Disruption to strategies and operating models is seeing a growing number of incumbents finding themselves in stress and crisis, as disruptive players leveraging technology are transforming business models and client relationships. According to a new study, the trend is sparking an increased demand for restructuring services and Chief Restructuring Officers to implement redesigns and manage crisis situations.
The current period is one of flux for a range of companies as new competition arises from sometimes unknown, and unexpected innovators. The ‘age of disruption’ is upon us, with many analysts believing that in the next 10 years up to 80% of Fortune 1000 corporations may be replaced. An effective proposition from a competitor, or an operation more suited to the times, may mean that an incumbent company becomes stressed, and, given enough change within its ecosystem, may fall into a full blown crisis.
One of the ways through a crisis is to call in, or appoint, a Chief Restructuring Office (CRO). The job, which often requires strong leadership and effective communication, supports a company toward a turnaround under a range of conditions – from a strategic crisis to a more acute liquidity crisis. To explore current trends within the CRO landscape, Roland Berger surveyed 90 CROs in Germany about their appointment as CRO and what skills they believe CROs need to have to be successful in the current environment.
The majority of respondents noted that they were called in by financers, whether banks or other providers of debt and capital. This is followed by shareholders/owners at 9.1% and consultants, at 7.3%. Few of the surveyed CROs were there on behest of lawyers or of management. The results reflect those of a similar study last year.
The respondents also expect placements to increase over 2016, at 65.4% of respondents, compared to 57.1% last year - reflecting that the situation for a wide range of companies is perceived to be more dire, with, as a result, more need to intervention from CROs. No respondents this year, expect a decrease in the need for their services over the coming year.
The time of appointment for most of the respondent CROs (30.9%) is when a rescue plan exists, but its implementation is still pending. 29.1% of the respondent CROs were called in when companies were still preparing their rescue plans. Few of the companies (7.3%) called in a CRO before the need to prepare a rescue plan arose.
The role of the German CRO has changed somewhat relative to the year previous. This year they are seen more as implementers, rather than developers. Last year 77.6% cited the CRO as an implementer and 53.1% as a developer, this year the numbers have fallen to 56.8% and 27.3% respectively. The number of respondents citing that they acted as moderators and controllers remained almost unchanged between years, and comes in at 37.3% and 21.6% respectively for 2016.
"Companies' chief restructurers obviously need to have a sound grasp of the figures," says Sascha Haghani, Roland Berger's Managing Director Germany and Head of the Restructuring & Corporate Finance Competence Center. "But at the same time, they must be able to get people to buy into the restructuring concept. This means taking account of different stakeholder interests, allowing them to have their say and actively involving the various groups in the change process. To achieve this, CROs must have professional communications and leadership skills – and in light of increasing internationalisation – successfully deploy them across cultural divides.”
The most difficult challenges facing the respondents have fluctuated somewhat over the past year, although continue to follow a similar trend in most types. Change management was mentioned by 52.7% as a difficult challenge in 2016 and by 53.1% in 2015. Stakeholder management is seen as more difficult than last year, at 49.1% vs 42.9%. Safeguarding liquidity was last year seen as the major hurdle, at 67.4% of respondents, this has fallen this year to 43.6% of respondents.
The study also considers the kinds of leadership styles – weighted with a broad brush – required during different kinds of events in which a CRO has been called in. Companies undergoing a liquidity crisis tend to require a leader that, besides knowing what they are doing, is also effective at ordering the kinds of changes that lead to a successful outcome within the confines of ever decreasing options. On the other hand, if a strategic crisis is unfolding, a more cooperative approach, in which various stakeholders’ views are taken into consideration, may be called for. In practice however, the firm suggests that CROs tend to shift between styles in line with the contextualised needs.
"Whether someone opts for a directive or a participative leadership style really depends on the seriousness of the situation they are facing," says Roland Berger Partner Falco Weidemeyer. "That is reflected in the findings. When the situation is already dramatic, resolute leadership is the only thing that can help rescue a company.”