“The COVID-19 pandemic rewrote the rules, and now a new and potent disruption seems to arrive every other day,” said a recent McKinsey article, What matters most? Six priorities for CEOs in turbulent times. “You know the list of issues; we won’t go through them here. Suffice to say that managing complex organizations is much harder today than it was just a few years ago. And the hardest task of all for CEOs is to decide what needs to be done now and what can wait.”
To find out what matters most almost three years into the pandemic, McKinsey spoke with hundreds of leading CEOs around the world. Six priorities featured prominently on their agendas:
- Resilience. Not surprisingly, “resilience is emerging as a vital muscle for companies operating in a world of endless volatility and disruption.”
- Strategic Courage. “The best leaders and companies are ambidextrous: prudent about managing the downside while courageously pursuing the upside.”
- Building New Businesses. “Going for greatness within a company’s industry is one thing. Venturing into an entirely different sector is another, more complicated story.”
- Technology. “Building a new business inevitably means new and better technology.”
- Net-zero emissions. “[T]he goals of sustainability, economic competitiveness, affordability, and national security dovetail as never before.”
- Rebuild the employee experience. “In the wake (we hope) of the COVID-19 pandemic, CEOs need to find a new plane of engagement.”
Resilience. The belief that efficiency is fundamental to competitive advantage has turned management into a science, whose objective is the elimination of waste, — whether of time, materials, or capital, — wrote University of Toronto professor Roger Martin in “The High Price of Efficiency,” a January 2019 article in the Harvard Business Review. But, an excessive focus on efficiency can produce startlingly negative effects. To counterbalance such potential negative effects, companies should pay just as much attention to a less appreciated source of competitive advantage: resilience, — “the ability to recover from difficulties - to spring back into shape after a shock,” he presciently added a year before the advent of Covid-19.
A recent CEO survey by the Conference Board found that CEO confidence had fallen to the lowest levels since the onset of the pandemic. The overwhelming majority, 81%, said that they were preparing for a brief and shallow reception, while only 7% said they that they didn’t expect a recession. Earnings are expected to decline in most industries. “The pandemic asked companies to move much faster,” said McKinsey. “Now inflation seems to be here for the duration, thanks in large part to depleted supply chains, especially in energy.”
To survive the potential downturn, companies must build resilience. McKinsey recommends that business leaders consider four key approaches for building resilience: turn short-term disruptions into growth opportunities; motivate workers with more meaningful assignments, training in hard-to-find skills, and better opportunities for career advancement; rebuild supply chains for both efficiency and resilience; and make sustainability investments to guard against the volatility of fossil fuel prices.
Strategic Courage. “In almost all our recent conversations, CEOs, board members, and other business leaders share with us a common sentiment: this combination of shocks has created perhaps the most challenging environment management teams have ever faced — and one that likely won’t change anytime soon,” wrote McKinsey.
This challenging environment has seen the emergence of two types of business leaders. “The first type adopts a cautious and defensive posture in dealing with the volatility and uncertainty. … These leaders are in a strategic wait and watch mode as conditions unfold.” The majority of senior executives fall into this category. The second type of leader “is taking all the right defensive actions while also leaning into the volatility, using it as a catalyst to galvanize action around new opportunities.”
“The best leaders and companies are ambidextrous.” They’re playing both offense and defense, figuring how to survive the uncertainties of the present while thinking about opportunities that might play out in the future. Doing so effective requires strategic courage.
Building New Businesses. “For large companies, building new businesses is essential for growth and reinvention. The key to success? Combining the strengths of an incumbent with the agility of a startup.”
Focus and agility are the key competitive advantages of a startup. Startups are generally organized around one central innovation. They can thus focus all their energies on developing their innovative offerings, getting them to market as quickly as possible, and improving them continuously based on actual customer feedback.
It’s different for large, established companies. Over the years, the company has amassed a number of valuable assets, including an experienced management team, a talented workforce, funds to support new ventures, a trusted brand, market insights, intellectual property, and an existing customer base that can lower the costs of acquiring customers, — thus putting their new business on a faster growth trajectory.
“When established companies develop the ability to integrate their assets with tech-enabled business models, they can continually generate new businesses. Doing so well requires four elements: strong CEO sponsorship, carefully structured relationships between the parent company and its ventures, the discipline to fund new businesses as they test and validate their ideas, and a skillful business-building team.”
Technology. Mastering technology trends is essential for growing new businesses, transforming old ones, and getting maximum value from a company's digital transformations.
A recent McKinsey study, “Technology Trends Outlook 2022,” took a close look at 14 of the most promising technology trends, 9 based on digital and IT technologies and 5 encompassing physical technologies. “[W]hile it remains difficult to predict how technology trends will play out, executives can plan ahead better by tracking the development of new technologies, anticipating how companies might use them, and understanding the factors that affect innovation and adoption.”
The study analyzed each of these technologies trends based on their technical maturity and industry impact in order to identify which trends mattered most to companies. To quantify the overall disruption a trend is likely to cause, the study calculated a momentum score for each technology based on tangible, quantitative metrics, including: publications and patent filings: the leading indicators of research activity and innovation; news mentions and online searches: representing the level of public interest; and amounts and number of companies making private investments: the measures of financial interest.
Net-zero emissions. The road to net-zero emissions has taken an unexpected turn in 2022. Disruptions have intensified. The war in Ukraine has led to energy insecurity, and surging inflation threatens a serious global recession. CEOs face a devilish duality: how to square resilience with net-zero promises. “But there’s some surprisingly good news: the goals of sustainability, economic competitiveness, affordability, and national security dovetail as never before.”
“As net zero has become an organizing principle for business, executives are on the spot to lay out credibly how they will deliver a transition to net zero while building and reinforcing resilience against the certain volatility of ongoing economic and political shocks.” Leaders will have to decide how quickly to drive their sustainability agenda. Some will be tempted to double down on fossil fuels at the expense of emerging renewable technologies.
But, notes McKinsey, the right response to these challenges is to maintain the focus on the long term while adjusting in the face of present conditions. “A resilient stance, being prepared to withstand shocks and poised to accelerate into a changed reality, permits companies to weather not just the current moment but also the future storms that are likely to come their way in a world of rising risks.”
Rebuild the employee experience. The final CEO priority is the need to reengage with their company’s employees, who, in the end, are the people needed to make all priorities happen. There is much to do. “In recent years, the contract with workers has become a little too transactional for anyone’s liking — we pay you, you show up, see you tomorrow. In the wake (we hope) of the COVID-19 pandemic, CEOs need to find a new plane of engagement. Getting the hybrid work model right is one dimension. But a requirement to spend two days in the office, say, is going to get old really fast without some new incentives.
“CEOs need to think hard about the office of the future, a place where workers want to be — to see friends, riff on new ideas, and find enough meaning in their work to get them through the next week of pallid video calls. Do these things well, and you’ll find your retention problems are eased.”
“The CEO is the company’s ultimate strategist,” wrote McKinsey in conclusion. “Less well understood is that she/he is also the ultimate integrator, charged with identifying the issues that span the enterprise and formulating a response that brings all the right resources to bear. To do that well requires a broad range of contradictory perspectives: outside in and inside out; a telescope to see the world and a microscope to break it down; a snapshot view of the immediate issues and a time-lapse series to see into the future.”
Comments