These days, it feels like we’re living in the business world’s version of Billy Joel’s 1989 hit, “We Didn’t Start the Fire.” Inflation, Geopolitical Tensions, Energy Shortages, Labor Shortages, Changing Employee Expectations, Rising Interest Rates, Rising Cyber and Data Risks, Expectations insatiable investors – the list goes on. As the song goes, today’s business leaders didn’t necessarily create this economic environment on our own, but it’s up to us to approach it and navigate it.
Despite the headwinds, I see many business leaders and governance officials leading well. In fact, based on what we’re seeing in our customer base, I’d say the glass is half full. Why? Not because we are naïve to the myriad challenges facing businesses today, but because we see resilience, agility to change, and innovation all the time and across all industries.
So what are today’s big companies doing? They keep it simple and focus on what they can control. They work hard to increase operating income more than they increase operating expenses. How? When I speak with CEOs, the commonalities between the companies are striking. Many focus on the following five questions:
1. Am I differentiated?
Differentiation involves strategic pricing strategies, evolving the value proposition, quality of service, reducing response times, achieving cross-selling and providing a unique customer experience. Leading companies across industries are pulling these levers in physical spaces, across digital channels, across platforms, and before, during, and after the point of sale.
In slower growing markets, sales are harder to come by, so big companies ask themselves: why would a customer choose us? How do we tell the difference? How to increase our market share? The good news is that driving differentiation is entirely within the control of the business, as long as leaders remain very focused on those areas.
2. Am I fit to grow?
The growth seen by many companies during the pandemic, along with the expectation of continued growth, has resulted in a significant increase in headcount and the start of countless “special projects”. It has also led to delays in integrating corporate acquisitions and postponing some tough decisions about operating models and standardization efforts. These decisions, or lack thereof, were made when money was cheap and markets were up. Businesses don’t have the same luxury in today’s markets.
Profitable growth is imperative, and it should be self-funding, as investors are unlikely to tolerate deteriorating margins to fund growth or a lack of growth. So, what do we do ? The answer: Get fit and fund your own growth. Getting in shape and self-financing growth is entirely within the control of the company.
3. Are my IT expenses efficient and at the right levels?
The future of many businesses depends on their ability to reinvent themselves in the cloud. This means achieving true customer differentiation, at lower cost.
Yet for too many businesses, reinvention is still a long way off and the benefits of the cloud have not fully materialized. If your business falls into this category, this market will likely demand a reason. In many cases, this reason will be attributed to a lack of alignment from management, a belief in a different future, or a lack of execution.
Now is the time to align closely with the leadership team and think broadly about how to turn digital capabilities into business growth. This means investing in digital transformation across all functions, accelerating management decisions, driving change more aggressively and empowering people. The latest PwC Pulse Survey revealed that 52% of CIOs are looking for ways to embed analytics into processes to improve and accelerate decision-making, automation, digitization of existing infrastructure and self-service computing being considered top priorities for cost savings and productivity. .
Improving the C-suite IQ on technology and driving better execution is entirely within the company’s control.
4. Is my business portfolio too complex?
Businesses are moving to the cloud, reinventing themselves, navigating energy transitions, navigating geopolitical tensions, and seeing the benefits of being a tested “global enterprise” in a fractured world.
Because of these strengths, many wonder if their business portfolio makes sense. We see many large companies carving out certain businesses either to raise capital to help fund necessary transitions, like cloud or energy, or to simplify the overall business to increase the likelihood of successful reinvention. Determining what should be in or out of its portfolio is entirely within the control of the company.
5. How can I reduce the risks?
The risk is more abundant than ever. Businesses face supply chain continuity risk, concentration risk in the markets where they sell and buy, energy affordability risk, and additional inflation-related risks , regulation, public perception, data accuracy, security, etc.
A strong risk function is the name of the game for large companies today. It starts with an objective risk assessment and an unbiased, aggressive gap closure. Companies are working to diversify supply chains, ensure they are not concentrated in certain parts of the world, automate and outsource, mitigate inflation and invest to fill gaps. Proactive risk management is more than an asset, and companies that successfully manage risk are unlikely to be discouraged in their pursuit of profitable growth. Successful risk management is entirely within the control of the business.
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While it is true that today’s markets have more headwinds, we can always expect winners and losers. Companies that aggressively prioritize and focus on what is within their control can retain and earn the trust of their employees, customers, investors, and other stakeholders. Likewise, those who do not focus on these areas run the risk of losing investor confidence, inviting shareholder activism, and perhaps more importantly, they may also risk losing the trust of their employees, who are more than ever looking for leadership. The good news is that each of the five areas above is completely achievable with the right goal, and each is within management’s control.