An extensive global survey to assess preparedness for European Monetary Union and transition practices of the world's leading corporations has found that only 14 per cent of the companies surveyed had contingency plans in place.
Contingency plans would aim to limit the downside to companies from a "disaster scenario" such as a collapse of EMU or a delay in the implementation timetable.
The absence of contingency plans and the fact that 44 per cent of companies had no formal plans in place to assess the impact of EMU and implement necessary changes was a cause for concern, according to the Price Waterhouse Corporate Treasury Services Group which carried out the survey. The evidence indicated that many companies have much to establish in a short time if they are to successfully achieve EMU-compliance even to a minimum standard by January 1st, 1999, the consultants warned. The survey found that only 30 per cent of the 485 multinational corporations surveyed recognised reduced barriers to market entry, pricing harmonisation and the other anticipated consequences of EMU as having a material strategic impact on their business operations. Some 42 per cent considered that any impact would be low. An interesting finding was that the result from companies based outside the EU was almost identical to those based inside the EU.
Some 44 per cent of the respondents admitted to having no formalised structure in place to assess the impact of EMU or to implement the necessary changes to strategy, systems and processes. Some 36 per cent had applied a functional approach while 10 per cent had focused on a geographic approach.
But almost half recognised that operational changes will occur within their business as a consequence of EMU. Specific sectors such as retailers recognise that EMU will have a high impact on their operational activities. Of the companies that considered themselves to be aware of the issues involved, over half assessed the need for operational change as high while one third considered the need for strategic change to be high.
But, of the multinational corporations (MNCs) that have considered the potential impact of the EMU on their businesses, most are only focusing on the operational issues required to achieve a minimum Euro-compliance standard, the survey found. A number of reasons for this were found: a consistent view that there is neither the time or resources to consider the strategic issues involved and a limited understanding of the practical consequences of EMU among senior management and boards.
In their analysis of the survey results the consultants pointed out that companies that fail to meet the strategic challenges posed by EMU may find their long-term competitive positions eroded. A key issue concerning MNCs was the impact of EMU on trading relationships with other organisations. Smaller companies in particular were concerned about the pace of change imposed on their internal operations by the EMU standards set by their major customer and supplier relationships.
More than half of the respondents had established a formal EMU change plan with a combination of multi-functional, multi-regional teams implementing the necessary changes to processes and systems. But the consultants expressed concern that just under half of the respondents had no formal change management structure in place.
Half of the respondents believed that the EMU would result in greater integration and consolidation of their business processes. The business areas which will be most effected by EMU were considered to be treasury operations, accounting, information technology and customer/supplier relationships. But levels of preparation in these areas were found to be low.
Respondents felt that a number of areas would not be greatly effected by the introduction of EMU. These areas included human resources, logistics, manufacturing and, surprisingly, marketing. There were messages from the survey for the providers of corporate banking services: just under a half of the MNC respondents expect their banking relationships to undergo a fundamental change as a consequence of EMU. Banks will have to review their cash management offerings to the corporate sector but also look inwards to assess the opportunities created by EMU for themselves, the consultants advised. The key messages to MNCs were:
Think strategically as well as operationally;
Get informed - seek out and maintain a flow of high quality information;
Empower a change management team with the appropriate crossfunctional and geographical representation of the business formally assess the impact of EMU on each core business function across Europe;
Define an implementation programme to action the necessary changes to achieve EMU compliance by January 1st, 1999.
The consultants warned that MNCs must "act now, the clock is ticking". The survey: 485 MNCs responded to the questionnaire. The biggest sector involved was food and consumer products with 60 respondents. It was followed by retailing and general trading with 37 respondents and chemicals with 31 respondents. A geographical breakdown of the respondents showed that the largest number - 99 - came from France, with 86 from the UK and 61 from the USA.
