Roland Berger

Strategy Consultancy Seeks to Practice What it Preaches

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Roland Berger
  • Why it matters

    Why it matters

    Roland Berger Strategy Consultants  is Europe’s oldest and largest management consultancy but a failed merger attempt with Deloitte and an unsuccessful global expansion push suggest it may struggle to challenge U.S. rivals.

  • Facts

    Facts

    • Roland Berger founded his management consultancy firm in 1967.
    • It is now Germany’s largest such agency.
    • The company has total revenues of about €700 million ($897 million).
  • Audio

    Audio

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It must have been a bitter pill to swallow – Roland Berger Strategy Consultants, Germany’s largest management consultancy, needed to call in the consultants themselves.

A stormy global expansion and flirtations over a potential sale of the company had given the Munich-based firm some major headaches. Costs exploded and clients left.

The crisis began three or four years ago, during the tenure of former chief executive, Martin Wittig. But the signs are that it is now winding down, and that is certainly the intention of the company’s new leadership.

Frenchman Charles-Édouard Bouée, 45, has been at the helm since July. He has been tasked with leading the firm away from its woes towards a new beginning. The master plan for the makeover is known internally as “New Roland Berger.”

The name says it all. Roland Berger, founded by the legendary businessman in 1967, is returning to its roots in the corporate restructuring business, trimming millions in costs and only seeking alliances in selected areas.

That, at least, is the plan.

It's been less than a year since consultants were still being asked at parties: "What, you're still with Roland Berger?"

The frenetic growth of the past is over. The company is restructuring itself, and after two dry years, it expects to pay dividends again, a sign that profitability is back on track.

For decades, there was only one direction for the consulting firm: up. It was once such an institution in Germany that Deutsche Bank assumed majority ownership. The partners were later forced to buy back their shares at a premium.

The more the founder, now 76, withdrew from active management after the turn of the millennium, the bolder his successors became.

They pushed for a merger with accounting giant Deloitte, but it failed in 2010. After that, the firm decided to remain independent and expand aggressively. It intended to use much of the €50 million ($64 million) in additional funds contributed by Mr. Berger and other partners to open more offices abroad.

Roland Berger had been trying to gain a stronger foothold in the United States for years, but it somehow couldn’t manage to get its business off the ground there.

But the consulting firm didn’t want to call it quits in the United States. Instead, it aimed to expand its presence in New York, with a special emphasis on financial services. Roland Berger also wanted to expand its offices in Turkey and the Arab world, and new offices were planned for Malaysia and Indonesia.

The firm has been traditionally strong in China, where its consultants can capitalize on the strong business connections enjoyed by their German clients, especially in the automotive sector. For this reason, it will continue to focus heavily on foreign operations in China. But the company is more likely to gradually withdraw from other regions, where it has failed to develop a profitable business.

It’s been less than a year since consultants were still being asked at parties: “What, you’re still with Roland Berger?” The cutting diagnosis of Germany’s Manager Magazin was that executives were involved in “trench warfare,” and the company was suffering from “partner flight in its core business.” This core business, advising on company restructuring, is the first division to build on past successes.

All the efforts to revive the company have apparently paid off. New Roland Berger is likely to earn enough profit this year to pay its partners a dividend next spring

The sector of small and mid-sized German businesses known as the Mittelstand is an important target for Roland Berger, even though competitors McKinsey and KPMG are also enticed by these lucrative clients.

Unfortunately, it was during this phase of growing competition that the company slumped. “An environment had developed in which some people felt it was time to pack their bags,” Sascha Haghani, the head of corporate finance, told Handelsblatt.

But things have begun to turn around. Roland Berger recently managed to secure contracts for some of the most attractive restructuring cases: wind turbine manufacturer Juwi, bookstore chain Weltbild, Austrian home improvement chain Baumax and Scholz Recycling, based in southwest Germany.

Handelsblatt has learned that Mr. Bouée favors a multi-market strategy based on partnerships instead of major mergers – in private equity and investment banking, for example. According to industry observers, a joint venture with a specialized financial institution is also a possibility.

Many partners who disagreed with the planned merger with Deloitte have since left the company, but management has also targeted certain partners for dismissal. Those who weren’t generating sufficient revenue or no longer conformed to the profile are apparently being shown the door.

The company believes it’s a matter of quickly overcoming its weaknesses. “If they can now manage to redirect themselves, the damage will be minimal,” says Dietmar Fink, a business professor at the Bonn-Rhein-Sieg University and an expert on management consulting.

There is still room for management to expand in the restructuring business. The goal is to increase the firm’s share of the business from around 20 percent to a third of total revenues, about €700 million ($897 million).

Employees who had defected are starting to come back. The firm’s management staff has grown to 95 partners, project managers and senior consultants, almost as large as it was before the bloodletting began.

All the efforts to revive the company have apparently paid off. New Roland Berger is likely to earn enough profit this year to pay its partners a dividend next spring. This year’s profits are rumored to be around €40 million.

The founder has also been asked to do his part to ensure that the revamping of the firm is a success. Together with other senior partners Mr. Berger, the honorary chairman of the supervisory board, who holds about 2.5 percent of shares, had injected €50 million into the company as a mezzanine loan at the height of the crisis. The interest rate on the loan was at a relatively high 8 percent, indicating that it was a high-risk investment.

But now, say insiders, the company and its senior partners have agreed to lower the rate to 3.5 percent. This suggests a relatively risk-free investment – and that the founder himself believes in the future of his company.

 

The author is the chief corespondent on the companies and markets desk at Handelsblatt. To contact the author: fockenbrock@handelsblatt.com

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