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08/18/2010

Setting the Pace

Business is back in the upswing: Following hectic austerity measures, heads of companies are planning long-term again; the focus is back on growth and innovative projects. To this end, companies seek help from consultants – also to steel themselves against the next crisis.

By SARAH SOMMER

The trend reversal has long since started for Bernd Gaiser. The spokesman for the management board of the consultancy Horváth & Partners no longer needs to send its consultants on short-term fire fighting missions into clients' companies. The experts for finances and corporate governance are relieved to see that the mood has improved on boardroom floors. "The worst is over", says Gaiser.

In the past two years, stopgap and emergency management had been dominant in consultancies. Their clients were struggling with slumps in sales that threatened their very existence; budgets for consultancy projects were tight. If consultants were called in at all, it was usually for crash programs which were to mobilize cash reserves and realize cost reductions within a few weeks. "These crisis projects have now been worked off", says Gaiser: "Managers are looking towards growth again; that will trigger longer-term strategy projects." A study by Roland Berger confirms it: For 2010, the interviewed companies have especially medium and long-term topics on the top of their agenda. They want to develop and market new products, and make their production more efficient; they also want to become more flexible and efficient through process improvements, for instance in their supply chains; finally, they want to gain a lead in research and development.

In contrast, projects in the area of controlling and finances significantly slipped down in priority. "Companies are switching over", says Thomas Rinn, partner at Roland Berger: "They are changing from a pure restructuring mode into an efficiency increase mode. Growth topics especially are becoming the focus of attention." Management consultants are pleased about this development. During the crisis years, their clients had frequently put major strategy projects lucrative for consultants on the back burners. Consulting companies were able to only partly balance out the order slump through short-term austerity projects. "This year, many postponed projects will be tackled. We'll be profiting from it", reports Horváth boss Gaiser. Consultants will have a lot to do because of the heightened sense of insecurity on boardroom floors about the right growth strategy. "Due to the experiences gained during the crisis, additional consulting needs developed in strategic issues of corporate governance", says Gaiser. The market environment has changed in many sectors of the industry. New competitors, new trends, new sales markets – they all call for the managers' attention. They don't want to run into the next crisis unprepared again.

Consultancies especially put forward the so-called scenario planning: They analyze how the market might change in the future and develop the adequate operating procedure for any conceivable scenario. In uncertain times, companies have great need for such a look into the future. For instance in the crisis-ridden automotive industry. Major group companies and their suppliers are facing serious changes. "The entire market is going through a time of upheaval", reports Peter von Hochberg, partner and automotive expert at the strategic consultancy Booz & Company. Electric cars require completely new production and business processes. Important raw materials are becoming scarce. Pressures are increasing in politics and society to develop fuel-saving engines. Customers in Asia's growth markets have entirely different expectations in terms of their cars than customers in the established markets. The new developments will offer great potentials – but they also harbor great risks. Anyone falling behind will lose out and be left trailing. "It's our job as consultants to identify such megatrends and show our clients how they can react faster than their competitors with new products or changes in their value added chains", explains von Hochberg.

The trend towards scenario planning is running straight through all sectors of the industry. Consultants are using the instrument in different fields such as product development, financial planning or purchasing, too. For instance, the purchasing specialists at Kerkhoff Consulting analyze long-term risks on their clients' procurement markets. "Scenario planning is gaining in importance as a supplement to the purely operative consultancy business", says Gerd Kerkhoff, founder and managing director of the consultancy. His clients want to know, for example, how secure their supplies might be in ten or twenty years. Will the corporate food group still find cod in the North Sea? What effects will political changes in the various countries have on important suppliers? "In today's global, volatile markets, companies must increase their speed of reaction and detect risks early on", says Kerkhoff: "As consultants, we must be able to provide them with concrete action scenarios in this respect."

Looking into the future is also rated highly with the financial experts of Horváth Consulting. "Many clients found that they had been flying blind during the crisis, and they don't want to make that mistake again", reports chairman of the board Gaiser. Instead of rigid annual budgets, he thus recommends that companies introduce scenario schedules and more flexible budget planning. "We integrate early warning indicators into management reports and develop stress tests for supply chains." The consultancies' conceptual calculation: By using scenario procedures and risk management, their clients are provided again with a secure planning background. This will fuel the managers' courage. They will dare make again strategic decisions such as mergers and acquisitions, and conquer new business fields and markets. And, in the end, consultants can again expect lucrative contracts.