These days, it seems like we’re living in the business version of Billy Joel’s 1989 hit, “We Didn’t Start the Fire.” Inflation, geopolitical tensions, energy shortages, labor shortages, rising employee expectations, rising interest rates, rising cyber and data risks, insatiable investor expectations — the list goes on. Just as the song says, today’s business leaders did not necessarily create this economic environment themselves, but it is up to us to address and lead through it.
Despite the headwinds, I see many business leaders and those charged with governance leading well. In fact, based on what we see in our client base, I’d say the glass is half full. Why? Not because we are naive to the many challenges facing today’s companies, but because we see resilience, agility of change and innovation all the time and in all industries.
So what are today’s leading companies doing? They keep it simple and focus on what they can control. They work hard to increase operating income more than to increase operating expenses. How? As I talk to CEOs, the similarities between the companies are uncanny. Many are focused on the following five questions:
1. Am I differentiated?
Differentiation includes strategic pricing strategies, developing a value proposition, providing quality service, reducing response time, making upsells a reality, and providing a unique customer experience. Industry leaders are pulling these levers in physical spaces, in digital channels, on platforms and before, during and after the point of sale.
In slower growing markets, sales are harder to come by, so leading companies ask themselves: Why should a customer choose us? How do we distinguish? How can we increase market share? The good news is that differentiation is entirely within the company’s own control, as long as leaders maintain a laser-sharp focus on these areas.
2. Am I capable of growth?
The growth during the pandemic that many companies have seen, as well as the expectation of continued growth, has led to a significant increase in the number of employees and the launch of countless “special projects”. It also led to delays in integrating business acquisitions and postponing some difficult decisions regarding operating models and standardization efforts. These decisions, or lack thereof, were made when money was cheap and markets were rising. Companies don’t have that same luxury in current markets.
Profitable growth is imperative and should be self-funded, as investors are unlikely to tolerate shrinking margins to finance growth or the lack of growth. So what is being done? Answer: Get in shape and finance your own growth. Training and self-financing of growth are completely under the control of the company.
3. Is my IT spending effective and at the right levels?
The futures of many companies depend on their reinvention in the cloud. That means achieving true customer differentiation — at a lower cost.
However, for too many companies, reinvention is still a long way off and the benefits of the cloud have not been fully realized. If your business falls into this category, this market will likely be looking for a reason. In many cases, this reason will be sought in a lack of governance alignment, a belief in a different future, or a lack of execution.
Now is the time to connect closely with the executive team and think broadly about how to transform digital opportunities into business growth. This means investing in the digital transformation of all functions, speeding up management decisions, more aggressively driving change and holding people accountable. The latest PwC Pulse survey found that 52% of CIOs are looking for ways to embed analytics into processes for better and faster decision-making, with automation, digitization of legacy infrastructure and self-service IT seen as top priorities for cost savings and productivity.
Improving C-suite IQ on technology and driving better execution is entirely within the company’s own control.
4. Is my job portfolio too complex?
Companies are moving to the cloud, reinventing themselves, going through energy transitions, managing geopolitical tensions and realizing the benefits of being a “global enterprise” being tested in a fragmented world.
As a result of these forces, many question whether their portfolio of businesses makes sense. We see many large companies spinning off certain businesses to raise capital to help fund necessary transitions, like cloud or energy, or to streamline their entire business to increase the likelihood of successful reinvention. Determining what should be in or out of one’s portfolio is entirely within the company’s own control.
5. How can I reduce the risk?
The risk is greater than ever. Companies face supply chain continuity risk, concentration risk in the markets where they sell and buy, energy availability risk, and additional risks related to inflation, regulation, public perception, data accuracy, security, and more.
A robust risk function is the name of the game for today’s leading companies. This starts with objective risk assessment and impartial and aggressive elimination of defects. Companies are working to diversify supply chains to ensure they are not concentrated in certain parts of the world, to automate and outsource, to mitigate inflation and to invest to close gaps. Proactive risk management is a greater asset than ever before, and companies that successfully manage risk are unlikely to falter in their pursuit of profitable growth. Successful risk management is completely within the company’s own control.
. . .
While it is true that today’s markets have more obstacles, we can still expect winners and losers. Companies that aggressively prioritize and focus on what is within their own control can retain and earn the trust of their people, customers, investors and other stakeholders. Equally, those who do not focus on these areas risk losing the confidence of investors, calling for shareholder activism, and perhaps most importantly, they may also risk losing the confidence of their employees, who are now more than ever looking for leadership. The good news is that each of the above five areas is extremely achievable with the right focus and each is under management control.