Medium-sized and family businesses - Crisis Management through Strategic Business Transformation (Part 1)
Article by the SEViX Senior Executive Partner, Dr Thomas Forster
Situations analyzes
The unique strength of the German economy compared to other countries is based on its medium-sized company structure. More than 99 percent of the companies belong to the middle class. They provide over 80 percent of all jobs requiring training and almost 60 percent of all jobs subject to social insurance contributions. It includes large family-owned companies rich in tradition, craftsmen's businesses, freelancers and self-employed persons, start-ups and many secret world market leaders in their markets. A strong middle class also means a strong economy.
Even before Corona, there were first clear signs of a recession, which threatened the structures, growth and competitiveness of medium-sized companies. With Corona as a kind of fire accelerator, the existence of many medium-sized companies is now directly threatened. Government measures and a lack of critical self-awareness on the part of those responsible are still preventing an open outbreak of the crisis.
The family business, often with a great tradition and rooted in rural areas, has always been regarded as particularly crisis-proof in Germany's medium-sized economic structure.
In 2019, the "Stiftung Familienunternehmen" will come to the following current definitions and facts: 90 percent of all German companies are family-controlled businesses. They are owned by a number of natural individuals, whereby ownership and management need not necessarily coincide. They generate 52 percent of sales and provide approximately 58 percent of all employment subject to social insurance contributions in Germany.
Owner-managed companies: They are owned by natural persons and at least one of the owners is also the manager - 86 percent of the total number of companies are owner-managed companies, 53 percent of all employees in Germany work here. Owner-managed family businesses account for 47 percent of total German sales.
In 2017, family-controlled companies had a turnover of EUR 2.8 trillion and owner-managed companies had a turnover of EUR 2.5 trillion. Family-controlled companies thus generate around 45 percent of the total turnover of all companies in the economic sectors included here and 52 percent of the turnover of private companies.
The family-owned company therefore has a special significance for Germany as a business location, even during the crisis.
A large number of factors have repeatedly been cited for the high degree of crisis resistance of family businesses, which have proven their worth, especially in comparison to companies with other forms of ownership:
First and foremost, long-term thinking is always cited. The thinking and acting of family businesses takes place in periods of generations instead of years. It is important to secure the company for future generations. Strong in the crisis makes also from this the fact that goals and conceptions of different stakeholders of a family business, which can be brought only rarely in agreement over a period of one year, can be united in the long run over a longer time horizon of more than 10 years to common interests. The often advantageous capital structure and financing also make the family business more crisis-proof. On average, it operates with higher equity ratios and often with higher profits than large German corporations. Medium-sized companies and especially family businesses usually have lower capital costs and are personally liable as in the case of the managing partner. A more careful handling of risks is therefore the logical consequence. A threat to the company and family would be negligent in each case. A rather long-term business policy, a proven business model that does not rely on short-term successes, also allows to persistently pushing innovations, to approach investment projects with a longer perspective and not to speculate on fast and risky market entries and successes. Crises require quick decisions and implementation. Especially family businesses are often characterized by shorter decision making processes. In family businesses, therefore, one finds both, gradual and radical innovation and investment decisions, especially when management and ownership are combined in one hand.
Not only in crises, management and employees should show a strong cohesion, which only enables a joint crisis management. Family businesses often have an advantage in employee-oriented crisis management. A successful business model, a shared vision and a strong commitment to traditional values passed on from generation to generation are decisive factors in this respect. Often there is an employee-oriented corporate culture, which is also exemplified by the owner of the company. Many family-owned companies convey values that are attractive for long-term employee loyalty to the company, such as a working atmosphere, independent work, flat hierarchies, career prospects, secure employment and a healthy work-life balance.
As a result, family businesses with successfully proven business models have a significant impact on Germany as a business location and its medium-sized structure.
However, it is doubtful whether the listed strengths are sufficient as solutions in the current Corona crisis. In contrast to the financial crisis in 2008, which could be overcome with traditional crisis management, Corona poses completely new challenges to our economy. Individual markets, customers and supply structures are threatening to collapse and entire industries are facing complete upheaval. Not all medium-sized companies in the automotive and mechanical engineering industries, for example, will survive. Medium-sized companies in particular are facing challenges that are as yet unknown to them.
Only restructuring approaches of the past can be ruled out as solutions. Corona particularly highlights the weaknesses and structural deficits of companies. Today, every company has to successfully put proven business models to the test and question its strategies, organizational structures and resources. Only a strategic business transformation that combines proven methods of classical reorganization with a strategy development process aimed at defining a new business model with competitive advantages and a competitive organization can point the right way into the future for medium-sized businesses. Immediate action is called for. It is unlikely that the crisis will be overcome and that the trust in the state and recipes for success of the past will be insufficient. Perseverance and the iron grip on the tried and tested - an original strength of SMEs and family businesses - can now become an absolute weakness in the Corona crisis.
Summary
Strong entrepreneurial owners of medium-sized companies with the courage for new business models and a strategic business transformation will be able to successfully overcome the crisis and emerge from it stronger.
Please contact us directly if you need concrete help in change management projects or a "CEO ad interim", Chief Restructuring Officer (CRO), Business Transformation Manager and a well-coordinated team with implementation competence, with profound experience in the functions or fields of activity
- Corporate reorganization / Turnaround
- Strategic Business Transformation
- Strategy and organizational development
- Carve-outs and Post merger integration
- Vacancy bridging
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