56 % of
decision-makers are moderately optimistic about growth opportunities
expect their core business to change by up to 40% in the next five years
follow the strategic approach of the “adapter”, 41% that of the “preserver”
7 % of
decision-makers implement defined strategic portfolio measures consistently
So-called VUCA factors (volatility, uncertainty, complexity and ambiguity) can be triggered by various elements. New regulation, changing consumer preferences, environmental risks, technological innovations – and even geopolitical developments like the Russian attack on Ukraine.
How do corporate executives deal with uncertainty? What strategies do they rely on to navigate their corporate portfolios through turbulent times – and how successful are these methods?
Answers to these and other questions can be found in the PwC Portfolio Management Study 2022. The study was conducted in cooperation with the research institute Kantar and the Technical University of Darmstadt.
“It is understandable that companies implement measures to optimise operational structures far more consistently than strategic ones. After all, strategic measures are usually less tangible and significantly more complex - but they have all the more impact on long-term positioning.”
Despite active crisis factors, more than half of the decision-makers who participated in the survey were moderately optimistic about their 5-year growth prospects. In their views, the negative effects of the coronavirus pandemic have largely been overcome. That positive stimulus is being challenged by the war in Ukraine, although stock markets and general economic activity are still relatively stable, and many of the developments, such as energy price increases, supply chain bottlenecks, or interest rate increases, were longer in the making and have already been factored in.
No less than 46 percent of respondents expect VUCA factors to intensify in the future. This appears to be surprisingly moderate, given COVID-19 and severe political tensions.
Asked about the extent to which they feel independent of external factors or stakeholders in managing the company, the results were in the middle range (average 3.1 out of 5 points). This is slightly lower than in the 2020 study (3.4/5). But: Respondents acknowledged a relatively low level of dependency on financial investors (3.4 out of 4 points) – this is contrary to the historically high level of financial investors’ deal activity and should therefore be treated with caution.
The company managers certainly perceive a paradigm shift – away from continuous growth in stable market environments to significantly more volatile markets and faster market shifts.
This is reflected in the strategic approaches of the respondents:
59 % of them pursue an “adapter” approach that reacts flexibly to market changes and minimizes risks. 41 % choose a “preserver” approach, which focuses on optimizing existing structures and leveraging efficiency potential.
In practice, plans and implementations do not align perfectly, though. When asked about the most important implementation measures, the respondents named organic measures such as growth programs (73.5 %), restructuring (69.5 %), and research and development (49 %) significantly more frequently – i.e., measures that are more likely to be associated with the “preserver” approach.
Inorganic measures that tend to relate to the “adapter” approach were correspondingly less relevant for the respondents – the three most frequently mentioned were acquisitions (44 %), joint ventures (27.5 %) and carve-outs (8.5 %).
In other words: Corporate executives are not yet implementing their preferred strategic portfolio management approach consistently.
The more complex and uncertain the market environment, the more important it is to implement an institutionalized and adequate portfolio management approach. 69 % of respondents said they had fully or partially implemented a strategic portfolio management approach. And 77.5 % of them thought it was carried out transparently and according to measurable criteria.
The decisive factor is whether companies consistently implement portfolio optimization measures derived from their portfolio management approach. For one, only 7.2 % of respondents said they would quickly sell a business unit if it was not part of their core business.
57 % of respondents expect the complexity of operational corporate structures to increase linearly over the next five years. 21 % even expect an exponential increase in complexity. In contrast, only 21.5 % expect complexity to remain constant or decrease.
In order to identify interfaces and weak points in operational structures, company executives must first understand these structures in detail. They can then optimize them to better fit the needs of an increasingly volatile market environment. A state-of-the-art operational footprint management approach offers a standardized process for identifying, evaluating and managing operational structures.
66.5 % said that their company had at least partially implemented an operational footprint management approach (fully implemented: 20.5%, partially implemented: 46%).
80.5 % of respondents that have implemented an operational footprint management approach said they had implemented it based on transparent and measurable criteria.
Unlike the portfolio management approach, the respondents apparently implement the measures derived from the operational footprint management approach very consistently: 78.2 % said so. This discrepancy in favor of the operational footprint management approach is understandable – after all, corresponding operational measures are usually more tangible and less complex. In contrast, strategic measures have a much stronger impact on long-term positioning.
“Corporate managers in Austria rarely part with divisions for which they are no longer the best owner, according to strategic analysis. Instead of dealing with peripheral issues, the more complex and uncertain the market environment is, the more important it becomes for management to consistently pursue "adapter" measures."
200 decision-makers from the executive board, strategy and M&A took part in the study. The study focuses on companies from the DACH region with more than €200 million in sales. 79.5 % of them are based in Germany, 17.5 % in Austria and 3 % in Switzerland. They are active in a wide range of industries, including energy, infrastructure, healthcare, industrial production, technology, media and telecommunications, and others.
The renowned, independent opinion research institute KANTAR interviewed the participants by telephone. The study was designed by PwC in collaboration with Darmstadt Technical University. The analysis was carried out by the Corporate Finance department headed by Prof. Dr. Dirk Schiereck.