Transcript Controller & Controlling in turbulenten Zeiten Vortrag

Management and Controlling in Times of
the Economic Crisis
O. Univ. Prof. i. R. Dr. Dietrich Kropfberger
Rijeka, 4th. July 2009
O.Univ.Prof.Dr. Dietrich Kropfberger
-1-
Company Crisis
• In general the crisis of a company is an
outstanding situation, which will threaten the
existence of the company, and therefore the
management has to make decisions under
enormous time pressure and uncertainty.
• In particular, during a company crisis one faces
the enormous threat of profit problems, ending in
negative equity (accounting insolvency) and / or
inability to pay (illiquidity) – the result will be
bankruptcy.
O.Univ.Prof.Dr. Dietrich Kropfberger
-2-
Present Situation
For the concerned company a crisis is catastrophically in its
effects.
But:
Struggling for life in competition with others is the normal
situation of the market economy.
The problem today is:
A lot of companies, who would be economically healthy
under normal circumstances, are involved in the present
situation.
And :
For most of these companies the economic crisis was
unpredictable and therefore they were not able to protect
themselves in time.
O.Univ.Prof.Dr. Dietrich Kropfberger
-3-
Different Kinds of Crises Need
Different Solutions
• „Normal company crisis“ –you have to improve your
situation by using management tools and of course
having enough equity:
„When you are living at the seaside, than you should be
able to swim. When your job is on a boat at any kind of
weather, than you should have some additional life
protecting systems with you too.“
• Present structural and global crisis of our economy:
Business as usual is not really successful:
„If you are in the worse situation of a Tsunami, swimming
is not really helpful. To survive you have to run very fast and of course, it will be better to stay on a save position,
e.g. on a hill. And additionally always remember, not only
the water is dangerous, the real danger comes from all the
things the water is carrying along.“
O.Univ.Prof.Dr. Dietrich Kropfberger
-4-
Causes of a Crisis
Causes of a crisis are looking like a cloud
with fuzzy boundaries.
Internal causes of
a crisis
gray area
O.Univ.Prof.Dr. Dietrich Kropfberger
-5-
External causes
of a crisis
External Causes of the Existing
Crisis and their Consequences
• Failure of the concept of deregulation and reducing the
state influence to a minimum.
• Failure of the ideology of a „free and totally liberated
market economy“ as a self regulating system.
• Lack of (clear) rules for global governance and legal
regulations regarding the financial markets.
• Decoupling of the financial markets from the real economy
(Crisis of Capitalism, Karl Marx)
O.Univ.Prof.Dr. Dietrich Kropfberger
-6-
Long Term Reasons why the Crisis was
Unavoidable
• Total deregulation of our global economy („A free
economy is the guarantee for personal freedom“)
• Demonization of the state as an inefficient Moloch (Less
state – more private!)
• Exploitation of our world’s resources („Private economic
wealth overrides social and ecological responsibility. The
future of the next generation - devil will care“)
• Breaking-free and dominance of financial markets
(„Money makes the world go around!“)
• Unlimited possibilities for gambling at the stock exchanges
(Free exchange rates of currencies, futures, options,
derivates)
• US-Americans were living their life on credit for a long
period (both, in private life and as a whole economy)
• US-banks „exported“ the financial problems of the USA to
the whole world („The others shall pay our debts!“)
O.Univ.Prof.Dr. Dietrich Kropfberger
-7-
Economic Crisis
Financial
economy
Real Economy
Production/
Services
Financial Markets/
Financing /
Economic
Cycle
Trade
Consumption
O.Univ.Prof.Dr. Dietrich Kropfberger
-8-
Financial Crisis as a Trigger of the Global Crisis
• Disconnection of financial markets from the real economy
and the uncontrolled policy of cheap money
• Illusion that men are bound in honour – and especially the
illusion that managers and entrepreneurs are above
reproach.
• Mixture of economic pressure, profit seeking, greed for
money and the illusion of a never ending bull market
• Belief in the omniscience and the honour of the analysts
• Gambling, roulette, Ponzi scheme and fraud at the stock
exchange.
• Incomprehensible dimensions of the „bets“ and, as a
consequence, the profits and losses
• Selective perception, which means, seeing profit
opportunities through rose-coloured glasses and ignoring
the risks
O.Univ.Prof.Dr. Dietrich Kropfberger
-9-
Crisis Accelerators (Schulmeister)
• Dreams of the amateurs („I want to be a rich man…I let
my money work!“)
• Professional players („The stock prices are rising – Hurra!
The stock prices are declining – Hurra!“)
• Vision of wealth, unearned and without real work
(Financial profits and interests are higher than return on
investments in the real economy)
• National state as a gambler ( „Maastricht –no problem, we
are polishing our budgets by nice tricks!“)
• And additionally: In reality most of the politicians are
economic amateurs and therefore have trust in their
consultants. („The fire raisers are becoming the chief
officers of the fire fighters“)
O.Univ.Prof.Dr. Dietrich Kropfberger
- 10 -
Real Dimensions of the Crisis
• Gambling at the stock exchange for many years was the
long road to the crisis – but most of us were amazed at the
bankruptcy of US banking flagships
• US crisis became a global crisis in no time – and it was
accelerated by systematic speculations on sinking prices
• 50% loss in value of market shares, real estates and
commodity assets worldwide
• Losses are higher and more people are affected than in the
world economic crisis of 1929!
• Banks didn`t trust each other and last year in autumn we
were close to a total collapse of the whole banking system.
• There are dramatic effects on the real economy – e.g. in
Austria and Germany the machinery industry faces a
decrease of orders of 50% and more – wheels stand still
and employees are put out of work.
• And additionally: We export our crisis to your economies
too!
O.Univ.Prof.Dr. Dietrich Kropfberger
- 11 -
The One Billion Dollar Question:
Where has all the money gone?
• One part was consumed, the debts are non-refundable and
lost.
• One part did not exist in reality – the capital gains have
been only on paper.
• One part is coming back – the capital losses are (or have
been) only on paper too.
• The bigger part was redistributed from the “silly” and
small investors and the “greedy” investors to the
“fiendishly clever” and sometimes quit “dishonest and
fraudulent” big players! We can call them REALLY
SMART!
O.Univ.Prof.Dr. Dietrich Kropfberger
- 12 -
Political Ways Out of the Crisis
• Helping banks to get back liquidity and equity by
enormous guaranties and credits by the governments and
federal banks.
• Common sense and common policy from the governments
in the EU and (nearly) world wide.
• Stimulation of the industries by deficit spending.
• Common wording of clear rules and laws regarding
financial markets and closing of tax havens.
• Restructuring and reinventing of unemployment through
new models of employment, like short time work models.
• Building up trust in the economic systems.
• Conclusion: We need a long range change of our economic
system, that means we need more regulations regarding the
protection of our environment, our usage of resources, our
social peace and our economic stability.
O.Univ.Prof.Dr. Dietrich Kropfberger
- 13 -
Political Ways Out of the Crisis
Conclusion
We need a long range change of our economic
system!
That means:
We need more regulations regarding
the protection of our environment,
our usage of resources,
our social peace and
our economic stability.
- 14 -
Internal Causes of the Crisis
Causes of a crisis are looking like a cloud
with fuzzy boundaries.
Internal causes of
a crisis
gray area
O.Univ.Prof.Dr. Dietrich Kropfberger
- 15 -
External causes
of a crisis
The „Usual“ Internal Causes of a
Company Crisis
Unpredictable external problems are only 20% of the causes,
80% of crises are based on internal problems:
•
•
•
•
•
•
•
•
Lack of Equity
Lack of Cash and Liquidity
Management Errors
Old and / or wrong products and lack of innovation
Uncompetitive cost structure and lack of cost reduction
Personal incompetence of the management
Family conflicts and cashing out of the company for private purposes
Fraud
Any of these internal facts can be trouble for a company, but in
combination with the current economic situation, any internal
crisis can become disastrous!
O.Univ.Prof.Dr. Dietrich Kropfberger
- 16 -
Additional Internal Causes of
Today’s Crisis
• Using the shareholder value concept to manage a company
• Wrong and unrealistic requirements to all companies of an
industry to earn EVA`s and ROCE`s higher than the
average of the industry.
• „Creative and innovative“ models of financing using the
leverage effect and forgetting the need of equity as risk
bearing capital
• Myopic view on monthly and quarterly reports
• Illusion of unlimited growth for a company, driven by
mergers and acquisitions
• Stock options and the belief that all of our managers are
bound in honour
O.Univ.Prof.Dr. Dietrich Kropfberger
- 17 -
Industrial Accellerators of the Crisis
• A world wide network of the industries involves most of
the companies.
• The bullwhip effect in supply chains brings overreaction in
stock and orders.
• Selective perceptions and the „not invented here“
philosophy impedes reaction.
• The global loss of trust in any partner of the company
makes crisis to a self fulfilling prophecy.
O.Univ.Prof.Dr. Dietrich Kropfberger
- 18 -
Our Money doesn`t work by itself–
only real efforts will bring real profit
1. Find, develop and cultivate loyal and economically stable
customers.
2. Focus on productivity and permanent cost reduction.
3. Focus on your outstanding capabilities, and develop your
core competencies permanently.
4. Focus your innovation in order to build up a competitive
advantage today and in the future.
And as a result:
Gain market leadership in exactly defined market
segments by quality and a competitive price – quality
relationship.
O.Univ.Prof.Dr. Dietrich Kropfberger
- 19 -
Learnings to the Management
• Creative and innovative forms of financing and using
leverage effects may be usefully for adventurer at the stock
exchange, but they are dangerous for the real economy
because of exit barriers and missing financial volatility.
• We have to stop creative accounting policies using the
IFRS, like fair value based on the net present value of an
investment.
• The concept of the shareholder value is useful if you are
trading companies but it is not useful when you have to
manage a company. (Malik, St. Gallen).
• Companies do not need to be large, they need to be strong.
Growth on its own is not really a clever strategic goal. To
be strong means to have satisfied and loyal customers on
one hand and high productivity and a competitive cost
structure on the other hand. (Malik).
O.Univ.Prof.Dr. Dietrich Kropfberger
- 20 -
The Manager`s Job and the
Controller`s Functions
- 21 -
Companies Goals
Success factors
(future core capabilities)
Liquidity
Profit
O.Univ.Prof.Dr. Dietrich Kropfberger
- 22 -
Steps to Handle the Crisis
1. Step: Make sure that you will have enough liquidity using a
strong cash management.
2. Step: Protect your profitability by (pro-)active actions in
marketing and sales.
3. Step: Protect your profitability by (pro-)active actions
regarding your cost structure.
4. Step: Build up strategic success factors based on
(pro-)active portfolio-management.
Pro-active means, don`t wait until there is a need for
doing something – do it now and do it permanently.
O.Univ.Prof.Dr. Dietrich Kropfberger
- 23 -
1. Step: Providing of Liquidity by a
Strong Cash Management
•
•
•
•
•
•
•
•
Strengthen your equity – equity is risk bearing capital!
Find stable and long-term forms of financing!
Execute a focused working capital management!
Make cash with your assets, which you don`t need for your
(core) business - deinvest!
Check your investment programme very critically!
Search for (net) cash flow and focus on cash management!
Be careful when using accounting principles – profits that
are only in your books are not very helpful.
And in case of an emergency: Be quick and resolute: „A
horrible end is better than a horror without end!“
O.Univ.Prof.Dr. Dietrich Kropfberger
- 24 -
2. Step: Protect your profitability by (pro)active actions in marketing and sales
• Adjust your product range and your list of customer – concentrate on
your money makers and reduce your money losers!
• Install a key account management on one hand but try to reduce your
dependency from a very small group of customers on the other hand!
• Concentrate on your core business and try to use your capabilities to
realise additional sales!
• Install a system of better budgeting – use less key figures - but realistic
ones and install a consequent MbO-system!
• Realise that the marketing mix consists not only of 4 instruments – the
4 Ps of Kotler: product, price, place and promotion – there exists a 5th
one: PERSONELL SELLING! (Kulhavy)!
• And additionally, don´t forget: „A market is more valuable than a
factory! “Your customers of your markets are generating your
money and your profits, at first your factory is only spending
money and generating costs and losses!
O.Univ.Prof.Dr. Dietrich Kropfberger
- 25 -
Wasting Money by an Extensive
Diversity in the Portfolio (Horvath &
Partners)
20% of our customers are
generating
180% of profit
With the last 20% of our
customers we are losing
this additional profit
O.Univ.Prof.Dr. Dietrich Kropfberger
- 26 -
Offers based on Marginal Income
Only
• When markets are declining, capacity-utilisation is the key
to profit or loss.
• Therefore it`s better to sale on a marginal income than
having no turnover.
• But: When markets are declining, in the short run it is also
necessary to earn contributions to the step fixed costs at
least.
• Break even point is changing – at least you have to earn
the fixed costs that are affecting expenses.
• But: In a real competitive situation capacity -utilisation at
any price may be deadly quickly
O.Univ.Prof.Dr. Dietrich Kropfberger
- 27 -
Problems of Reduction of Prices
Profit
Additional
Business
0
Additional Profit
Profit of Normal
Business
Break Even
Sales
Contribution Margin
F
Fixed costs
Loss
O.Univ.Prof.Dr. Dietrich Kropfberger
- 28 -
i
x
e
C
HEA
PER
IS ALL
WAYS
POSSIBLE
O.Univ.Prof.Dr. Dietrich Kropfberger
- 29 -
Problems of Pricing based on
“Cost-plus”
Cost of
Goods Sold
Cost-plus Prices
Costs
Prices
Calculation Sheme of “Cost-plus”Prices
P4
Varaiable Costs
Surplus based on actual
capacity utilisation
P3
Surplus for Profit
Cost-plus Price
P2
P1
B4
- 30 -
B2 Kropfberger
B1
O.Univ.Prof.Dr.
Dietrich
B3
Sales
Protecting Profit by Influencing the Cost
Structure of a Business
During a crisis declining capacity utilization brings problems
with your cost structure, that are called „CostRemanence“:
1.
2.
3.
Step costs are standing still. (e.g. overheads, depreciation
of additional machineries, interests)
Variable costs are changing their characters – soon they
will become fixed costs (e.g. wages, setup costs, costs of
shifts)
The degression of fixed costs is changing to a fatal
progression of fixed costs.
O.Univ.Prof.Dr. Dietrich Kropfberger
- 31 -
Remanence of Costs
Remanence of fix costs
(step costs become sunk costs)
costs
Costs
Remanence of variable costs
(variable costs become fixed)
Step costs
Variable costs
0
Operating level
O.Univ.Prof.Dr. Dietrich Kropfberger
- 32 -
Operating level
Progression and Degression of
Fixed Costs
Fixed costs per unit
Progression of fixed costs
Degression of fixed costs
Units produced / sold
O.Univ.Prof.Dr. Dietrich Kropfberger
- 33 -
Asymmetric Progression of Fixed
Costs
costs., prices
Price A
Price B
Price C
Total costs per unit
Variable costs per unit
Capacity / Units sold
O.Univ.Prof.Dr. Dietrich Kropfberger
- 34 -
Steps to Change Your Cost Structure
• Reduce organizational slacks and unneeded fixed costs
(personal hobbies of the management, „vested rights“ of
the staff)
• Install a lean management philosophy in order to avoid
wastefulness.
• Adjust your capacity to the market situation (flexible fit of
capacity and sales – breathing capacity)
• Make the remanent costs of your staff flexible and nearly
variable (flexible work time, reduction of shifts, short-time
working, dismissals for short time, dismissals of
unproductive workers and reducing staff, etc.)
O.Univ.Prof.Dr. Dietrich Kropfberger
- 35 -
Lean Management means:Do not
waste your money!
Only the money of your customers brings long term value added!
All parts of your products and services your customer is willing to pay
for, are value adding, the rest is waste!
Therefore concentrate on your customers and ask your staff, where and why
you are wasting and how you can become lean in your cost structure.
Reasons for wasting money are usually:
1.
Overproduction
2.
Transportation
3.
Inventory/WIP (Work in Progress)
4.
Processing waste
5.
Motion
6.
Waiting
7.
Defective products
O.Univ.Prof.Dr. Dietrich Kropfberger
- 36 -
Avoid waste by
• Quality and secured processes
(Standardised
work processes, autonomous maintenance,
workflow design, Smed, Six sigma, audits)
• Inclusion of staff
(continous improvement, teamwork, trainings, quality
circles, information meetings, delegation and management
by objectives)
• Just in time production
(Kanban, Smed, single unit production, timed assembly,
mass customizing, pull organisation of production)
O.Univ.Prof.Dr. Dietrich Kropfberger
- 37 -
Inventory, „Reserves“ and
Slacks Hide Problems
Lake of
invento
ry
Not really
balanced
production lines
Quality
problems
Worse PPS
Machine
failures
failures
Long rates of
Communication
Exchanging dies
failures
Supply problems
Long
Transportation
distances
O.Univ.Prof.Dr. Dietrich Kropfberger
- 38 -
Management
Absences
from
work
Special Issues Regarding Cost
Structure
• Reduction of staff versus keeping core competencies
• Customized lots versus big optimized lots
• Reduction of capacity and of fixed costs on the one hand
versus costs of closing the business on the other one
• Reduction of fixed costs in the calculation only versus real
cash effective reductions
• Outsourcing versus insourcing
O.Univ.Prof.Dr. Dietrich Kropfberger
- 39 -
4. Step: Building up strategic
success factors by doing a proactive
portfolio-management
• Comb through your portfolio – analyse, find and eliminate
your cash traps (cash burning products, market-segments
and customers)!
• Make a relaunch of your old and profitable cash cows!
• Make a detailed analysis of your markets and try to
segment them even deeper!
• Concentrate your future investments!
O.Univ.Prof.Dr. Dietrich Kropfberger
- 40 -
Strategies for success
1. Get ideas from your customer!
2. Segment your market consequently – you cannot be everybody `s
friend!
3. Generate customer-know-how!
4. Solve the problems of your customers and provide individual benefits
to them!
5. If the product („hardware“) can be substituted, be different because of
your service („software“)!
6. Build up competences in problem solving!
7. Concentrate on your target groups when positioning in the market!
8. Stand out of the crowd of your competitors, you need an USP!
O.Univ.Prof.Dr. Dietrich Kropfberger
- 41 -
The Controller`s Job in turbulent
Times (I)
Traditionally: the controller is responsible for
·
delivering information which is up to date and useful
·
the information-system itself
(mainly in the day to day business).
·
and
coaching the staff regarding economic processes.
Today: he is also
·
the dialogue-partner and the internal consultant of the
management in strategic issues,
O.Univ.Prof.Dr. Dietrich Kropfberger
- 42 -
The Controller`s Job in turbulent
Times (II)
• Do not only control and keep everything in check but also
help the management and the staff to control themselves by
giving them useful information.
• Controlling means giving governance for self-regulation!
• Staff brings the profit, it`s not the controller!
• Motivation for success and profit is self control, it’s not
external control!
• We do not need more controlling, we need more help for
being more effective and more efficient!
O.Univ.Prof.Dr. Dietrich Kropfberger
- 43 -
In Times of Crisis Remeber the
Findings of Kaplan & Norton
•
•
•
•
If you can`t measure it, you can`t manage it!
What gets measured gets done!
Twenty is plenty! (Find the quintessence!)
„Only Actions Count!“
O.Univ.Prof.Dr. Dietrich Kropfberger
- 44 -
In Times of Crisis Management and
Controlling Must Work Hand in
Hand
Manager is driving
the business and is
responsible for the
results
Controller is driving
the information system
and is responsible for
transparency
O.Univ.Prof.Dr. Dietrich Kropfberger
- 45 -
Trends in Controlling: Changing the focus
while increasing efficiency
(Quelle: B. Gaiser, Horvath & Partners 2004)
Analysing, Consutling,
Projects
Analysing, Consulting,
Projects
Planning
and
Reporting
Planning
and
Reporting
DataPreparation
Integrated Systems,
Standardisation
Data Preparation
More Consulting + Less Data Preparation + Reduced External Controll
O.Univ.Prof.Dr. Dietrich Kropfberger
- 46 -
Crises as Turningpoints
Crisis is an Hellenic word: krisis
means determination, turning point
Sales,
profit
Management
of
opportunities
“
Opportunity
Normal
business
Threat
Management of
crisis
Business as
usual
Turbulent times
Time
Succes or failure
O.Univ.Prof.Dr. Dietrich Kropfberger
- 47 -
Management of Crisis or
Management of Opportunities
Reactive Management of Crisis:
Management is surprised and angry about what happens –
and maybe – when the crisis is really dangerous they try to
react.
Active Management of Crisis:
Management is searching and analysing the situation
exactly, and if there is a threat, they will react
immediately.
Pro-active Management of Opportunities
Management makes things happen and transforms
potential crises into opportunities.
O.Univ.Prof.Dr. Dietrich Kropfberger
- 48 -
Management of Opportunities
means…
• to install an early warning system to recognice
changes at an early stage.
• to see changes as an opportunity and not as a threat.
• to analyse the old business models critically.
• to build flexible organisational structures and new
business models.
• to define break through projects for the company’s
success and to implement them!
O.Univ.Prof.Dr. Dietrich Kropfberger
- 49 -
Conclusion – basic assumptions
There is nothing better than a good concept – that is also
implemented!
There is nothing better than action! Just do it!
Successful companies are successful because they continuously
work for their success!
Those who are less successful often get in the way of their own
business. They prevent themselves from success!
O.Univ.Prof.Dr. Dietrich Kropfberger
- 50 -
Wrong questions – right questions
Wrong questions:
• Why doesn‘t it work?
• What do the others have to do?
Right questions:
• What pushes me and my business?
• What do I have to do that it works out? (what in detail and
until when?)
• How can others help me to do so?
O.Univ.Prof.Dr. Dietrich Kropfberger
- 51 -
Management in turbulent Times
(Peter Drucker, Economic Crisis 1980)
Strategy: „Do the right things!“
Day to day business: “Do the things right!”
And:
Do it!
O.Univ.Prof.Dr. Dietrich Kropfberger
- 52 -