Germany was more successful in its handling of the coronavirus pandemic compared to other European countries. A quick and comprehensive public health response led to some of the lowest mortality rates on the continent.
New crisis, new economic outlook?
The German economy seemed to be on a steady, uphill trajectory as the pandemic began to subside. However, a series of challenges early in 2022 have impacted the country’s outlook. The Ukraine war, an inflation rate touching almost 8%, a supply chain crunch and a global energy crisis have thrown the Germany economy into crisis mode, challenging its successful post-pandemic recovery.
Reflection amidst disruption
The war in Ukraine has disrupted supply chains and has exacerbated the pandemic-induced order backlog, the impact of which was at an all-time high in May. This has had a major impact on business, with an 18%-point increase in the number of German business leaders reporting supply chain disruption in the 2022 Barometer, compared with July 2021.
Disruptions have also caused stagnation in activity in some industries and deep crisis in others, making supply chain resilience through operational solutions a key priority for German firms in 2022 and beyond. Along with turbulence within supply chains, an increase in cyber threats since the onset of the pandemic and an ageing population is also pushing German business leaders to build cyber resilience, work towards digitisation, and ensure that their businesses remain attractive to the next generation of talent.
Concerns cited by the C-suite are a key indicator of the scale of impact brought about by the ongoing crises affecting the German economy. Business leaders in Germany report a number of concerns very specific to the country’s market – including particular pressures faced by the jurisdiction’s energy-dependent automotive and manufacturing sectors.
At the time of our research, surging energy prices were the top concern for leaders in Germany. Whilst inflation rates were a major concern across the board, with the German Federal Statistical Office, Statistisches Bundesamt, reporting an inflation rate of 7.6% in June this year, inflation relating to energy prices climbed to 38% within the same period. The rise in prices was a shared concern among business leaders in Germany even before conflicts in Ukraine. The value chain crisis and rise in inflation only strengthened this worry, with 37% of leaders citing it as a key concern.
The impact measures to control climate change have on the economy was another major concern. This concern was slightly more pronounced in German respondents compared to their EU3 and G20 counterparts. Around 1 in 4 German business leaders also expressed concern over global energy shortages and inflation reaching damaging levels, both amplified by the war in Ukraine. The main concerns for German business leaders largely correspond to those of EU3 and G20 business leaders. However, talent growth and retention remain an anomaly in Germany compared to their European counterparts. Due to state-imposed measures like short-term compensation and employment schemes, rising unemployment rates were a bigger concern across EU3 and G20 countries compared to Germany.
The pandemic challenged the financial and operational resilience of G20 businesses. With corporate debt rising across the G20 economies to levels not seen since the 2008 crisis and pre-Covid operational models increasingly becoming redundant, building operational and financial resilience will be key for companies looking to achieve a financially secure and competitive future.
Looking forward: Financial and Operational Restructuring
Financial resilience is a key concern for business leaders in Germany. Whilst the proportion of leaders expecting to require financial help was lower in Germany than in the EU3 and G20, at 58% compared to 59% in the EU3 and 62% in G20, the proportion of companies reporting difficulty in servicing their debts was similar to peers in other jurisdictions – suggesting that while German business may be stable in the short term, long-term instability remains a threat. 65% of business leaders predicted financial restructuring within their companies, possibly to mitigate short-term and long-term financial risk brought about by the current crises.
65% of German business leaders said they expect to require operational restructuring in the next year, up from 56% in July 2021. The steep increase in leaders’ recognition for organisational change points to a greater recognition of the benefits of integrating crisis preparedness and resilience into organizational structures. With 2 in 3 German business leaders saying that their company is being impacted by the energy crisis, organisational preparedness is clearly on the minds of leaders in Germany.
Moving forward, the top three things that German business leaders are under pressure to achieve in the next 12 months are to increase turnover (34%), increase profits (34%), and integrate innovation in technology in their processes (29%). These are broadly consistent with the priorities of business leaders across the EU3 and G20.
The series of crises over the last few years have put the need for crisis preparedness on blast for German business leaders. With cracks developing in multiple segments of the value chain, investment in crisis management is crucial for long term business sustainability.
At the other end of the table, a rise in stakeholder capitalism across industries also requires a greater investment in interests that aren’t immediately relevant to crisis remediation. In a landscape of conflicting interests, business leaders are tasked with prioritizing investments to serve their business.
Crisis planning isn’t new to Germany, with the pandemic poising businesses to deal with any future crisis. 4 in 5 business leaders in Germany agreed that since the COVID outbreak, their firms’ crisis plans are in good shape. However, confidence in these plans seems to be declining with 81% of leaders agreeing that they were better prepared for future crises, down from 85% in the July 2021 Barometer. German leaders also were less likely to agree that the pandemic caused lasting damage to their industry (61%), compared with 69% among both EU3 and G20 respondents. This may have contributed to a degree of inertia on the part of some German companies in relation to planning for future crises.
In terms of the specific actions or investments undertaken by German firms or expected to be undertaken in the next 12 months to prepare for future crises, assessing cybersecurity programmes was the top consideration at 39% in early 2022. However, the chief concern currently is addressing supply chain risk and creating flexibility within production. This is due to the pronounced risk companies now face with hampered trade coupled with an acute energy crisis.
The pandemic has brought the need for cybersecurity into the spotlight. The steep rise in cyber criminality pushed by a “levelling up” of cybercrime sophistication,and an increased vulnerability brought around by remote work, has positioned cybersecurity as an essential business priority. Adopting robust cybersecurity and data privacy measures is non-negotiable for German businesses in 2022.
How does Germany compare with the EU3 and G20?
39% of German business leaders said that addressing their cybersecurity programme is the foremost action or investment they have either made or expect to make in the next 12 months, which is broadly in line with the expectations of EU3 and G20 business leaders.
Cybersecurity risks German business leaders are most concerned about are employees’ use of unauthorised devices or applications (33%), malicious insiders and vulnerabilities from increased remote working. Whilst the risk of cyberattacks conducted by nation-states is also high on the agenda (30%), German business leaders perceive that the main risks tend to be internal rather than external. We also see some interesting year-on-year (YoY) trends for this metric. German business leaders are considerably more concerned about various cybersecurity risks in the 2022 Barometer compared to the 2021 version. Whilst this rise in concern is captured among the EU3 and G2o in the 2022 Barometer as well, YoY changes are less distinct.
Looking Ahead
To avoid the regulatory and reputational risks that come with cyber vulnerability, German business leaders will have to take a more proactive and strategic approach to data security in the future. Adequate investment will also need to be made to ensure that cybersecurity and data protection infrastructure are not rendered obsolete by the adoption of new technologies such as blockchain or digital assets/platforms. At the same time, it is important for business leaders to consider the financial risk that is closely associated with cyber risk when developing business strategy. Potential data breaches could mean large financial bleeds that could drastically alter companies’ financial independence.
Business transformation is crucial to future-proofing organisations. With remote work now established as common practice, German companies have to weigh the potential remote work affords against accompanying risks and complications. Despite being a leader in remote work, German businesses are struggling to digitise, with an emerging tech scepticism among leaders that could challenge future growth.
Working from home
The acceptance of remote work is on the rise in Germany with 42% of business leaders expecting their employees to work remotely 50% of the time or more, an increase from 37% in July 2021. Moreover, 18% of leaders expect their employees to work from home 80% of the time, an increase from 10% in July 2021.
Are we really ready for digitalisation?
However, our data reveals that a positive attitude towards remote work doesn’t necessarily reflect optimism towards digitalisation. For example, 67% of German business leaders agreed that their firm is struggling to digitise. Although a similar proportion agreed that their business model needs to fundamentally change to maintain or restore competitiveness, only 34% said that they take a mainly proactive approach to the risk of their business model becoming outdated.
German business leaders also appear to be less keen on utilising emerging technologies. 38% reported that their firm does not want to incorporate blockchain and digital assets into their business offering. Concurrently, German businesses are also considerably more likely to reduce their budgets for emerging tech compared with EU3 and G20 respondents.
A significant contribution must be made by the private sector, with the onus on larger firms to develop robust climate action plans. However, our data reveals some interesting insights from German business leaders that doesn’t necessarily reflect this optimism towards environmental, social and governance (ESG) investment.
How does Germany compare with the EU3 and G20?
1 in 4 business leaders in Germany reported that keeping pace with climate change regulation and attitudes is not managed at all by their firm, which is a considerably higher proportion than in any other country in the EU3 or G20 We see a similar pattern in terms of ESG and sustainability developments. Whilst 45% of German business leaders said that they take a proactive approach to the impact of ESG and sustainability developments, 18% reported that their company does not manage these risks at all.
Whilst 4 in 5 business leaders in Germany claim that their organisations have been spending more resources on ESG and sustainability in the last 12 months, it’s worth noting that only Japan, Russia and France recorded lower levels of agreement out of the G20 countries. In any case, there is a 15% point difference between the proportion of German respondents who agree that their company does not have sufficient ESG and sustainability expertise to cope with increasing scrutiny, and those who reported spending more on ESG and sustainability.
Just under a third of business leaders in Germany agreed that they are falling short when it comes to making their supply chains more sustainable (31%), compared to 23% among EU3 business leaders, and 26% among the G20. As discussed elsewhere, the current geo-economic climate makes this an important area for German business leaders to address.
Looking Ahead
It will be important for German business leaders to take a holistic approach to climate risk and ESG planning. For example, effective resource management and building sustainable supply chains are crucial to preparing for an energy-insecure future and managing climate risk to achieve national, European, and worldwide climate targets. However, this should not come at the expense of investment in people. Although the German labour market has proved itself robust during the coronavirus pandemic, its ageing population means that securing the next generation of talent will require sufficient investment being directed to improving management quality.
Resilience Barometer® Germany (2022) captures business leaders’ perspectives about the German business landscape. Against the backdrop of rapidly rising inflation rates and an intensifying energy crisis, this report discusses pressing issues in a range of areas including business transformation, operational and financial restructuring, data privacy and cybersecurity, crisis management and ESG.
Whilst the report is divided into sections, many of the concerns and scenarios discussed are interconnected and often span across different sections. This reflects FTI’s multidisciplinary, flexible approach to building and sustaining resilience and protecting value.
A focused analysis of the German results compared to the G20. Looking at:
June 9, 2021 - Mit Bewegtbild, Personalisierung und Storytelling gegen die pandemiebedingte Distanz. Auch auf Social Media stand die diesjährige Berichtssaison stark im Zeichen der Corona-Pandemie. In vielen Posts zogen DAX-30-Unternehmen die Krise als zentralen Bezugsrahmen zur Interpretation der Jahresergebnisse heran.
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May 21, 2020 - Leadership in the age of social media - Social media has fundamentally transformed the way that leaders communicate. As employees, investors, media and the public have become accustomed to using social media channels, an increasing number of business leaders are seeing the opportunities to engage with these audiences on the channels where they are spending their time.
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January 13, 2021 - Most large companies have embraced social media channels to communicate with their customers, employees, investors and other audiences. From Twitter to Facebook, and Instagram to LinkedIn, the last decade has seen businesses engage on these platforms in increasingly sophisticated ways.
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July 10, 2020 - New research by FTI Consulting sheds light on the role of the CEO on a company’s valuation. While this is one factor among many, the research indicates that companies whose CEOs demonstrate strong leadership, and were publicly vocal, better withstood the negative impacts of the initial stages of the COVID-19 pandemic. This stronger investor confidence translates into as much as US$260 billion in additional shareholder value.
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