time and that it will consume most of the funds. The situation is similar with many suppliers. They are often only willing to work together against payment in advance, unless a convincing concept exists in their opinion as to how the company can find its way back on the road to success.

Identify problem roots

That is why the first restructuring step is always a well-founded analysis of why the company is in crisis. That means asking yourself questions like: Why are the company's "problem solutions" no longer in demand? For example, because they are too expensive? Or because they are technically out of date? Or because the service is not right? Or because ...? Building on this, it is then important to determine, for example, why the products are too expensive.
It is only through this consistent questioning that one arrives at the actual causes of the problem. But this alone is not enough to design sustainable problem solutions. It is also important to ask yourself: Why was the problem not recognized and resolved earlier? For example, because there is no alarm system? Or because the company lacks the necessary competence for this? A well-founded analysis of the causes of the crisis is usually only possible for companies with external support, because: Inquiring drilling into the current situation and history of the company in order to determine the roots of the problem is a painful process. In it, past failures are also dragged to light. That is why the restructuring of a company usually also involves personnel changes at the management level.

Create a renovation concept

If the analysis results are available, a renovation concept can be drawn up. In it, the measures with which the company would like to restore its market and competitiveness are defined, quantified, budgeted and scheduled. The concept serves as the basis for the renovation report. Numerous internal and external factors are included in this report, such as the attractiveness of the market, its future business model and the business risks.

Reach the turnaround

On the basis of the restructuring report, the investors decide whether and, if so, under what conditions they will make the necessary financial resources available to the company. After that, if the decision is positive, the actual renovation can begin, the most important goal of which is to achieve the turnaround. If the management of a company states "We have achieved the turnaround", this means: The company is back on the road to success. The turnaround is therefore a central milestone in the change process aimed at restructuring the company and restoring its competitiveness. In order to reach this milestone, a bundle of measures is usually necessary, which are aimed, for example, at lowering fixed costs, increasing productivity, restoring competitiveness and ensuring liquidity.

Confident about the future

The achievement of the turnaround is measured by means of predefined key figures such as cash flow, sales, return on investment and throughput times. If these are achieved, this means from a change management perspective: The company has come through the valley of tears. It can look to the future with hope again, provided it maintains the course it has taken. However, this is only the case if the real causes of the crisis or fire have been eliminated in the turnaround process and not only the fire accelerator Corona has been fought.

Categories: Articles, Change Management, Management

Guest author
Georg Kraus
is managing partner of the management consultancy Dr. Kraus & Partner, Bruchsal, which among other things offers training as an agile coach and transformation consultant.