Predictive Restructuring – Fit for the Future

September 24, 2021 | Operations Management, Operations Management

Using predictive restructuring, companies are able to bring about an urgently needed change in the company in an effort to stay abreast of the rapid changes of our time. Andreas Sticher, partner at Staufen AG, explains how this approach can work and what role COVID-19 played as a catalyst.

Signs Indicated Upheaval

Even in the years leading up to the crisis caused by the pandemic, it had become clear that the time of economic boom without changing business structures was over: digitalization, sustainability and e-mobility were ensuring progress, but also forcing companies to go forward. In many companies, what became apparent was that only major changes would allow them to remain competitive. Yet still, many entrepreneurs were hesitant to create new structures – in part for financial reasons, yet also because of their lack of experience.

COVID-19 as a Catalyst

The pandemic brought a crisis of unprecedented proportions in the postwar era. Conventional work routines became impossible, supply chains collapsed. In some cases, work activities had to be suspended, and many companies allowed their employees to work from home offices. Companies had to walk the tightrope of upholding the tried-and-true for the future on the one hand, while acting flexibly and responding to an unprecedented scenario with modified structures on the other.

Lessons Learned: What Must Remain

Many new structures were born out of necessity during the COVID-19 pandemic and consequently were partly knitted with a sharp needle. Despite this, many of them are now being adjusted and plans are in place to integrate them into the company’s regular processes in the future. The possibility of working remotely in particular will become an essential part of Working Life 4.0. As such, corporate management now has to grapple with the question of how exactly to manage employees who do not work on site. To this end, new structures must be created and new communication channels established. Teamwork in particular, which is becoming increasingly important, poses new challenges for both executives and staff members alike.

New Requirements for Executives

“In any crisis, leadership is key,” explains Andreas Sticher. After the 2009 financial crisis, the serious challenge facing Germany’s economy and business management primarily was to focus on increasingly new opportunities for growth. In the comparatively long period up to 2020, many executives had forgotten how to respond to a crisis.
Yet this is precisely what has now once again become important: Well-functioning leadership responds flexibly and quickly in a crisis, limits the losses, exploits the existing options and perhaps even creates new ones. Crisis management must function just as well as any visionary leadership creating added value through growth stages.
Especially in stages of upheaval, it is of utmost importance that executive management works closely with its employees. The entire workforce, not just the level of executive management, has a right to know what the necessary decisions are that push change. Employees are more likely to embrace change if they understand the reasons behind it. Involving them from the very start, providing them with explanations and encouraging them to form a team even in the new situation is the responsibility of modern-day executive leadership.
The introduction of the home office during COVID-19 has shown how important good coaching is: Not everyone has the skills to join in video conferences without help. In the course of digitalization, new hardware and end devices are also being used that employees are unfamiliar with. To prevent them from refusing to work and to ensure that they continue to act as valuable members of the company, they must be met precisely where they are through careful training.

Predictive Restructuring vs. Financial Bottlenecks

Very few companies were prepared for the fact that COVID-19 would cause a sharp drop in sales within a matter of months: In some companies, employees were simply could not work; in others, supply chains collapsed. It is very likely that these kinds of extreme scenarios will become more common in years to come given climate change, resource scarcity and future pandemics. As a result, there needs to be a shift in the organization, towards short-cycle processes and cost excellence.
It is imperative that the business can run with a minimal use of resources. At the very least, it must be ensured that core processes are not brought to a standstill by a sudden scenario like COVID-19. In order to keep costs as low as possible, the operational performance across the entire value chain must be excellent. In the event of severe financial bottlenecks, entrepreneurs should also consider the idea of bringing in investors.

Individual Supply Chain Decisions

Where supply chains are concerned, predictive restructuring can take on completely different forms depending on the company: Some entrepreneurs decide to digitalize the entire supply chain, allowing them to respond quickly and flexibly to special circumstances. Others, though, have come to the conclusion in the wake of the global crisis caused by COVID-19 that they would rather rely on regional solutions and thus be less dependent on conditions in other parts of the world.

COVID-19 as a Catalyst for Far-reaching Change Processes

Whereas in the past, traditional values were never questioned in some areas when change within the company was sought, the crisis has triggered a rethinking process among many of those affected: In many places, serious change management has been introduced, ensuring that the financial security of the company is not put in jeopardy, even in the face of market volatility as worrying as the current one.

Success Factors for Predictive Restructuring

Several elements are particularly crucial for predictive restructuring to succeed within a company:

First, a ruthlessly open assessment of the current situation must be undertaken: Where does the company stand, what must definitely change, which values should be preserved?
Change is declared a top priority: All processes in every area of the company are subordinated to that.
Managers explain the reasons for the necessary changes to the staff and ideally involve them in the planning.
Digitalization, optimization of the value creation structure, and possibly the tapping of additional funding from investors must be integrated into the planning of change and become a natural part of it.

In the Future, Security Will Require Flexibility

If the goal is to respond quickly to changing situations and the volatility of the markets, the structures in the company should be as flexible as possible. This applies to cost structures as well as to suppliers and partners. Security means not being completely dependent on anything. A network picks up where a single thread breaks.

Change Takes Time

Even if many entrepreneurs now embrace Predictive Restructuring and seek to bring about real change, the procedure should to the extent possible be well planned. Taking rash action, triggered by the horrors of the crisis, can be very costly with no guarantee of improvement. Any form of change should thus be carefully planned. Precisely which measures will be required and which will achieve the desired results varies from one company to the next.