Wittig crisis and turnaround in german medium sized enterprises; an integrated empirical study (2017)

Familienunternehmen und KMU Thomas Wittig Crisis and Turnaround in German MediumSized Enterprises An Integrated Empirical Study Familienunternehmen und KMU Edited by A Hack, Berne A Calabrò, Witten/Herdecke H Frank, Vienna F W Kellermanns, Charlotte, Vallendar T Zellweger, St Gallen Both Family Firms and Small and Medium Sized Enterprises (SME) feature a number of distinct behaviors and characteristics which could provide them with a competitive advantage in the market but could also lead to certain risks The scientific series at hand presents research which provides an empirical and theoretical contribution to the investigation on these specific characteristics and their impact on business practice The overall aim of this series is to advance the development of theory in the areas of family firm and SME management Edited by Professor Dr Andreas Hack University of Berne Professor Dr Hermann Frank Vienna University of Economics and Business Professor Dr Thomas Zellweger University of St Gallen Professor Dr Andrea Calabrò University of Witten/Herdecke Professor Franz W Kellermanns, Ph.D University of North Carolina, Charlotte WHU – Otto Beisheim School of ­Management, Vallendar, Germany Thomas Wittig Crisis and Turnaround in German MediumSized Enterprises An Integrated Empirical Study Foreword by Prof Dr Andreas Hack Thomas Wittig Witten, Germany Dissertation Witten/Herdecke University, 2016 Familienunternehmen und KMU ISBN 978-3-658-16385-3 ISBN 978-3-658-16386-0  (eBook) DOI 10.1007/978-3-658-16386-0 Library of Congress Control Number: 2016956810 Springer Gabler © Springer Fachmedien Wiesbaden GmbH 2017 This work is subject to copyright All rights are reserved by the Publisher, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed The use of general descriptive names, registered names, trademarks, service marks, etc in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use The publisher, the authors and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication Neither the publisher nor the authors or the editors give a warranty, express or implied, with respect to the material contained herein or for any errors or omissions that may have been made Printed on acid-free paper This Springer Gabler imprint is published by Springer Nature The registered company is Springer Fachmedien Wiesbaden GmbH The registered company address is: Abraham-Lincoln-Str 46, 65189 Wiesbaden, Germany Foreword V Foreword Confucius found errors to be a fruitful ground for experience, for identifying and implementing changes We, thus, learn from our mistakes and, in extreme cases, from failure There is a reason an important part of psychological research looks into experiential learning In economic practice, companies make numerous mistakes every day without being aware of them Moreover, companies find themselves in financial trouble and are forced to file for bankruptcy on a daily basis Accordingly, one would think that economic literature encompasses countless studies investigating companies in crises in order to derive practical recommendations from their failures However, surprisingly, there are very few theoretical / conceptional essays and even fewer empirically substantiated works This is mainly due to the high complexity of the issue and the special challenges encountered when collecting data in this field Thomas Wittig is one of the first scientists in a long time to take up the challenge of analyzing the topic of crisis management on the basis of empirical data It is not an exaggeration to say he not only accepted the challenge, he brilliantly mastered it This dissertation thesis specifically focuses on the elaboration of a comprehensive and consistent conceptional crisis management model and its empirical validation Mr Wittig particularly explains which turnaround measures lead to success for specific causes of crises and in specific critical situations Moreover, the special situation of family-owned companies and the influence of restructuring measures on the entrepreneurial family are described The theoretical relevance of the underlying research question is to be assessed as very high, since the present research is probably unique in its multifacetedness and completeness The conceptional considerations and empirical statements have the potential to exert a fundamental influence on crisis management research in years to come From the perspective of family company research, as a by-product, so to say, the paper also provides important clues with regard to changes of ownership and management structures in specific critical situations and crisis management The un- VI Foreword derlying database can also be described as unique and has the potential to lay the foundation for crisis management research in the field of family-owned companies Groundbreaking works are expected to be based on interesting research questions, solid theoretical foundations, and strong databases, but they should also provide surprising results that shake up current beliefs and stimulate new ways of thinking Not many papers are able to fulfil these requirements, but Thomas Wittig’s thesis has This dissertation thesis will dominate economic discussions on crises and crisis management strategies (especially in family-owned companies) in years to come and will inspire many theoretical and empirical projects I am confident that selected findings from this thesis will find their way into the leading journals of our community Of equal importance is the fact that the explanations will be taken up by a broad general readership as the practical implementation of the findings are certain to increase the effectiveness of crisis management to a considerable extent Thomas Wittig has rendered us a great service with this thesis Prof Dr Andreas Hack Preface VII Preface The compilation of this monograph has been both a challenge and a pleasure The topic of crisis and turnaround has been a highly relevant part of my professional life, both as manager and consultant While the companies I worked for did experience other phases of the company lifecycle as well, the time of crisis and turnaround is, although posing a high risk for the continuation of a company, a time of dynamic changes and renewal of the corporate identity: The turnaround management includes both drastic cuts into the corporate substance as well as the opportunity to change the very character of an enterprise Conducting this study brought with it the opportunity to venture beyond the strategic and operational management challenges in turnaround situations, to investigate the underlying structure of the turnaround process in a depth that would be unfeasible outside a dedicated scientific research project It allowed me to challenge and review my personal experience in the context of scientific evidence The accessibility of this monograph for practitioners is unfortunately obstructed by the academic setup of such a work Nonetheless, I am convinced that this study’s results, which are based on a broad base of empirical evidence and an innovative conceptual structure, can be of use in gaining additional insights into the crisis and turnaround process These insights can offer valuable guidance for the best performance of such a process Obviously, this study would not have been possible without the support of many people contributing in different ways to this study On the scientific side, I want to thank foremost my doctoral thesis supervisor Professor Dr Andreas Hack, who is both a brilliant scientific mind and has been a reliable and critical, but always constructive, advisor for this work His professional guidance, both in terms of how to conduct such a research and the empirical research methodology, was invaluable for me I want to thank the whole team of Professor Dr Arist von Schlippe at the WIFU (Witten Institute for Family Business), including all internal and external PHD students I appreciated the warm welcome and especially the excellent discussions in the regu- VIII Preface lar research colloquiums Also, I want to thank Dr Nils Kraiczy, who taught me the nuts and bolts of conducting statistical analyses Similarly of tremendous assistance was Wilko Ufert, who invested extensive time in both literature acquisition and providing feedback and criticism on earlier drafts of this study My thanks also go to Thomas Pichote, who shared an office with me during the whole time of this monograph’s compilation, providing both support and company, but mostly firm friendship As this work did rely on the empirical data provided by German banks and their risk managers, I want to thank those who made it possible to contact and discuss my research objective with them Foremost, my dear friend Dr Holmer Glietz, who not only assisted me with his extensive contacts to the risk management departments of German banks, but who was also an important discussion partner in relating the practical side of turnaround management Similarly, I want to thank Professor Dr Arist von Schlippe, Michael Wiendl, Dirk Schlarmann, Felix Schwabedal and Ralph Rickassel for opening doors and establishing contacts to banks and their respective heads of restructuring As the foundation of this study are the empirical contributions, I want to thank Deutsche Bank, Commerzbank, DZ Bank and the German Savings Banks Association, but also all other banks that requested to remain anonymous, for the time and effort invested in the assessment of cases for this study Specifically, I want to thank Hans-Helmut Weber, director of the credit restructuring of DZ bank, who made the success of this study his own concern and helped promote this study among his peers Further, I want to thank the restructuring experts that assisted in the evaluation and discussion of the conceptual model: Alban Baiker, Holmer Glietz (as mentioned above) and Felix Schwabedal, as well as the anonymous banks’ risk managers They helped to ensure that the scientifically founded conceptual model for crisis and turnaround adequately reflects the real world properties of the crisis and turnaround process Preface IX I want to express my gratitude to my parents, especially my mother Elisabeth Wittig, for her continued support of my education and personal development I want to conclude this preface by thanking my beloved wife Nicole, without whom and without her role in my life this work would not have been possible To her and to my daughters Johanna und Maren I want to dedicate this book Thomas Wittig 388 Context and turnaround result part VII Appendix – correlation tables Stakeholder management during turnaround Company size (turnover) before crisis Share of biggest shareholder before crisis CEOs time with the company before crisis Primary strategy before crisis Quality leadership Primary strat before crisis Innovation leadership Primary strat before crisis Lowcost leadership Slack resources before crisis Lender security situation before crisis Company size (turnover) before crisis 0.220** -0.248** -0.015 0.09 0.069 0.067 0.08 -0.126 Share of biggest shareholder before crisis -0.117 -0.248** -0.180** -0.118 0.054 0.066 -0.012 0.165* CEOs time with the company before crisis 0.012 -0.015 -0.180** 0.019 0.049 -0.096 0.188** 0.098 0.180** 0.09 -0.118 0.019 -0.392** -0.169* 0.129 0.067 -0.02 0.069 0.054 0.049 -0.392** -0.129 -0.119 -0.06 -0.098 0.067 0.066 -0.096 -0.169* -0.129 -0.156* 0.05 Slack resources before crisis 0.031 0.08 -0.012 0.188** 0.129 -0.119 -0.156* 0.03 Lender security situation before crisis -0.051 -0.126 0.165* 0.098 0.067 -0.06 0.05 0.03 Equity ratio before crisis 0.156* 0.089 0.005 -0.096 0.113 0.019 -0.052 0.053 0.065 Pre-crisis profitability 0.019 0.051 0.073 0.061 0.260** 0.006 0.009 -0.044 0.02 Family share in the company before crisis -0.12 0.003 0.152* -0.360** 0.005 -0.041 0.024 -0.121 -0.1 0.113 0.13 -0.032 0.091 0.042 0.083 0.027 -0.102 -0.147* 0.415** 0.235** -0.009 -0.119 0.187** 0.046 -0.048 -0.067 -0.111 Pearson correlation coefficient N = 209 ** Correlation is significant at the 0.01 level (2-tailed) * Correlation is significant at the 0.05 level (2-tailed) Internal context Primary strategy before crisis - Quality leadership Primary strategy before crisis - Innovation leadership Primary strategy before crisis - Low-cost leadership External context Long-term growth perspectives of market segment Turnaround result Turnaround result Appendix – correlation tables 389 Context and turnaround result part VIII Equity ratio before crisis Precrisis profitability Family share in the company before crisis Longterm growth perspect of mark Segm Turnaround result Company size (turnover) before crisis 0.089 0.051 0.003 0.13 0.235** Share of biggest shareholder before crisis 0.005 0.073 0.152* -0.032 -0.009 CEOs time with the company before crisis -0.096 0.061 -0.360** 0.091 -0.119 0.113 0.260** 0.005 0.042 0.187** 0.019 0.006 -0.041 0.083 0.046 -0.052 0.009 0.024 0.027 -0.048 Slack resources before crisis 0.053 -0.044 -0.121 -0.102 -0.067 Lender security situation before crisis 0.065 0.02 -0.1 -0.147* -0.111 Equity ratio before crisis 0.207** 0.015 0.119 0.151* Pre-crisis profitability 0.207** -0.034 -0.032 -0.069 Family share in the company before crisis 0.015 -0.034 -0.017 0.159* 0.119 -0.032 -0.017 0.454** 0.151* -0.069 0.159* 0.454** Pearson correlation coefficient N = 209 ** Correlation is significant at the 0.01 level (2-tailed) * Correlation is significant at the 0.05 level (2-tailed) Internal context Primary strategy before crisis - Quality leadership Primary strategy before crisis - Innovation leadership Primary strategy before crisis - Low-cost leadership External context Long-term growth perspectives of market segment Turnaround result Turnaround result 390 Appendix – correlation tables Context and turnaround result part IX Role of owner family in sup board before crisis Owner family control before crisis CEO is family member Owner family control bef crisis structure of TMT Owner family generation before crisis Company size (turnover) before crisis 0.355** 0.142 0.414** 0.144 Share of biggest shareholder before crisis -0.177* -0.280** -0.266** -0.274** CEOs time with the company before crisis -0.049 0.295** 0.240** 0.258** 0.079 0.101 0.099 0.042 0.132 -0.015 -0.018 -0.195** -0.096 -0.025 0.046 -0.011 Slack resources before crisis 0.022 0.073 0.059 0.139 Lender security situation before crisis -0.072 -0.155* -0.195** -0.146 Equity ratio before crisis 0.111 0.058 0.089 0.036 Pre-crisis profitability -0.07 0.004 0.044 -0.025 Family share in the company before crisis -0.113 -0.307** -0.309** 0.099 0.119 0.014 0.077 0.045 0.180* 0.096 0.133 0.096 Pearson correlation coefficient family-firm-specific context variables - N = 178 ** Correlation is significant at the 0.01 level (2-tailed) * Correlation is significant at the 0.05 level (2-tailed) Internal context Primary strategy before crisis - Quality leadership Primary strategy before crisis - Innovation leadership Primary strategy before crisis - Low-cost leadership External context Long-term growth perspectives of market segment Turnaround result Turnaround result Appendix – correlation tables 391 Context and turnaround result part X Family share in company after crisis Owner family control after crisis CEO is family member Owner family control after crisis structure of TMT Company size (turnover) before crisis -0.106 0.223* 0.260** Share of biggest shareholder before crisis 0.017 -0.181 -0.168 CEOs time with the company before crisis -0.071 0.127 0.168 0.071 0.04 0.101 -0.007 -0.033 -0.099 0.132 -0.192* -0.087 Slack resources before crisis -0.076 0.189* 0.228* Lender security situation before crisis -0.019 -0.102 -0.118 Equity ratio before crisis 0.032 0.156 0.076 Pre-crisis profitability -0.003 0.013 0.011 Family share in the company before crisis 0.237* -0.167 -0.201* 0.118 -0.029 -0.154 0.141 -0.018 -0.029 Pearson correlation coefficient family-firm-specific result variables – non insolvent cases only - N = 113 ** Correlation is significant at the 0.01 level (2-tailed) * Correlation is significant at the 0.05 level (2-tailed) Internal context Primary strategy before crisis - Quality leadership Primary strategy before crisis - Innovation leadership Primary strategy before crisis - Low-cost leadership External context Long-term growth perspectives of market segment Turnaround result Turnaround result References 393 References 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I want to thank Deutsche Bank, Commerzbank, DZ Bank and the German Savings Banks Association, but also all other banks that requested to remain anonymous, for the time and effort invested in. .. correct strategies and activities to manage the crisis and allow the recovery of the company © Springer Fachmedien Wiesbaden GmbH 2017 T Wittig, Crisis and Turnaround in German Medium- Sized Enterprises,