Adapters versus preservers

How companies in DACH countries are coping with uncertainty

A new study by PwC emphasises the need for organisations to adapt their portfolio management approaches, implement defined measures effectively and be proactive and courageous in uncertain times. This way they can navigate volatility, seize opportunities and remain competitive in dynamic markets. In this post we take a brief look at some of the main findings.

How are businesses in Germany, Austria and Switzerland coping with volatility, uncertainty, complexity and ambiguity? PwC’s Corporate Portfolio Management Study 2023 reveals several key findings about portfolio management in uncertain times. It shows, for example, that 55% of executives are planning to adapt their portfolio in the next 12 months, and 44% expect a change of at least 20% in their core business within the next five years. Despite the growing uncertainty, 46% of the leaders polled remain optimistic about the market attractiveness and growth opportunities of their own business segment in the next five years.

Balancing resilience and transformation

In the face of challenges including climate change, the Ukraine war, high inflation and rising interest rates, companies are trying to strike a balance between resilience and transformation. The study highlights the importance of adapting strategic portfolio management approaches to volatility, uncertainty, complexity and ambiguity (VUCA). The majority (58%) of respondents are “adapters”, focusing on flexibility, speed and optimising risk, while 42% adopt a “preserver” approach that emphasises stability, focusing on detail and optimising profits.

Although companies recognise the need for adapting their portfolios, PwC’s research suggests that they place too little emphasis on inorganic measures. Instead they tend to prioritise organic measures such as sustainability programmes (72%) and growth initiatives (71%), while acquisitions (44%) and carve-outs (11%) are given less attention. This lack of focus on inorganic growth limits their speed and impact in dynamic markets.

“While organic expansion via sustainability programmes and growth initiatives has its place, companies that fail to capitalise on inorganic measures such as acquisitions and carve-outs might find themselves without the agility and impact needed to navigate uncertain and dynamic markets.”

Marc Schmidli, Partner, Deals Leader, PwC Switzerland

Weak implementation

The study highlights a major weakness when it comes to implementation, with only 29% of respondents fully executing a strategic portfolio management approach. This marks a deterioration versus previous editions of the study. Additionally, only 7% of respondents execute portfolio adaptation measures on a consistent and timely basis. Delays in implementing defined measures can result in companies falling behind the pace of market dynamics and seeing only diminished impact from their strategic actions once implemented.

The study provides six practical recommendations for corporate governance in uncertain times:

Learn to live with the uncertainty: Rather than seeing them as a threat, companies need to view volatility and uncertainty as opportunities for transformative change.
Adapt instead of preserve: Executives should shift their strategic approach towards adaptability, focusing on flexibility, speed of adaptation and risk optimisation.
Maintain a healthy core business as the basis for transformation: While transformation and flexibility are crucial in the long term, maintaining a healthy core business is equally important. Executives should strike the right balance between measures to preserve and efforts to transform.
Build strategic governance structures for complex markets: Companies should invest in structures, processes and tools to consciously manage a portfolio of business units in complex market structures. This means reducing erratic and reactive decisionmaking and harnessing technologies like AI for informed portfolio decisions.
Define and implement portfolio optimisation measures: Decisionmakers should choose the right optimisation measures to adapt their portfolio to changing market conditions. They should make more effective use of inorganic measures such as acquisitions and carve-outs and once defined, measures should be implemented promptly and consistently.
Have the courage to act: Companies should accept the inherent uncertainty in VUCA markets and develop a risk tolerance more in keeping with present times. Making bold and quick decisions allows companies to mitigate risks and capitalise on opportunities.

If you’d like to go into these topics in greater depth, I’d encourage you to visit our website and check out the study. You’ll find plenty of food for thought. Feel free to contact me if you’d like to continue the conversation.