The global economy is struggling hard with Covids consequences as the pandemic moves through its third year. What’s more the crisis mountain of supply chain stoppages, material and personnel shortages continues to grow: high energy and material costs are looming. In addition to all of this, cyber-attacks have now thrust forward, advancing to become our next big challenge.
"A toxic cocktail," is how Uwe Köstens, founding partner of enomyc, sums up the situation. Crisis is his business: he has been advising on SME issues for more than 22 years. As a result, he is very knowledgeable about the effects crises have on the global economy.
But what makes the current situation so dangerous? What in particular puts the eye on red alert? And how on earth can companies manage a less bumpy landing in the new reality called "crisis"? An interview.
Mr. Köstens, you have already experienced several economic crises. Which ones are particularly vivid in your memory, and why?
First, the oil crisis in November 1973: I was eleven years old at the time and benefited from four car-free Sundays and very heavy snow in Hesse. For us kids, that meant long sled rides down the main street of our town. The second crisis I remember well was 35 years later: the outbreak of the financial and economic crisis, combined with the collapse of Lehman Brothers on September 15, 2008. Witnessing the global financial and economic system staring into the abyss, the uncertainty about where the journey would lead - that was apocalyptic.
Do you draw any conclusions from past crises about the current situation?
Hardly any crisis is the same as another, but some elements can be found again and again. If we look at history, for example, the "Great Inflation" almost 100 years ago was of exorbitant proportions. There was inflation money. Banknotes with horrendous sums were driven to the baker with wheelbarrows to buy a loaf of bread! Thank goodness we have not yet reached that point today, but inflation is rising faster than it has for decades. Food and gas prices in particular are skyrocketing. Yet today we're talking about a very different kind of crisis: it's coming with unprecedented force and complexity.
What strikes you most about the current crisis?
It's a toxic cocktail of many factors. So toxic that you could perish from it. But both socially and economically - even on the political party fringes - there is a strange calm. No cheap populism or unrest despite a historically unique situation.
Perhaps the calm is more of a shock paralysis?
It may be. Experience shows that the effects of crises build up piecemeal. Russia's war of aggression began four months ago. The pandemic 28 months ago. It remains to be seen how the situation and its effects will evolve.
You speak of a unique complexity of the current crisis. What makes it so?
The multitude and simultaneity of the individual risk factors threaten business models to an unprecedented extent. Starting with the pandemic as a trigger for material shortages and supply chain stoppages. And now - compounded by the Russia-Ukraine conflict - rising energy and living costs. Other challenges come as cyber-attacks and bring the added expense of increased security measures. These are all very serious risk drivers in the economy.
What effect will this have on existing business models?
I'm talking about three different business models in this context: healthy, morbid and multimorbid. At present, we are primarily dealing with multimorbid business models. One crisis hits them harder than the other - not only in their number and their unpredictability, but above all in their dynamics. Many companies simply recognize the many external special influencing factors too late. As a result, their room for manoeuvre shrinks enormously when the crisis hits. There is a real pull effect.
One might think that German SMEs are now used to crises. Why is crisis awareness still not fully developed in many companies?
There is no general answer to that question. But experience shows that it often fails due to two factors: First, there is a lack of professionalism in corporate finance. Second, there is a lack of objective perception of risk factors. Many entrepreneurs tend to perceive crises and risks subjectively or to suppress them.
What measures help?
Objective perception: It is infallibly linked to figures, data and facts. And it is precisely these meaningful, reliable and resilient figures that create transparency. If they are kept clean, they act as a warning system and provide timely information. My experience shows that a maximum of ten key figures is enough to manage a company - regardless of its size.
Yet, you say, very few companies have integrated financial planning. Why is that?
Integrated financial planning consists of a triad of income statement, balance sheet and cash flow planning. In practice, however, balance sheet planning is often ignored. Why? Because balance sheet planning is tedious to prepare. I maintain that there is no cash flow planning without balance sheet planning. The figures must be maintained with great care and truthfulness. For this, entrepreneurs must know their business very well.
What exactly does this require?
It needs a sharpened awareness of the entrepreneurs and it needs a highly professional financial system in companies. A reliable world of figures then functions like a well-calibrated alarm system. As an entrepreneur, you have to realize that the numbers tell the story of the company. They represent the life of the company. Every single process: from purchasing to storage, from production to sales. A sales figure therefore embodies all the previous processes and issues that have been dealt with. This makes figures, data and facts all the more important in a crisis: Because it is precisely in crises that are triggered by external influencing factors that the focus must inevitably turn inward. And this is where the figures provide information. They clearly show the status of the company and provide timely recommendations for action.
In addition to clean finances, the numerous external special influencing factors that companies now have to contend with also require a changed mindset. What do you think: What demands are currently being made on managers and what qualities are now the most important?
I think entrepreneurs definitely act differently today than they did ten or 15 years ago. Basically, the past two and a half years have already shown us that decisions can no longer be made in the usual way. Crises, some of them highly complex, are following one another closely and putting companies under pressure. The pace of change has increased dramatically. For managers, this means higher demands. They have to make much more complex decisions in narrower time frames and still deliver good results. I think vigilance and resilience are very important qualities. But also being able to let the new circumstances affect you and make decisions with a certain degree of calm.
What do you think of a car-free Sunday today?
It wouldn't shock me. I have experienced it and it would certainly work again. However, I would leave my car in Hesse and spend time in Hamburg, Berlin or at the Baltic Sea.
Thank you very much for the interview, Mr. Köstens.
