Case Studies

On the fourth-year anniversary of Enerjisa Üretim’s (a power generation and trade business) independence from the highly profitable market leader Enerjisa Enerji (an energy distribution and retail business) and becoming a stand-alone company jointly owned by Germany’s E.ON and Turkish conglomerate Sabancı Group, the CEO of Enerjisa Üretim (hereafter Üretim)– Ihsan Erbil Bayçöl, could not be any prouder.

Only four years ago, Üretim was in dire financial shape, almost teetering on the brink of failure. During the first six months of 2017 preceding the demerger, Üretim had posted a net loss of €114 million. This was the third loss making year in a row, and unlikely to be the last. Then there were the chronic operational problems in its plants, which were partly due to design deficiencies and construction problems, a shortage of technical skills, as well as years of operational mismanagement and top management’s prioritization of the lucrative Enerji over Üretim. Üretim had been a captive supplier to Enerji and had never had to acquire customers nor face market competition. As a result its organizational DNA did not include a sharp performance focus nor aggressive market competencies. Following the demerger, the company would have to operate independently in a highly competitive market and the market outlook was grim to say the least.

Thus, for Üretim’s new management team, the road ahead was filled with seemingly insurmountable financial, operational, and strategic obstacles and dramatic market challenges, culminating in the very real risk of failure. In fact, even in the ranks of management there was little confidence in the future of a stand-alone Üretim. Many senior executives actively campaigned during the demerger to join Enerji instead – the star division of the former integrated company. Yet what transpired in the next four years is nothing short of an epic story of transformation containing many critical lessons. A young, visionary leadership team was adamant not to go down without a real fight, snatching the company from the brink of extinction and in the process transforming it into a sector leader with immense growth prospects. Today Üretim boasts the strongest balance sheet in its sector, pays dividend to its shareholders, owns the top performing power plants by key operational metrics, commands the most innovative portfolio of energy services, is heralded as the digital leader in its sector and through aggressive expansion across Southeast Europe, is on the verge of becoming a regional trading powerhouse.

Having launched in Canada one year previously, Netflix announced its plans in September 2011 to expand into 43 countries throughout Latin America and the Caribbean – its largest expansion to date. One month later, the company revealed its plans to launch its online video streaming service in early 2012 in the UK and Ireland. Some 10,000 km away outside Munich, Thomas Ebeling, CEO of Germany’s largest TV company, ProSiebenSat.1 (hereafter “ProSieben”) was only too aware that Netflix’s announcements were just the first steps in its race to establish online global dominance.

It was only a matter of time before Germany – Europe’s largest TV market – became the new front line for digital disruption in the streaming service provider wars. Though ProSieben was one of the most profitable media corporations in Europe at the time – the company was number one in the German advertising market with a share of 42%. Its financials were solid, it boasted a relentless pipeline of blockbuster innovations, such as the Voice of Germany which was predicted to be an instant hit, its newly founded in-house production unit based in the US was already creating a buzz and it had made substantial investments in online media.

But was the company really ready to take on platform businesses such as Netflix and Amazon and emerge victorious in the digital revolution?

2011 was the year a new breed of CEOs began to appear at the helms of some of Germany’s largest corporations: the energy group RWE, the chemical giant BASF, the universal bank Deutsche Bank, and the company that was once synonymous with steelmaking, Thyssenkrupp. Four things set Thyssenkrupp’s new CEO Heinrich Hiesinger apart: his election didn’t feature the extreme boardroom drama and leadership conflicts experienced at RWE and Deutsche Bank. He was to lead a conglomerate that was substantially more diversified than the others and he was the only new CEO not promoted from within (he was, in fact, a veteran of Siemens, having lasted two decades, and the first boss at Thyssenkrupp to come from outside the steel industry) – finally, he was to take up the reins of a company that was simultaneously battling nearly every kind of problem one could possibly imagine: a massive downturn in key markets, ballooning losses at many plants, ill-fated international expansion projects, corruption allegations, cartel charges, corporate governance issues and severe credit downgrades. Mr. Hiesinger was facing a daunting task but was unshakably certain he could steer this capsizing ship into a safe harbor. Somewhat ironically, Thyssenkrupp has three hundred years of expertise and experience in the construction of ships.

It was a Thursday evening on an August day in 2011 when Gisbert Rühl, the CEO of Klöckner & Co., was sitting in his office in the company’s headquarters in Duisburg, Germany. He had already had a stressful week with a tough analyst call, and a strategy meeting about potential adjustments to Klöckner’s business model. It was the strategy meeting, which was about the future of Klöckner, that worried him most. He wondered what the future would look like, and whether there even was a future for a traditional steel trader in the age of e-commerce. He had just steered the supertanker through the stormy seas churned up by the financial crisis that began in 2008/2009. In the early stages of that crisis, some of his colleagues at other companies thought the end of the world was nigh. In those days, there was no time to think about the longer-term challenges facing the steel trading business, or about the industry’s inefficiencies, which he had been concerned about for quite some time. But now, having weathered the financial crisis, Gisbert Rühl had the feeling that the questions being raised about the future of Klöckner’s business model were not going to go away, and that the pressure to make difficult decisions was mounting – decisions that could involve radical changes. The long-term survival of the company was at stake, and on this particular evening, Klöckner’s CEO had no clear idea of how to cope with these looming problems. Can you imagine yourself leading one of the largest steel trading companies in the world, while not knowing how to ensure that your company will continue to be a relevant player in the digitized, platform-driven future?

In a country where the largest corporations have a nearly perfect record of recruiting CEO successors from within the company or – at the very least – from within the industry, Mr. Friedrich Joussen, the newly-appointed CEO of TUI AG, Europe’s leading tourism company, was a true anomaly. A mechanical engineer by training, Mr. Joussen spent most of his career in the telecoms world, where he played a crucial role in establishing the mobile industry in Europe, and in Germany in particular. But as of February 2013, the former Chief Operating Officer of Vodafone Germany was at the helm of a 73,000-employee travel company, which had a chaotic conglomerate structure and was facing existential threats. TUI’s margins were under tremendous pressure, as the company had just announced the worst quarterly results in the last four years, and its stock price was hovering at near all-time lows. To make matters worse, TUI was beset by serious ownership and governance conflicts, its business model was generally seen as fuzzy, it had a sub-investment grade rating, and the last time the company’s board had issued a dividend to its shareholders was in 2008. Indeed, even though Germany’s DAX index had more than tripled since the outgoing CEO Michael Frenzel began his tenure in 1994, TUI’s share price and dividend payments had barely moved over this period. A lot was riding on this industry outsider’s appointment, as tensions among shareholders were running high, and there was no time to lose in tackling the company’s pressing problems.