Corporate Crises Become Complex in Causes…AI Era Shifts the Paradigm

Deloitte CEO Kil Ki-wan analyzed that the difficulties faced by companies today, unlike in the past, stem from complex factors that are difficult to solve with a few simple measures. He explained that while in the past, management or business failures were at the core of crises, now structural problems that render traditional economic rules ineffective are intensifying.

Therefore, companies are facing situations that cannot be resolved by specific actions alone, and this change demands a fundamental shift in crisis response methods.

CEO Kil Ki-wan recalled that up until the pre-COVID-19 era, the rules of traditional economics were somewhat applicable, and the nature of crises was clear, allowing for 'friend-or-foe identification.' For example, the IMF foreign exchange crisis clearly showed currency and debt crises, while the financial crisis clearly revealed financial market collapse and its impact on the real economy.

However, crises in the AI era have a dual nature—both an enemy and an opportunity—increasing uncertainty. This means that the nature of crises and the methods of response are fundamentally changing compared to the past.

CEO Kil Ki-wan predicted that in the AI era, wealth transfer will not merely occur within existing platforms, but rather 'those who redraw the game board' will make money. In past situations like the financial crisis, assets tended to be redistributed within existing markets.

However, in the AI era, those who create new rules and platforms will win, and the polarization, or 'K-shaped' disparity, with those who don't, is likely to become much more severe, he warned. This highlights the importance for companies to develop new business models and pioneer new markets.

In the past, it took about two years for a company to detect a risk, propose and implement countermeasures, and recover. However, CEO Kil Ki-wan pointed out that this period has now shortened significantly.

Currently, the speed at which a crisis approaches reality is almost simultaneous with its recognition, meaning it has become much more critical for companies to proactively respond to crises and prepare alternatives.

CEO Kil Ki-wan revealed that even decision-makers in large corporations who must decide on massive investments, such as 100 trillion won in semiconductors, feel fear regarding return on investment (ROI) and efficacy. This stems from concerns about the possibility of a new 'game changer' emerging after GPUs.

Decision-makers are deeply skeptical about whether current investments are a path to corporate survival or a way to increase risk, and this uncertainty is a major reason for hesitation in large-scale investments.

CEO Kil Ki-wan cited the first major warning sign for detecting corporate risk as a discrepancy between the 'company's story,' meaning its vision or message, and its actual 'numbers,' meaning its performance. Problems begin when the goals a company presents do not align with its actual financial results.

The second sign is repeated non-compliance with disclosure contents. If a company's promises are consistently not kept, trust declines, hinting at potential problems. Finally, a situation where sales increase but the cash recovery rate declines should be seen as a serious warning sign.

Even if sales grow, if cash is not actually collected, it can lead to a liquidity crunch, showing a significant difference between the company's actual soundness and its book profits.

CEO Kil Ki-wan explained black-ink bankruptcy by likening it to a situation where, despite significant accounting profits, the actual cash is tied up with others, and the company only holds a list of receivables on paper. This corresponds to cases where revenue is recognized based on the accrual principle, but only accounts receivable accumulate without actual cash inflow.

As a result, even though a company is profitable on paper, it faces financial difficulties when it has to pay actual expenses in cash, leading to bankruptcy. This phenomenon arises from the discrepancy between accounting recognition and actual cash flow.

CEO Kil Ki-wan explained that a longer accounts receivable collection period is equivalent to the company paying interest on that money for the duration. He pointed out that even if financial statements record a sale at 100 won with a cost of 50 won, leaving 50 won profit, the actual cash profit received might be less than 40 won, or even 30 won.

Since actual cash flow profit can be lower than financial statement profit, investors and corporate management must meticulously analyze cash flow to understand if the quality of the company's profit is growing healthily.

CEO Kil Ki-wan cited three financial characteristics of a healthy company: first, 'a company with a simple value chain.' He explained that a simpler value chain reduces management complexity, enabling stable growth and easier risk management.

Second is 'a company with low dependency.' The lower the dependency on specific raw materials, specific clients, or specific revenue sources, the stronger its resilience to external environmental changes. This is a crucial factor in reducing vulnerability to supply chain risks or market fluctuations.

Finally, he emphasized that 'a company with stable cash generation capability' is healthy. Consistent and predictable cash flow ensures the company's financial stability and provides a foundation for flexible response in crisis situations.

CEO Kil Ki-wan explained that during recessions, many large corporations strive to maintain their 'core value' by divesting non-core assets and focusing on core assets. This is a strategic choice to concentrate on the company's core competencies and enhance efficiency.

Simultaneously, mergers and acquisitions (M&A) to secure supply chain stability are increasing. There is a trend toward integrating distribution channels like agencies internally to simplify the value chain and strengthen control over external environmental changes. This restructuring is recognized as an essential process for corporate survival and growth.

CEO Kil Ki-wan explained that private equity funds go beyond mere stock investment, acquiring management rights by investing funds with an eye on the company's future value-up potential. They acquire companies, manage them for about 5 to 10 years to improve profitability, and then sell them when another necessary buyer appears.

These private equity funds act as a 'lubricant' in the M&A market, providing liquidity between buyers and sellers. They form a market where companies can quickly sell unnecessary assets or acquire needed assets, serving as important entities responsible for efficient asset redistribution.

CEO Kil Ki-wan emphasized that private equity funds play a role in a virtuous cycle of solving corporate inefficiencies, enhancing value, and then selling. He predicted that as the scale of our economy grows, more investors will seek new revenue sources, leading to an increasing tendency to invest in management-participation private equity funds, even with the associated risks, rather than simple stock investments.

Private equity funds play a crucial role at significant turning points in corporate generational change and business restructuring, contributing to increased economic dynamism. However, for this role to be positive, the importance of policy management to minimize negative factors is also emphasized.

CEO Kil Ki-wan emphasized that the space industry is becoming a core foundation for advanced industries, beyond mere space exploration. Moving into space requires highly sophisticated material technology and diverse technical capabilities, and these technologies transfer to terrestrial industries, providing foundational capabilities for overall industrial development.

Korea is one of the few countries with satellite operation and launch technology, and these capabilities can be broadly applied to military and general advanced industries. Especially, the United States already has an active space market, demonstrating that the space industry is emerging as an important pillar of the future economy.

This suggests that the space industry is not merely about scientific achievements but is also a driving force for national economic growth and technological innovation.

CEO Kil Ki-wan predicted that traditional industries such as shipbuilding, defense, semiconductors, automobiles, and steel will remain core industries supporting the Korean economy in the future. He explained that the ongoing restructuring of traditional industries does not signify the 'decline' of the industry itself.

Rather, he analyzed that it has a strong 'restructuring nature' aimed at solving oversupply issues and responding to rapidly changing Chinese industries. He added that careful attention should be paid to the changes arising from the integration of AI technology into these traditional industries in the future.

CEO Kil Ki-wan predicted that the role of consultants will change significantly with the advent of the AI era. He asserted that the function of a simple document preparer will be replaced by artificial intelligence, and this role will certainly disappear.

Instead, the core competency of consultants will shift to 'reviewing' and 'conferring trust' on AI-generated outputs. Examining the accuracy and validity of information and analyses provided by AI, and providing final trust in them, will become more important.

This suggests that the introduction of AI will not simply lead to job reduction, but rather serve as a tool to improve the quality of human consultants' work and enable them to focus on high-value-added roles.

Consequently, consultants will evolve into roles requiring more strategic and critical thinking, with a greater emphasis on unique human judgment and insight.