Tag: resilience

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Covid REBOOT

Post Covid

“Take these broken wings and learn to fly”, Paul McCartney

Blog 3 on Post Covid disruption, resilience and innovation.

In the last blog, we talked about changes to consumer behaviour as a result of our current and ongoing Covid experience.  Whether we end up living with Covid or are living in a post Covid vaccinated world, consumer behaviour will have changed.  

Six areas of likely change were identified, see Figure 3-1 and described in more detail in Blog 2, although the scale of these changes are not clear and will vary across countries and customer segments within a country.

Figure 3-1

The drivers of these changes from the Covid experience to date are:

  • Structural responses by businesses to Covid.  For example, policy shifts by companies towards remote working will make changes to consumer spending and ripple through to the retail and service sector around offices.  
  • Structural responses by governments. For example, rules and regulations on crowds and distancing, or adjustments related to public transport and other types of infrastructure.
  • Behavioural changes linked to actual and perceived health risks of consumers
  • Behavioural changes linked to economic changes and uncertainties to large sets of consumers 
  • Changes in the attitudes of sets of people with respect to buying locally as a response to seeing local economic distress in combination with a sense of social responsibility and increased climate change concerns
  • Responses by the government to address potential future health challenges and alleviate the economic recession we have entered.  As an example, this would include accelerated investment in moving a country towards ‘greening’ the economy and society.   
  • The increased rate of change of adoption of existing technology applications and introduction of new technology applications

For business, to continue to deal with the Covid crisis, emerge stronger and be on top of these changes there are 6 aspects to running a business that should be top of mind (Figure 3-2).  These components are valid for both consumer and B2B businesses.

Figure 3-2

Before we explore the six areas, it is vital that a company does not lose sight of its strategy and what it is trying to accomplish.  In my previous series of business strategy, I introduced what I believe is the right strategic framework for the future (Figure 3-3).  Having a business purpose that is focused on delivering both a return to investors and a combination of economic, social and environmental impact, is what captures hearts and minds.  Engaging the hearts and minds of employees, participants in your supply chain and customers contributes to higher levels of performance and resilience in challenging times.  A strategy is also a guiding light around which the changes you need to make and initiatives you need to deliver sit.  You want to build a strong business for the medium-long term not just survive the short term!

Figure 3-3

Let’s now explore each of the six activities to help identify opportunities to move forward more effectively.  Six months into Covid and I am sure that many businesses are well on the way to making changes and adjusting to a ‘new normal’.  I hope some of these factors will add to your plans.  

Starting with financial stability and resilience, there are 3 areas of particular focus that I want to address (Figure 3-4).

Figure 3-4

Cash is king – For companies that have real concerns about survival, the most important first thing to do is to switch from a prime focus on profitability to a core focus on cash.  This combines the focus on revenue and costs with the timing of receipts and payments.  Structurally changing the amount of working capital needed in the business can often free up the cash needed to get through difficult times.  It also helps a company look in more detail on the specifics of what they are spending their money on, making better decisions on the amount and timing of product purchases for inventory, and the need for new assets and how they might be paid for, such as a rent or a lease vs. outright purchase. 

The classic approach to this is to do a 13 week rolling cashflow plus 9 rolling months (12 months in total).  To get really focused and extract the most value from this approach the cashflow should be updated on a weekly basis or at least every 2 weeks. 

Finance for resilience –  If your cash position is not strong and you cannot cover the business challenges through an extended period of time then finding new financing should be a priority.  Although in general equity is preferable to debt in times of high uncertainty, if debt is the only answer then you should be looking at increasing your cash position to give plenty of headroom.  Remember a bird in the hand is worth more than two in the bush.  Banks are notorious for lending you an umbrella when it is sunny and taking it away when it starts to rain; so, be very focused on both the terms of repayment and any covenants on the debt.  Before locking in any agreements, be sure there is understanding on the implications of what has been agreed against different challenging scenarios.

If equity is an option, then in general raise a large amount so that there is headroom for a long time and you can ride through potential challenging fundraising times at a later date.  It will also allow you to rapidly take advantage of future challenges your competitors may have or aggressively pursue new opportunities.  Having too much cash on the balance sheet in the current times is a high class problem!  

Scenario Plan – In these times of pandemic disruption, we are now in a non-linear period of change.  Extrapolating historic revenue trends is an insufficient approach to financial planning.  Building alternative scenarios is the only way. Scenarios should particularly focus on identifying where you might hit critical performance/survival points and what contingency plans need to be in place and triggered as you move towards these points. Creating scenarios over a broad range of outcomes is an essential part of being able to rapidly react to different performance paths, because time is money.

Customer focus is the next area to look at (Figure 3-5) as having a clear approach for efficiently optimising your revenues and contribution is mission critical.

Figure 3-5

Customers First – If the company has been suffering during the pandemic and the challenge is to get back towards old levels of revenues as soon as possible then getting the most cost efficient approach to recovering revenues is what you are trying to accomplish. The simple way to think of customers is that there are three core categorisations to think about – customers, dormant customers and prospects.  Customers are those that you currently consider to be ongoing customers and would often be defined as having done business with in the last 12 months. Dormant customers are those that were former customers but are now inactive; consistent with the definition above of customers, these would be customers who have been inactive for at least 12 months.  Prospects are potential customers you have never done business with before.  

The economics of revenue generation are very different by each of the groups with existing customers being by far the best economically and prospects being the worst.  It is true to say that the best way to grow revenues is by first optimising the retention and growth of existing customers.  Having to replace customers to stand still is not efficient.  Mass product marketing, and not using customer data, will tend to be far less efficient for many businesses. 

The likely customer response rates to sales and marketing initiatives are driven by 6 core variables to start with (Figure 3-6).  As a company builds experience with targeting, modelling response rates and measuring real results, there should be continuous refinement of the variables.  

Figure 3-6

Recency, frequency and monetary value (RFM) looks at the currency and loyalty of a customer.  A recent high volume and long term high value customer is the most likely customer to buy from you.  For high value – high potential response customers you should be willing to invest more to get them to buy product.  For example, you may do a telephone call to high value customers; but, it would be prohibitively expensive to cold call low value dormant customers.

For marketing specific products, you also want to consider channel affinity, timing and product affinity.  Channel affinity is the channels of communication and sales channels that have worked in the past with a specific customer.  Timing is critical to consider as for example, a product may be seasonal or have specific renewal timing (eg. insurance products).  Product affinity is the definition of how close the product you are trying to sell is to historic products that the customer has bought.  The closer the affinity, the higher the likely response rates. 

For both existing customers and dormant customers personalisation of messaging, offers and promotions will drive up response rates.  To drive up the sales value of customers from previous levels you ideally want to know what ‘share of wallet’ you have vs. their full potential with you.  This can also be done by evaluating whether low value customers ‘look alike’ with some high value spenders.  If you have emails for all customers, subject to GDRP restrictions, then this is an essential low cost communications channel for both existing customers and dormant customers; however, this does not necessarily mean that you should not spend some money to engage in additional ways with high value customers.

For new customers, or prospects, different sales and marketing activities are required.  The choice of approach should be linked to the historic cost of customer acquisition and subsequent customer profitability of different sets of activities.  It may well be that mass marketing is more efficient than specific targeted marketing at specific prospect segments.  If you are doing targeted marketing, then it is valuable to try and profile the characteristics of potential new customers vs. the characteristics of current high value customers (‘look alike’ modelling).

If you have been doing this for some time, with well structured test and control techniques, then you should already be well down the road to efficiently rebuilding your revenues. 

Reward Loyalty – In this context, this is about looking for ways to lock in revenue streams for an extended period of time and/or generate pre-purchase revenues to enhance the cashflow and the amount and reliability of future revenue streams.  This is effectively looking at alternative business models that will improve your cashflows.  You can look at Blog 9 in my Business Strategy series to look at this in more depth.  One example of this would be to provide discounts/benefits for minimum levels of pre-payment for future purchases.  For example, the Starbucks card generates upfront cash for subsequent use by customers.  An alternative example would be to convert an upfront payment to a locked in minimum period of monthly payments.  A final example would be to offer a full year’s subscription to a service at a discounted upfront payment vs. the sum of 12 monthly payments.  These all can drive improved and/or more reliable cashflows and potentially improve customer retention rates and average revenues per customer.  

Listen to Customers – When your business is going non-linear through dramatic shifts in consumer behaviour change – buying habits, use of on-line, and a changing mix of how your customers are spending –  then in depth listening to customers on a continuous basis is essential to be able to catch and react to changes as soon as possible.  You should use a combination of surveys and in depth discussions to really understand what is driving the changes.  The conversations will help you to frame potential changes/solutions to these behavioural changes as well as making your communications more contextually relevant and effective.

Innovate to Retain – With large consumer behavioural changes, more marketing and better messaging alone will not be enough.  To retain and grow revenues, innovation across a number of dimensions may well be necessary – channels to market, pricing, packaging, product, services and promotion.  Fast effective innovation needs time and attention, robust testing and evaluation, and resource commitment; it should not be an add on to teams that already have a full workload.  If you need new skills sets that are not available internally, outsource to make sure that you start well down the experience curve; this is especially important if for the first time you are moving to on-line selling and marketing.  

Remote working is a vital capability for flexibility and to be able to always operate.  The pandemic has highlighted this.  No company can afford to be without this capability.  I have identified 3 key areas to highlight (Figure 3-7).  

Figure 3-7

Shift to Hybrid/Remote Working – Remote or hybrid working is not new.  Since the beginning of the digital era, the shift started with sales teams, outsourcing services and online selling.   Many companies realised that if you move to flexible workspace and allowed some remote work that you only need about 65% of the desks and generate huge savings on office space.  The pandemic has made companies realise that remote working is also a resilience capability.  

The pandemic has also helped companies test which activities work effectively remotely and which ones don’t. In general, it seems that all types of creative work can be much more effective in person and socialisation between people is an integral part of building effective working relationships.  Of course, from a human perspective there are lots of other dimensions that need to be evaluated from the convenience and saving of commuting time, to the inherent need of all of us for socialisation and to the higher challenges of the lower income employees who have less space at home to be able to have a productive working space.  

If employees need to work from home then the company needs to ensure that they are equipped to do so with mobile phone, portable computers and screens, adequate internet etc. and, if necessary, adequate space to work.  Behind these capabilities for individuals is often the need for a set of team based tools that share calendars, improve productivity and communications, track output and ensure security of data. Solving the ecosystem of how the business works effectively remotely is critical.  

Move to the Cloud and SAAS – The cloud and SAAS (software a a service) are great enablers for businesses today.  They are the core enablers of enterprise wide hybrid and remote working.  You can reduce the need for large tech teams to run your IT infrastructure and variabilise your costs and as we well as adding remote capabilities.  Why not allow experts at storage and retrieval, and experts with intensive sector wide applications worry about the applications for non differentiating parts of your businesss in a way that you could not afford to do.  

Almost all large companies, that have not already switched, will have a ‘not invented here’ issue with their tech teams and be defending their realm.  In a few cases, their in-house systems may drive competitive advantages; but, in most cases it is the fear of change and the idea of technical debt arresting progress rather than the potential benefits of new applications.  Do you really think that internally you can build a better cloud at a lower full cost than Amazon, Microsoft, Google and IBM?  And, do you think that you can build a better set of customer facing application than Salesforce.com for example?  Have a look at their development budgets that you are competing against.  Many of these cloud and SAAS applications have already built integrations between them, so the prime focus of attention is the setup, and in some cases customisation, of the solutions to get the full business benefits.

Test and Learn – Going remote may sound easy and it’s just about technology; however, this is all about trying the create the right set up to optimise the interaction of people within the business and with other key third parties. The goal should be to create a new level of performance and not just replicate the in-office approach to work.  The measures of success aren’t just on short term performance and productivity measures, the new way of working must also outperform in attracting and retaining the best employees.  The company needs to test and learn to find the right people processes and the right tools.  The processes need to include the right daily interactions, both task and social oriented, and involve the right tools (eg. Slack) for communicating and interacting.  

People, process, and cost efficiency need close scrutiny when a business takes a revenue hit and the dynamics of doing business change. It is essential to see how to offset the revenue hit and shift to the right capabilities going forward.  Figure 3-8 identifies three areas to cover off.

Figure 3-8

It is easy to ‘slash and burn’ costs and forget about everything else if you are in fear of failing; however, it is useful to be clear on why the company was successful up to the time of the pandemic.  Inevitably, it included a combination of the people, the culture and the processes, among other things, that got you there.  Don’t forget, it is many of the current components that will also help you to rebound.  I also encourage you to consider how to minimise the social cost you may generate by how you address the short term challenges.  We all need to face up to the economic, social and environmental challenges around us and do our part.  

Share the Pain – Philosophically and practically, each company lives within an ecosystem.  That ecosystem involves the company, and all the parts within that organism, and all the other interrelated companies in the supply chain and support sectors.  At the extreme for example, if you are running a ‘just in time’ manufacturing operation, then you are completely reliant on the supply side from raw materials to components moving through the supply chain to time; and, if anything disrupts this timing then your business suffers.  Against this context of an ecosystem, then any cost reduction activities needs to also consider the implications across the performance of the ecosystem.  

When you are looking at cost reduction opportunities, you need to look at all the places that costs can either be taken out, reduced or renegotiated.  Depending on how you approach this you can win or lose friends in this process.  Maintaining trust, respect and loyalty from those in the business and those you do business with is a key part of the decision making.  This is where ‘sharing the pain’ comes in.  If people see that the pain is being shared and thoughtfully distributed rather than inflicted on an easy victim you will often be better off.  The ruthless exercise of power over a weaker but important supplier does not translate to long term loyalty and reliability; however, displaying an understanding of their situation and trying to solve the problem in a constructive way does.  

In the same way, with the potentially devastating impact on certain people from the loss of employment, agreeing that everyone will take a short term pay cut to preserve employment and allow the company to rebound more effectively may be a better answer to dismissals.  Shared pay cuts should ideally come in the form of higher pay cuts to the higher paid, or at least the executive teams, whose lives are less affected – this is leadership and an understanding of social impact!

Understand Mission Critical – As businesses evolve in good economic times, it is easy to be less focused on understanding the full relationship of incurring additional costs and the related benefits to revenue and profits.  There tends to be a growing pool of ‘nice to have’ vs. ‘need to have’ activities.  

In challenging times, getting back to the basics is essential.  Start by being very clear on what is critical to attracting and retaining customers, and ideally growing the revenue per customer.  With this in mind, then the best way to do this, with the least negative impact, is through process mapping to simplify, speed up, reduce waste, reduce process breakdowns and cut costs.  This is the constructive approach to cost cutting.

Leverage with Technology – Across all processes, it is worth looking at where technology could fit and what SAAS (software as a service) applications could be used.  The goal is to explore reductions in time, improvements in quality, and reductions in human involvement.  There is every reason to believe that there are opportunities in all functional areas.  They can range from scanning invoices and automating entry into accounting systems, chatbots and customer self service opportunities, tools for customer relationship management and automated marketing, project management software, HR applications, etc.  Many people will be surprised at the extent of opportunities to automate and improve processes with technology.

Customer and business analytics are most valuable in times of change. They should be embedded in how a company works.  There is a lot of talk about KPI’s, balanced scorecards and customer analytics; however, too many companies fall short of what is really required.  Every year, the ability to generate or collect information so that a business can be run on facts improves.  The faster you receive information the faster you can make informed decisions.  There are four key topics (Figure 3-9) to cover off that really make the difference.

Figure 3-9

KPI Driven – Over time I have seen too many companies at the executive level over focus on financial based data; yet, the financial data is the outcome of customer, operational, process, and HR based activities.  To take decisions, key information needs to be linked to the root cause of what needs to be managed.  Building effective dashboards is not easy but it is invaluable.  Cascading down KPI’s is what helps create the linkages between decisions at the top and impact at the coal face.  

Continuous Market Analysis – In challenging and uncertain times, being on top of shifts in consumption and customer behaviour and then being able to react is essential.  Being able to discern seasonal variations and general volatility from new trends in consumption is the critical skill.  This is often helped by active discussions and feedback from customers and prospects.

Integrate with Rapid Decision Cycles – Analysis without consequent decision making has little value.  As an example, in the retail fashion sector in the early 1990s many product and sourcing decisions were made typically at least 12 months before the start of the season.  Then Gap innovated to move to 6 week cycles of decision making with the finalising of product and volume decisions much closer to the period; and now, Zara can turn around product within 2 weeks to take advantage of in season trends.  This type of capability transforms the performance of a business by ensuring the business is not laden with excess inventory, minimising lost sales by taking advantage of high selling items and adding new high selling product in season.  Think about the analogies to this in your business.  

Speed, agility and innovation is what underpins a company’s ability to react in difficult times and succeed over time. The four components to examine are set out in Figure 3-10. In technology companies, we continuously witness updates in applications and the developments of whole new versions of software and hardware.  With Apple, we are on iPhone 11, Apple Watch Series 6, and the Mac OS Catalina soon to be Big Sur. An ability to continuously raise the bar on what you deliver to customers keeps competitors chasing you rather than the other way round. Businesses in all sectors need these capabilities.

Figure 3-10

Shift to Agile Management – Agile project management is the most common way that companies undertake software development.  It is an iterative development methodology of breaking down development into discrete sets of deliverables, often with a time frame of about 2 weeks, that rapidly speed up development.  It also more often than not, does not require the full definition of the end product; rather, that becomes clearer as the team goes through each cycle and incorporates continuous learning related to the end product or service.  

The concept of running a whole business also on rapid cycles with clearly defined deliverables is gaining steam.  It creates a winning mindset and approach to the business by a management team that is so much more powerful than a standard monthly routine.  In some businesses, such as certain retail sectors, it may be better to run on weekly cycles in certain parts of the business.  

Fact based decision making – There is no reason to make decisions without facts anymore.  That is not to say that you do not also overlay judgements based on analysis of the future.  Facts include both internal information and external information (customer, market, competitor, etc.).  The critical point to focus on is that agile management requires very current feedback; and in times of great change, such as these, external dynamics can shift very quickly.  Just as in retail, you need to be able to identify the hot new products, brands, and shifts in purchasing focus as early as possible.  Trying to save money by using less current external information is usually a ‘false economy’.

Stand Alone Innovation Team –  In my experience, from running many companies, effective innovation can only be achieved with proper resource dedication and commitment.  Without resourcing away from the black hole of day to day management and challenges, the speed of innovation is inevitably compromised. Innovation needs to be seen as mission critical as day to day performance.

Learning Curve Driven – ‘Fail fast’ is the common phrase for companies that are truly learning curve driven.  The faster you learn the quicker you can go down the learning curve.  This is an essential part of smaller companies outperforming larger slower companies.  To effectively learn and push the envelope further and faster culturally, it must be acceptable to fail and not a negative on a person’s performance.

Leadership sits on top of the drive to change, the sets of market initiatives you pursue, and the new capabilities you put in place.  The key mindset is to see the unsettling of markets and operations as an opportunity.  Leadership needs to think like an attacker not and incumbent.  They need to be thinking about new opportunities, new markets, new ways of doing things, new applications of technology and leading with empathy and inclusion.  For most people, change is uncomfortable; however, for leadership it needs to become a way of life and a challenge you look forward to conquer.

The next blog, will explore the implications for governments of the post Covid, or living with Covid world.  

#Covid 19 #pandemic #post Covid #strategy #disruption #resilience #innovation #consumer segmentation #consumer behaviour #GenZ #millenials #baby boomers #WHO #sustainable development goals #McKinsey #Accenture #EY #UN SDGs #WEF #blacklivesmatter #metoo #DoughnutEconomics @Kate Raworth #agile #test and learn #cloud #SAAS #process efficiency #CRM #customer retention #remote working #strategic framework #climate change

Categories
Covid REBOOT

Post Covid

‘Learn the past, watch the present, and create the future”,
Jess Conrad

Blog 2 on Post Covid disruption, resilience and innovation.

Covid 19 is raising lots of questions about the future.  The most prescient questions are related to solving this health crisis. Most importantly, is when will there be a vaccine ready for use and/or how can we live with Covid 19 and have a relatively normal way of life without economic disruption.  The second set of questions relate to what life might look like when it gets more normalised, and in what way will this Covid experience have changed our environment and changed us to create a ‘new normal’.  The third set of questions are related to how companies need to adjust what they are doing to manage through the crisis and be successful going forward. Finally, how must the government adjust their priorities to help the people and the economy recover and be ready to effectively face the challenges going forward.  

The debate is well underway and will continue for many years on how each country has dealt with the crisis, what was successful, what was not and what are the critical lessons that we must address to be more effective in future pandemic situations.  At the end of the day each country has chosen a path heavily based on ‘science’, as they claim, and this had resulted in a mix of responses in terms of the level of lockdown, the rate and approach to opening up, the response to new outbreaks, the use of masks and highly variable economic responses.  Clearly, the science is not clear and nor are the appropriate responses health wise, economically or politically.  We can only hope that through the diversity of responses that we will take advantage of this, look at the facts, compare the outcomes from multiple perspectives and do a dramatically better job next time.

So how have our lives changed and what are the components of a ‘new normal’ way of life for living with Covid or post Covid?

To think about consumer behaviour, it is useful to start by looking generally at consumer segmentation and then we can explore how behaviour might change against those segmentations as a result of the current Covid experience.  

As an initial context, it is worth quickly visiting what components make up and drive consumer segmentation.  There are four categories of factors that drive consumption and buying behaviour (Figure 2-1) – geographics, demographics, psychographics, behavioural. From analysing customer behaviour with data on these factors, clusters of common behaviours can be identified and then used to target and market to the relevant customers for a consumer business.  There are equivalent techniques that are used in business to business.  

Figure 2-1

If you just look at these factors and reflect on your Covid experience you will see that there are inevitable changes to consumer behaviour post Covid.  There will have been changes in a broad cross section of areas including:

  • the income of many people 
  • the potential need to look at alternative occupations
  • changes in attitudes to health and economic risk
  • adjustments to lifestyle priorities 
  • changes to how you work and the level of commuting you do
  • changes to where and how you buy for different product categories, eg. in-store vs. on-line

Many of these changes are not temporary adjustments where customers will fully revert to previous behaviour.  To explore this, it is useful to start with customer segmentation from two perspectives. Firstly, understanding basic generational differences and secondly having a look at customer segmentation based on combinations of the four dimensions that generate understandable clusters of consumers. I will then overlay the Covid experience and then talk about post Covid behaviour.

Starting with generational segmentation, McKinsey has put together a simple comparison of generational differences (Figure 2-2).  Each generation has been brought up in a different contextual environment – political, economic, social, environmental and technological.  That new context added to the specific context of our upbringing drives our behaviour and consumption patterns all other things being equal.  Clearly, this representation in Figure 2-2 is very much a ‘Western’ or ‘industrialised’ world representation and applies less so to the developing world which live in very different socio-economic and political contexts.

Figure 2-3

Each of the generations are different in size and at any point in time have very different levels of overall consumption.  Gen Z, although the smallest economic segment, are critical to understand as they are the generation most in tune with the current world.  They are influencers that affect the direction of travel of the other segments with the closest segment, the Millennials, that will shift the most from their influence.  The retired generation will shift the least.  

Key components of Gen Z behaviour include:

  • Adoption of technology – including the extensive level of home shopping and use of social networks. They are the first generation of truly digital natives.
  • Social conscience – ‘Me Too’, ‘Black Lives Matter’, fair trade, ethical sourcing
  • More experience oriented vs. product oriented 
  • Responsibility to the planet

Obviously, there are many other factors that affect consumer behaviour and as a result everyone in a generation does not behave in the same way.  There are many different sources of analysis from all the consulting firms on how consumers segment in general; however, I chosen to pick some analysis that McKinsey has done that identifies 7 segments that group into the three themes of value, quality and image (Figure 2-3).  

Figure 2-3

These segments mix attitudes with the practical links to individual situations including income/affluence, education and life stage. Within each segment here will be mixes of all generations; but, each generation will mix differently across the segments.   The mix of these segments will also vary across countries.  

Many companies will have done their own analysis and defined segments in a way that is relevant to their business and helps them successfully attract and acquire new customers.   The more detailed and specific your understanding of your customers, the better you will be equipped to rapidly respond to changes in behaviour and be on the winning side of changes.  

Let’s now look at the impact of Covid.  For most of us there has been a big change in our behaviour, for many there has been a change in the current economics or future prospects of their household and for everyone they have had to take views (implicitly or explicitly) on their risk attitudes towards health and economic uncertainty (See Figure 2-4).  These changes effectively add overlays onto any segmentation which will cause changes in clusters around key attributes and therefore create a new segmentation of customers.

Figure 2-4

Behaviourally, there has been a massive shift to on-line working, where possible, and on-line education that has been decided by others.  In addition, there have been requirements to stay at home, limit time outside, and curb social get togethers.  As a result, most people have adapted how they live in terms of solving how to work at home, being home educated, significantly increasing their at home eating and home fitness, etc.   They have also gained time from the reduction in commuting time and other transportation time.   The sum of these changes have driven new behaviours including home cooking, home fitness, remote shopping, on-line entertainment and on-line socialisation.  These new behaviours are in turn also linked to a reprioritisation of where and how we spend our money and of course linked to changes in economic circumstances.    

For most of us, we have now reached the 6 month level of changed behaviours and we are not back to a normal life with no restrictions, such as a return to commuting every day, in-person education, high levels of socialisation, visiting the gym and taking holidays in other countries without lockdown requirements on return.  Shops, restaurants, offices, transportations systems etc. have not been adapted fully to accommodate a full return to our previous lives. 

Economically, levels of unemployment have grown dramatically, and with those countries with furlough schemes growing levels of unemployment have to a large extent just been delayed.   The increased unemployment is not spread evenly across the market; rather, it has hit the high street, the leisure and entertainment sector, the travel and tourism sector and parts of the health sector. It has also disproportionately affected women and the young.  With uncertainty on the recovery of many businesses, especially in these sectors, many consumers face a period of economic uncertainty.

This overall experience has created heightened levels of both health and economic trauma.  The health trauma will tend to be higher with the elder populations and those at risk.  Although, there is large range of impact by country (using deaths per million as a measure, Figure 2-5), the trauma has also come from the level of measures imposed on a population by the government and the fear based media coverage on Covid.  The perceived health risk is almost certainly higher than the actual risk on average; however, perception is reality for most people.  

Figure 2-5

The economic trauma, which leads to uncertainty, has been pervasive with effectively all of the top 25 countries, based on GDP per Capita, seeing unprecedented declines in their second quarter year on year GDP growth (Figure 2-6).  The economic declines are not necessarily linked to the health outcome of the Covid crisis; rather, they are much more related to the prevention and lock down steps taken by governments.   

Figure 2-6

Although many countries are trying to move back towards normal, this is a slow process.  There is pressure to maintain certain behaviours such as distancing; and, on and off lock downs are regular occurrences in countries as new pockets of Covid appear.  We are a long way from being post Covid as there is no clarity on a vaccine, and therefore no clarity on the timing of the distribution of a vaccine.  Finally, we are entering the flu season with a likely increased risk of further Covid challenges.  

Moving on to how to think about changes in consumer behaviour going forward which will either be in a ‘living with Covid’ or a ‘post Covid’ world.  The question is not will behaviours change but rather to what extent will they change.  There are already clear structural drivers of change which include a significant economic impact to a large number of people from much higher unemployment in most countries and large permanent adjustments to working arrangements with many companies. 

Analytically, consumer behaviour in a product or service sector or with a particular company are highly predictable by looking at four core variables – recency, frequency, monetary value and channel affinity.  Here are the variable definitions:

  • Recency – time since last purchase
  • Frequency – number of purchases made over time
  • Monetary value – total spend
  • Channel affinity – preferred channel for purchases, which shops and in-person vs. on-line

Intuitively, these variables make sense as people to a large extent are habitual.  They have routines, they repeat buy products or experiences they like, they become brand loyal as they build trust and become emotional engaged, and their choice of where to buy from is linked to their routines and convenience.  On the flip side of these behaviours, is a general reluctance for many people to try something new, to buy in a different way, to try a different brand, and if you are in routines you expose yourself less to alternative products or choices.  Clearly, there will be segments of people where these generalisations are less relevant; however, they are very relevant when looking at broad shifts in behaviour across segments of consumers. 

The experience of the Covid lockdown has impacted all these variables.  Restrictions on what we can do, where we can buy from and how we work coupled with health and economic uncertainty has significantly changed the behaviour of many people.  As with all behavioural changes they can be positive, in total or for parts of the experience, or negative.  The key to long term behavioural change is whether or not the Covid induced behavioural changes have provided rational or emotional benefits going forward.  In the case of permanent structural changes (eg. your company moves to part-time remote work vs. all in person), the change in behaviour will naturally become the norm , with benefits being realised in different ways such as cost, time, convenience and performance.  

The other part of behavioural change is to what extent the new valued behaviours have repeated and become habitual.  Going back to the metrics of recency, frequency, monetisation and channel affinity, the longer the period of new behaviours being experienced, the stickier and more long lasting they will become.

So, what does a review of available Covid related consumer research into behaviour change from either structural changes to markets, health and economic stresses and uncertainties, or new personal preferences indicate on potential behaviour change going forward – see the 6 themes identified in Figure 2-7.

On a personal level, what has happened for most people, perhaps excluding some Gen Z and some of the aged, is the increased pervasiveness and use of technology within our lives.  Technology significantly impacts all of the 6 areas identified above.  Many consumers have to some extent been forced to increase the rate of their adoption of technology across their lives.  Consumer who only bought food in person are now doing a weekly shop online.  Workers at home are more comprehensively using technologies (e.g. Zoom) for meetings and interactions and they are then using the same technologies for remote socialisation.  Home fitness apps are being used as gyms have been closed.  Core education is being conducted remotely. Higher levels of use of on-screen interactive games are being used as well as the use of services such as Netflix and Amazon Prime.  Large numbers of consumers have now overcome their reluctance to use technology and experienced its benefits.  

Looking now at each of the 6 themes:

‘Your home is your fortress’ – This is a place of safety in times of health risk.  We should expect there is now a higher appreciation of home time and a clearer definition of what people want from their homes.  Consumers have been increasing their investments in the technologies to be able to work, play and be educated at home.  There are also some trends emerging of disproportionate DIY growth and I would expect that overtime there may well be higher levels of purchasing of other in-home products.

‘Work-play rebalance’  – With remote working now and clear trends towards more remote working going forward, this will free up significant amounts of commuting time for alternative use, e.g. fitness, entertainment, home cooking, etc.

‘Redefine leisure, entertainment and travel’ – Almost certainly there will be changes in the consumption mix of leisure, entertainment and travel; but how it plays out is very hard to predict.  During lockdown and the subsequent restrictions there have been major short-term changes linked to home entertainment, reduction of the use of restaurants and bars, and minimisation of, or closer to home, travelling.

‘Shifts in consumption’ – Driven initially by lockdown there has a been a massive shift in consumption to on-line purchasing.  A significant portion of this will have gone through Amazon who, in many countries, is involved in about 50% of all home shopping.  It can be expected that not all of this will revert back to in person shopping.  In a McKinsey study (“Understanding and shaping consumer behavior in the next normal.”, McKinsey & Company, July 2020) on consumers who tried grocery delivery for the first time during the Covid 19 crisis, more than 80 percent say they were satisfied with the ease and safety of the experience; 70 percent even found it enjoyable and 40 percent said they intended to continue to get their groceries delivered after the crisis.  In many countries, such as the UK, for a period of time almost all clothing stores were closed and so there was also a dramatic shift to on-line purchasing of this product category.

Consumers have now bought products from new stores (on-line and in-person) so loyalties will have started to change, and new loyalties/habits will have started to occur after 6 months of the Covid 19 crisis.  With hygiene, or health safety, now also being part of the purchasing decision, traditional large and crowded stores will tend be lower in the consumer choice of where to shop.  In addition, with on-line purchasing, especially through Amazon, a traditional limited choice in a store has been replaced by massive selection options, and research is indicating that this is affecting historic brand loyalties.  Another factor that will affect historic brand loyalty are the Covid induced economic stresses and uncertainty which is driving swathes of consumers towards more cost-value product selection.  Finally, the combination of visible local economic turmoil coupled with growing climate and social responsibility concerns is expected to accelerate a shift to local produce and green and ethical products.  

‘Hybrid Education’ – Almost all children, with involvement of their parents, and university students have been forced to try some form of on-line education.  Some of it will have been successful and some unsuccessful; nevertheless, it will have built further comfort with the use of technology for education.  Many will have looked beyond their schools to supplement their learning and tried what has been available on-line for a number of years and provides a more advanced and appropriate technology based educational experience.  For K-12 (Kindergarten to grade 12) education they may have tried the Khan Academy or for university or further education they may have tried edX, Coursera, or Udacity. New and improved on-line experiences are arriving on the internet continuously and will challenge poor face to face experiences or augment this traditional learning mode.  Enhancing its continued adoption will be the low cost or free use access to these quality educational applications.  

‘Hybrid and holistic health’ – This pandemic has brought a strong awareness to our health.  The linkage of Covid 19 risks to those with ongoing health problems (e.g. heart, diabetes, asthma, etc.) has brought to light the importance of wellness.  There has been dramatically increased use of digital wellness apps (yoga, circuit training, etc.) and also increases in the purchase of at home fitness equipment.  More people are walking or riding bicycles and reducing their use of public transport.  In traditional medical health, we have been forced to have on-line medical appointments as in many countries doctors will not initially see you in person.  Once again, with the 6 months of new habits forming supplemented by the high levels of media identifying concerns with the upcoming flu season, an increased focus on wellness and prevention and further growth of on-line medical should be expected. 

I have not seen any in-depth research that provides real insights into the scale of change to a ‘new normal’ and there is more to learn as we continue to live in this pandemic.  The consulting companies through their sampling have pulled together their sense of segmentation of post Covid customers which I think is useful to consider but each company needs to pull together its own views and then though ongoing analytics refine their own segmentation. Just as an example here are the segment names defined by three consulting companies – Accenture, McKinsey, EY. The names help you visualise the segments and you can see the overlap between the alternative segmentations.

  • Accenture – ‘the Worrier’, ‘the Individualist’, ‘the Rationalist’, ‘the Activist’, ‘the Indifferent’
  • McKinsey – ‘Affluent and unaffected’, ‘Uprooted and ‘unemployed, ‘Financially secure but anxious’, ‘Out trying to make ends meet’, ‘Disconnect retirees’
  • EY – ‘Get to normal’, ‘Cautiously extravagant’, ‘Stay frugal’, ‘Keep cutting’, ‘Back with a bang’

What we do know is that the longer restrictions and forced changes in behaviour last, the more likely future behaviours will at least reflect the positive experiences of the changed behaviours.   It is also clear that the rate of adoption of new technologies across the generations has accelerated and this will stimulate further investments to improve the related experiences.  Cycles of innovation and adoption will accelerate as a result of this pandemic. For many consumers, usually of an older age, they may not have bee able to delay the adoption of certain technology applications; and therefore, will likely be more comfortable trying new applications going forward.

For business, the pandemic disruption has now caused us to go into a period of non-linear change across many parts of our lives.  This means business need timely data and analytics to identify changes in demand and the growth of new opportunities. They will also need the agility and flexibility to respond and take advantage of new market opportunities or to minimise the costs of current activities that will no longer be profitable.  As noted earlier, these non-linear changes will be driven by a combination of:

  • Structural responses by businesses to Covid.  For example, policy shifts by companies towards remote working will make changes to consumer spending and ripple through to the retail and service sector around offices.  
  • Structural responses by governments. For example, rules and regulations on crowds and distancing, or adjustments related to public transport and other types of infrastructure.
  • The overlaying onto customer segmentation of behavioural changes linked to actual and perceived health risks of consumers
  • The additional overlaying of economic changes and uncertainties to large sets of consumers 
  • Changes in the attitudes of sets of people with respect to buying locally as a response to seeing local economic distress in combination with a sense of social responsibility and increased climate change concerns
  • Responses by the government to address potential future health challenges and alleviate the economic recession we have entered.  As an example, this would include accelerated investment in moving a country towards ‘greening’ the economy and society.   
  • The rate of change of adoption of existing technology applications and introduction of new technology applications

I will talk more about some of these factors in the next blogs.  These blogs will get into more detail on how businesses can be more effective at responding to this changing situation and also the role of the government.  

#Covid 19 #pandemic #post Covid #strategy #disruption #resilience #innovation #consumer segmentation #consumer behaviour #GenZ #millenials #baby boomers #WHO #sustainable development goals #McKinsey #Accenture #EY #UN SDGs #WEF #blacklivesmatter #metoo #DoughnutEconomics @Kate Raworth

Categories
Covid REBOOT

Post Covid

Blog 1 on Post Covid Disruption, Resilience and Innovation

Sept 2020 – We have not yet emerged from the Covid 19 pandemic.  Depending on whose narrative you are listening to and where you live, we are either towards the end of the first wave or at the beginning of the second wave.  Most countries in the northern hemisphere are expecting it to come back stronger as we move into the autumn and winter season.  Vaccine progress is encouraging and treatments are apparently improving as we learn more.  We are starting to build our experience on how to live with Covid and some countries are doing better than others at this.  In any event, we will be at the least learning to live with Covid 19 until we have a vaccine that has been widely distributed. If we solve Covid 19, we will need to hope a mutation or other virus does not show up for a long period of time.

In my view, we need to expect that we will be living with periodic disruptions from pandemics. Just look at our past as illustrated in Figure 1-1  .  Of course, the data shown on Covid 19 is not up to date; as of 6 September there were over 887 thousand deaths (www.worldometers.info/coronavirus/). Since 2000, we have had SARS, Swine Flu, MERS, Ebola and now Covid 19.

Source: Visual Capitalist,
Figure 1-1

What we do need to do is dramatically improve our management of viruses through being prepared, responding quickly by understanding the difference between exponential and linear, track and trace, have a coordinated multi-country response to manage and cure the virus, and have much better coordinated social and economic responses.  We can only hope that there will be proper analysis of our current situation so that lessons will be learnt; and, the learnings will be applied to continuously improve how we manage pandemics. 

In my second blog on Business Strategy, I provided an early view on how we were doing globally, and this was my assessment (Figure 1-2).

Figure 1-2

I would have hoped that over time the assessment on how we have been managing would potentially have underestimated how we were doing; unfortunately, if anything, the rating is generous.  We have seen the US fully withdraw from the WHO (World Health Organisation) and not work as part of a coordinated medical response. On the other hand, we have seen the EU agree to a €750m recovery fund to help EU countries respond to the pandemic. Both the virus management, including overall health management, and economic management analysis of our performance at the global, national, and local levels will provide a lot of lessons for the future!  Few nations have escaped unscathed and our interconnectedness economically has affected all nations.  

So what will change going forward in how we live our lives, how we work, how we socialise, how we learn, what we consume and what we do for entertainment?

New experiences, new realities, new understandings and new real or perceived fears change us.  For many our economics have also changed. Millions of jobs have been lost or are at risk.  Tens of thousands of companies have collapsed and more will collapse from shortage of financing and a too slow rebound of busines.  As with most challenging situations, there have also been some winners who have been in the right place at the right time, or responded and were able to benefit from the situation.

Once again, as with most crisis, inequality comes up as a major issue.  Those who can work remotely – office workers, financial sector workers, those in the technology sectors, managers, executives – can largely isolate themselves from the health risks; whereas, those on the front line – doctors, nurses, transport workers, home delivery workers and those in essential sectors – take on the health risks and allow many of us the ability to isolate.  It is also a group of people that have a lower overall income profile to those who stay at home and they do not have the same financial capacity to live through a lock down.   Even worse, in the lower income countries the governments do not have the capacity to respond with relevant financial assistance to workers and companies as well as having inadequate health care systems for the majority of the population.  We know that in many of these countries significant proportions of the population survive day to day or week to week and lockdowns put themselves and their families in front of other health risks such as starvation.   

The important role of technology has been made even more visible.  Whether for home working, home schooling, home shopping or for entertainment we have seen the power of technology.  We have all witnessed the accelerated adoption of technology in each of these areas.  Some say that we have moved forward 5 years in the last 6 months in terms of technology adoption.  We have moved into a position where the perceived risk of not adopting certain new technologies, and new ways of doing things, is more risky to our livelihood than sticking to status quo.  This is new!  

Our life of living with Covid 19, or post Covid 19, does not sit in isolation.  Integrated with this situation is the financial crisis, evolving geo-political tensions and challenges, other man-made challenges, and most importantly the need to address climate change and biodiversity, and the challenges of inequality.  The way forward needs to incorporate all these realities.

To add a bit more context to the two key longer term challenges, it is useful to refer to Kate Raworth and her book Doughnut Economics which is looking at economics for the 21st Century.  The basic premise of a long term sustainable world is that society must sit between a minimum basic social foundation for all and live within an ecological ceiling as depicted in Figure 1-3.  This is the Doughnut.

Kate Raworth, Doughnut Economics
Figure 1-3

If you then evaluate where we are across a set of dimensions for the social foundation and the ecological ceiling, you find that we have a lot of work to do to establish a fair social foundation for all and live within our environmental boundaries.  From Kate Raworth’s Doughnut Economics she has reflected the situation within Figure  1-4.  This depiction is linked to and consistent with the 17 UN Sustainable Development Goals, which I have discussed in earlier blogs as the best Global consensus of what we need to accomplish by 2030 and then beyond.  

Kate Raworth, Doughnut Economics
Figure 1-4

The climate and environmental issues will be familiar; although, perhaps not the extent to which we are well beyond the science based limits of climate change, biodiversity loss, land conversion and nitrous and phosphorous loading.  

In my view the social foundation components all link into the theme of inequality.  The inadequate access to minimum acceptable levels of food, shelter, water, energy, health and peace and justice for all.  The inequality of access to quality education and networks (internet, etc.).  The inequality of opportunity in terms of income and work, gender equality (#MeToo), social equity (#Black Lives Matter) and political voice.  

This set of blogs although focused on living with Covid 19, and post Covid 19, necessarily has to incorporate these other pressures and disruptions that we are facing.   The blogs will explore likely shifts in consumer behaviour, the impact on businesses and certain sectors and how they need to react, and some views on the role of the government and how it needs to change. Overall, the topics are covering managing in disruptive times, creating resilience and the critical requirement for continuous innovation.

Once again, please share this material, share your views, push forward the discussion.

#Covid 19 #pandemic #post Covid #strategy #disruption #resilience #innovation #WHO #sustainable development goals #UN SDGs #WEF #Doughnut Economics @Kate Raworth

Categories
REBOOT Strategy

REBOOT Business Strategy

“You cannot avoid the responsibility of tomorrow
by evading it today”, Abraham Lincoln

Blog 15 of the Business Strategy Series

This is the final blog on the strategic framework and of the Business Strategy Series.  I will be continuing to write on related subjects.  I am also working on another series that will look at the roles and linkages of the market economy and the state – another critical subject as we work through these turbulent and challenging times.  A coordinated response between the market economy and governments is mission critical for solving our climate crisis and we can see how vital it is for other disruptions such as the pandemic we have now lived with for 6 months.  

The components in the strategic framework (Figure 15-1) that have been introduced are focused on helping business executives and their boards create a long term sustainable business that has a true purpose in society by delivering both economic returns to investors and impact to other stakeholders.  

Figure 15-1

To date we have discussed purpose and the delivery model.  In this blog, I want to talk a bit more about impact, strategic timeframes, sustainability and resilience.  I will then complete the discussion with a short piece on portfolio strategy.  

Starting with environmental/climate impact.   Through the ESG reporting requirements (Environmental, Social, Governance), companies are being asked to look at the environmental at both level 1 impact, which is the company’s direct impact, and level 3 impact which considers the full supply chain impact including product use.  Clearly, at the environmental level the specifics of each sector, and its supply chain, will have different environmental dependencies and different opportunities to create impact.  Key sectors such as energy, food, packaging, retail, manufacturing and fashion which have high resource use, significant energy and water usage, and large supply chains will have high environmental impact unless they have already taken action (Figure 15-2). The urgency to create full circular strategies and lead the way is most vital for these high dependency companies; although, that should not stop all companies from moving forward as well.  

Figure 15-2

Taking the view at the societal level, that the climate problem can be solved by just focusing on the major companies that are contributing to climate change, reduced bio-diversity, high water use, etc. is definitely insufficient if you look at the science.   Part of the solution is for the public to be also looking at their consumption and making it more in tune with the needs for environmental sustainability. So the full and necessary challenge is to create a major shift in how we all live and how businesses, the government and NGOs operate. 

As I noted in Blog 14, for companies delaying this shift to a societally responsible strategy will only result in an increasingly challenging shift for each year of delay as the need to hit targets by certain dates will not shift.  Each company in each sector needs to set ambitious and timely targets to make its contribution to this.  It is management’s, and the Board’s, challenge to ensure that the strategy they set meets both its economic needs and its responsible level of impact.  

In addition to the sector, the geographic footprint of a business has implications for the impact focus and targets that it sets (Figure 15-3).  For example, companies that have large supply chain footprints in the developing world need to be thinking much harder about its specific social impact goals that it wants to achieve.  Truly exploring the UN Sustainable Development Goals will help define these.  Business as usual in many parts of the world will perpetuate the fundamental environmental, social and economic challenges that need to be overcome.

Figure 15-3

A helpful approach to thinking about how to incorporate impact programs and goals into the business is to look at the leading companies that are already a long way into this journey to be a responsible company.  

One of the companies leading the way is Unilever, who have been focusing on this now for over 10 years.  They now report on their progress against their goals each year (Figure 15-4). 

Source: Unilever Website,
Figure 15-4

From their website, you will see that they have created specific time based targets that roll up to overall ambitious goals, they have linked them to the Sustainable Development Goals, they are tracking their performance over time and they are publishing their performance publicly.

Other good examples covering different sectors are IKEA, Patagonia, Interface, Orsted, Tata and Microsoft.

As noted in Blog 12, strategic timeframes need to be extended vs. the typical 3 to 5 year timeframe (Figure 15-5).  A longer term time frame needs to be added to consider fundamental impacts such as climate, major changes in technology adoption and putting in place the right components for resilience.  3 to 5 year thinking and short term ROI horizons will not ensure adequate thinking on the sustainability of a strategy.  

Figure 15-5

Linked to this, it is critical that there is a proper review of the potential activities and events that change markets and/or generate new opportunities (See Figure 15-6 for examples).  These events will range from changing views on environmental responses required, SDG compliance, new regulations, a changing geo-political environment and of course the potential for massive impact from new and converging technologies.

Figure 15-6

More important than ever is to develop strategic scenarios that would be effective based on different views of what could happen in short, medium and longer term horizons (Figure 15-7).  The approach for doing this is to pressure test strategic options against different externalities and come up with some plausible scenarios to evaluate.  These scenarios need to be developed holistically and need to be comparable. The components of the scenarios should cover off customers, products/services and supply chains, investment, metrics, people, processes and technology. 

Figure 15-7

With a real analysis of alternative scenarios, the comparison should provide further clarity around the performance opportunities for the business as well as the risk parameters.  The true strategic options can be explored along the key dimensions of profitability/ROI, impact, implementation risk, meeting of key stakeholder needs, sustainability and resilience.  

This moves strategic thinking significantly on from a pure profit and shareholder only focus.  In the short run, realigning the business to survive this pandemic and be able to prosper in the post Covid world, having an organisation that is proactively progressing on gender and race issues, as highlighted by the ‘black lives matter’ and ‘me too’ movements, and making a real contribution to the global climate/environmental targets that need to be met are big topics in most board rooms, and with investors, employees and customers.  These challenges need much more than tactical reactions, they are strategic and structural challenges that will inevitably require some major changes to most businesses in terms of how they operate, who they do business with, where they invest, and what performance targets can be expected.  

The overall strategy and each of the components should fit coherently into the strategic framework (Figure 15-8). Continuous evaluation of the components of the strategy over time and looking for ways to continuously improve and refine the strategy is equally as vital as the initial setting of the strategy. As the rate of change in the world accelerates, dynamically adjusting/refining the strategy and improving execution is mission critical. Speed and agility are much more important than a singled minded short to medium term focus on efficiency.

Figure 15-8

The final subject, I want to touch on is the implications of this in a company with a portfolio of businesses. Investors and stakeholders will be looking at the overall economic and impact performance of the business. Non-performing business units within the portfolio will have an overall effect on the attractiveness of the business to investors, employees and other key stakeholders.

The proposed approach to evaluate a portfolio of businesses is a four step process (Figure 15-9). Firstly, evaluate the portfolio of businesses from an economic perspective. Secondly, overlay the environmental impact of the businesses on to the economic performance of each of the businesses. Thirdly, look at the full alignment of the set of businesses against sustainability impact which will include social and economic impact. Finally, look at the portfolio options from a resilience perspective. This review should be done considering the realistic potential scenarios of each of the businesses.

Figure 15-9

Now looking at each of these components in a little more depth. Starting with the stand-alone economic strategy, we have the traditional grid looking at business position vs market attractiveness (Figure 15-10). Both components of the strategy should be looked at from a short, medium and longterm perspective. Business position is the combination of profitability, market position, and ability to maintain performance over time as markets change and evolve. Market attractiveness is the combination of size, growth and the economic attractiveness of the market. The grid should be fairly self explanatory. If you have a strong market position in an attractive market then you ideally want to stay in the market and should be willing to invest and grow your position. Whereas, if you have a weak position in an unattractive you would rather manage the business for cash or divest from the market and reinvest the capital in more attractive businesses.

Figure 15-10

Moving on to the Environmental overlay (Figure 15-11), this takes the overall position from the economic strategy grid in Figure 15-10, Business Attractiveness, and matches it against the Environmental Attractiveness of the business. High environmental attractiveness has a low or positive environmental footprint within the timeframe of meeting the targets set by the Paris Climate Agreement and the environmental focused SDGs. For many businesses, the key target is the year the company will achieve a Net Zero carbon emissions equivalent level 3 footprint (ie. including the full supply chain of the business).

Overall, unattractive businesses, unless you have clear sight on how to transform them, should be harvested and/or sold. If an unattractive business is also very unattractive from an environmental perspective, such as a coal business, it is more likely that this should be divested as attracting investors and raising funds in your overall business will tend to be more challenging. In an equivalent way, if you have a small business with real potential in an environmentally attractive sector it may well be that you should be diverting your investment capacity into this business to build it. An interesting set of companies to watch on these dimensions will be BP, Shell and Exxon. Both BP and Shell have committed to reach a Net Zero CO2 emission target by 2050. It is not yet clear that they have strategies set out on how to achieve this; but, what is clear is that they will be redirecting their cash generation to the renewables sector where they have much smaller strategic positions. It has been a broad set of stakeholder pressures, including collapsing share prices, that have driven the adoption of these strategic commitments.

Figure 15-11

The third component of a portfolio review is the review of the alignment of impact overall with the business portfolio options (Figure 15-12). Although, climate impact tends to get the lion share of the attention from the press, economic and societal impact are vital components of the SDGs, and in many business and geography combinations, as you can see in Figure 15-3, they may be more important than climate impact. The food sector, including food retailers, are a great example of this with their broad geographically spread supply chains.

Figure 15-12

Finally, having evaluated the businesses, and their strategic options, in an overall and comparative context, the final step is to compare realistic combinations of businesses from a portfolio perspective. In particular, given the businesses have been evaluated against the three areas of impact, the portfolio options should be looked at from an economic return vs. a risk diversification perspective (Figure 15-13). The risk assessment is against the longterm sustainability and resilience of the portfolio scenarios. Adjusting a portfolio to reduce risk has real value, as we have seen in this pandemic. The potential benefits of a tight focus of businesses in terms of sector, geography, supply chain, efficiency and commonality of disruption risks may not be justified from a sustainability and resilience perspective. As I have noted before flexibility, adaptability, and diversification can provide real value to the business overall.

Figure 15-13

This brings to a conclusion, the series on Business Strategy. I hope you have found it thought provoking and useful; and hopefully, it will help you make a difference in your business and create a deeper impact in the world around you.

I will continue to write blogs to delve in deeper to sectors and subjects that will explore strategy and sustainability in a deeper context. As noted in the about section of my blog, REBOOT is not just about business, it is about the need for structural changes, or a new operating system, across all areas connected to our lives and our world.

Please continue to follow, share, engage in conversation, contribute and also reach out to me if you want to talk about this further. I can be reached through LinkedIn.

Categories
REBOOT Strategy

REBOOT Business Strategy

“It always seems impossible until it is done”, Nelson Mandela

Blog 14 of the Business Strategy Series

In this second blog describing the strategic framework (figure 14-1), I will cover off talking about the delivery model which is the strategic component behind the purpose of the business that drives both the economic and impact model of the business.

Figure 14-1

The delivery model aligns the customer proposition with the delivery components that are comprised in a circular strategy, to address climate and environmental impact, and the social strategy that focuses on economic and social impact (Figure 14-2).

Figure 14-2

Behind all businesses are the dimensions of customer – product fit.  The three key strategic pieces of this comprise a powerful proposition to the customer, ensuring the proposition is differentiated from its competitors, and focusing on a market segment that is attractive or ideally large and growing. 

Achieving and sustaining a differentiated customer proposition is critical to success.  To this end, having an intense and ongoing understanding of a business’ existing and potential customers in terms of purchasing decision making and behaviours, usage and post-usage behaviours, and the factors that will drive emotional engagement are vital.  We can see the potential components of a proposition (Figure 14-3) and the ways to differentiate are growing over time. The newer dimensions include differentiating over environmental sustainability and responsibility, the business model as discussed in Blog 9 of this series including channels to market, and a number of technology based dimensions.

Potential Components of a Value Proposition,
Figure 14-3

In many ways, the bigger challenge is sustaining differentiation vs. the initial achievement of a differentiated proposition.  Success attracts copycats.  New technology or technology convergence invites disruption.

There are a number of components businesses need to have in place to succeed in sustaining differentiation.  Firstly, superior customer knowledge of existing and potential customers.  Secondly, and closely associated, is superior CRM (customer relationship management) capabilities.  The purchasing and usage experience of a product or service drives customer retention, which results in repeat buying and referrals.  Relentlessly improving this experience will be even more critical going forward as the environmental movement drives longer life products and higher levels of service.  Thirdly, the collection and use of data, including competitive information.  Fourthly, having innovation capabilities and agility to continuously improve, react to problems and opportunities, and to integrate major changes as new technological capabilities. Speed and agility in many sectors are mission critical for success.  Finally, none of the other dimensions matter if you do not have the financial capacity to progress on these factors and withstand competitive pressures.  

Now let’s move on to look at environmental impact.  To truly embrace environmental impact and set ambitious targets from an attitudinal, operational and strategic perspective you need to look at your business through the eyes of a circular strategy.  My first exposure to this concept was over 15 years ago when I read ‘Cradle to Cradle: Remaking the Way We Make Things’ by William McDonough and Michael Braungart, where they presented an integration of design and science that provides enduring benefits for society from safe materials, water and energy in circular economies and eliminates the concept of waste.

The book put forward a design framework characterized by three principles derived from nature.  Firstly – “Everything is a resource for something else. In nature, the “waste” of one system becomes food for another. Everything can be designed to be disassembled and safely returned to the soil as biological nutrients, or re-utilized as high quality materials for new products as technical nutrients without contamination”. Secondly – “Use clean and renewable energy. Living things thrive on the energy of the solar system. Similarly, human constructs can utilize clean and renewable energy in many forms – such as solar, wind, geothermal, gravitational energy and other energy systems being developed today – thereby capitalizing on these abundant resources while supporting human and environmental health.”  Thirdly – “Celebrate diversity. Around the world, geology, hydrology, photosynthesis and nutrient cycling, adapted to locale, yield an astonishing diversity of natural and cultural life. Designs that respond to the challenges and opportunities offered by each place fit elegantly and effectively into their own niches.”  

The circular economy is most easily visualised by Figure 14-4 below.

Figure 14-4

One of the real champions of this approach are the Ellen MacArthur Foundation who have been working with major corporations to rapidly and dramatically reduce the carbon footprint and environmental impact they are having on the planet.  Their mission is to accelerate the transition to a circular economy. The Ellen MacArthur Foundation works with business, government and academia to build a framework for an economy that is restorative and regenerative by design.  Figure 14-5 identifies the main components of the thinking within a circular strategy.

Figure 14-5

The starting point for developing a circular strategy is to know where you currently stand in terms of both economic cost and environmental impact (Figure 14-6). This sets the business’ starting point.

Figure 14-6

Secondly, explore ways that you can add value and revenue growth by making changes to your business model.  Getting the right business model is critical to align with a circular strategy.  As I noted in Blog 9 of the series there are many alternative business models that can be explored.  Below in Figure 14-7 are some examples of business models of some newer businesses.

Figure 14-7

Achieving a full circular strategy in product based businesses is a major commitment of time, energy and resources.  This also requires full alignment across all parts of the business and its supply chain.  Defining the end point allows the business to define the journey and time frame to achieving it in order to deliver on the financial performance and meet the impact requirements of a responsible business.

Integrated with the circular strategy, a business needs to overlay a social strategy, which includes economic impact.  I believe the acid test of a strong social strategy is whether or not, or to what extent, the company is contributing in its own way to reducing inequality, ensuring inclusivity, and contributing to future generations of all children being better off.  This is positive impact.

The constituents of a social strategy are the customers, employees, people within the supply chain and communities which are touched by the business (Figure 14-8).

Figure 14-8

The social strategy can impact on many of the SDG’s (Figure 14-9) including ‘responsible consumption and production’, decent work and economic growth’, ‘quality education’, ‘good health and well-being’, ‘gender equality’, ‘reduced inequalities’, and ‘clean water and sanitation’.

Figure 14-9

The impact focus of the social strategy will range from compliance with core principles such as anti-slavery, fair trade and gender equality, to specific proactive stances against behaviour that violates the core values of the businesses, or finding areas where the business can add some real specific value (Figure 14-10).

Figure 14-10

Most recently, we have seen the incident with Patagonia who removed its advertising on Facebook in a “Stop Hate for Profit’ campaign.  Alex Weller, Patagonia’s marketing director for Europe said, “It’s no secret that social media platforms have been profiting from the dissemination of hate speech for too long.  Facebook continues to be the most resistant of all the social media platforms to addressing this critical issue and so that’s why we decided to take action against it specifically.” Since Patagonia’s stance others like Adidas, Verizon, Coca-Cola and Unilever made similar moves.  Patagonia has said that it will stay the course and stand by this commitment for as long as it takes.  We will see the strength of the stance of other companies as time passes.

Overall, companies need to think about what their social balanced score card should look like (Figure 14-11).  

Figure 14-11

Just as with the other components of the thinking requiring short, medium and long term views, so does the organisational thinking.  This organisational thinking for the organisational components per the McKinsey 7S model (Figure 14-12) needs to be matched against both the time horizons and the alternative strategic scenarios in order to be properly assessed.

Figure 14-12

Critically, to get each of the organisational components right there needs to be clarity on the performance requirements (Figure 14-13) of the organisation.  Arguably, if there are some big strategic shifts in the business as a result of also needing to drive impact, then there will likely be some material changes required to the organisational needs of the business and linked to this the incentive structure to drive alignment. 

Figure 14-13

Finally, as the environment changes, the sector evolves and the company learns, there will need to be continuous adjustments to the strategy and the components of delivery in order the achieve both the economic and impact goals of the business.  Integration and alignment of these components is critical as well as continuous feedback across the cascade of components with appropriate adjustments (Figure 14-14).

Figure 14-14

In final blog of this series, I want to talk in more depth about impact, strategic time frames, sustainability and resilience. I will also finish off with a short discussion on portfolio strategy for companies with multiple businesses.

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Blog 13 of the REBOOT Business Strategy Series

This is the first blog discussing a new strategic framework relevant for the world we now live in.  To date, I have covered off some background on how the world is getting increasingly complex from a societal, environmental, technological and disruption perspective; and the implication of this is a need to look at business strategies from a system based perspective so that business are aligned with economic, society and environmental goals.  Critically, linked to this are that the general consensus on these goals globally are best defined by the 2015 UN Sustainable Development Goals for 2030, which also link in with the 2015 Paris Climate Agreement.

The next section then went on to cover off 8 gaps in traditional strategic thinking that need to be covered off for a strategy in the 21st century.  These gaps were driven by deep interconnections of a business with their environment, which is not just their business sector.  These interconnections are vital to understand as there is continuous change and ongoing disruptions that are and will be affecting a business.  These factors include societal and economic factors as we can see now with the Covid 19 pandemic and ‘Black Lives Matter’ movement, the impact of new technologies, and most importantly the need to globally address the challenges of climate change and other key environmental issues. 

This new framework tries to create a shift in how we think about our business, away from just profitability for shareholders to goals that are also aligned other stakeholders including the public, consumers, suppliers, communities and governmental interests.  It is worth noting that investors are now requiring this shift given that the long term interests of businesses are for a sustainable world and they can see real business risks on the horizon from climate change.

The traditional stand alone thinking (Figure 13-1) can be summarised by, firstly, a virtually exclusive focus on the shareholder as Milton Friedman had summarised,”the social responsibility of business is to increase its profits”. Secondly, an industry and competitor analysis as defined by Michael Porter’s five forces analysis matched to an understanding of the business’ internal capabilities.  Thirdly, profit and market based key metrics.

Figure 13-1

A  new system based framework needs alignment from the business through to the economy, society and to the environment (Figure 13-2).

Figure 13-2

To create alignment a business needs meaningful purpose that aligns with the business on delivering against both its own economic goals as well as creating impact (Figure 13-3).  This is the challenge of strategy design, to cover the needs of both profitability and impact.  

Figure 13-3

Clearly, this can add complexity as the performance measures are now broader; however, it also creates opportunity and new ways of differentiating and competing.  For deeply entrenched players in the market who have adverse impact on the climate/environment, they are going to have to think about how they will use their resources and market position to evolve to a new sustainable strategic position and focus.  For the younger and nimbler companies, they will need to think about how to use their speed and flexibility to create a stronger positioning ahead of their key competitors.  If you are already there, then take advantage of your position.

A key part of this system-based framework is that it is relevant for all types of organisations whether in business, government or as an NGO.  Clearly, each type of organisation, as with each business, has to be clear on their economic model and what their impact targets are in order to get clear on what delivery model they need.  In the government and with NGO’s, they will have very different sources of funds; but, in any event they need to solve a sustainable financial model to survive rather than to make a profit.  A governments whole raison d’être should be impact; although, for many of us it may well be that their targets and metrics of achievement are unclear!  

Surrounding these triangles are three components that need to be full addressed within a strategy (Figure 13-4).  Firstly, having a clear view of the key stakeholders of the business.  Secondly, the business must be built to last – it must be sustainable.  This means the business must be able to continuously deliver value to it customers, it must deliver the right economic performance for investors, and it must provide the appropriate impact for other stakeholders. And, the business must be able to adjust, adapt and move forward in a way that this continues over time.

Thirdly, the business must be resilient and thus have the capability to withstand and manage through different scenarios of disruption from the 5 types of macro forces – societal, environmental, economic, technological, and geo-political – to the core challenges specific to the   

Strategic Framework
Figure 13-4

There are six tests of a business strategy:

  1. Is the business Purpose Driven?
  2. Can the business create real differentiated value for its target customers over time?
  3. Can the business perform at a level to attract and retain investors?
  4. Does the strategy integrate generating economic, social and environmental impact at ambitious levels for key stakeholders?
  5. Does the business strategy create sustainability and resilience?
  6. Does the strategy have ambitious and achievable triple bottom line metrics covering profit and impact targets?

At the heart of a business lies its purpose.  It is the driving force and acid test of all business decisions.  It is what attracts and retains employees, customers, other participants in the supply chain and investors.  Sitting above the strategy are three components Vision, Mission and Values.  There are a lot of different views about how to define vision and mission, and sometimes they are combined; so to clarify, I have created definitions that fit with this strategic framework.

Figure 13-5

Within this strategic framework, the purpose defines how the world will be a better place as a result of the business.  The first component of the purpose is the Vision.  The Vision is the business’ view of the better world that the industry or sector will contribute to.  The Mission is the part of the vision that the company is targeting to fulfil.  I like to describe the Mission as the North Star that the company wants to be continuously moving towards.  Finally, the Values defines behaviourally how the Company‘s operates – what drives it, what motivates it, and how it will behave with its employees, customers, suppliers, communities, society and environment.  The combination of the vision and mission should be something that engages, and gains agreement from, all key stakeholders.

Here are some examples of the vision and mission, or a combined statement, for purpose driven companies.  

Orsted

Our vision is a world that runs entirely on green energy.

Mission: “We want to be a company that provides real, tangible solutions to one of the worlds most difficult and urgent problems.”

This is a Danish Company that started life as a state owned organisation focused on coal and oil.  Most recently it has been recognised as ….

Within this strategic framework, the purpose defines how the world will be a better place as a result of the business.  The first component of the purpose is the Vision.  The Vision is the business’ view of the better world that the industry or sector will contribute to.  The Mission is the part of the vision that the company is targeting to fulfil.  I like to describe the Mission as the North Star that the company wants to be continuously moving towards.  Finally, the Values defines behaviourally how the Company‘s operates – what drives it, what motivates it, and how it will behave with its employees, customers, suppliers, communities, society and environment.  The combination of the vision and mission should be something that engages, and gains agreement from, all key stakeholders.

Here are some examples of the vision and mission, or a combined statement, for purpose driven companies.  

Orsted

Vision: “Let’s create a world that runs entirely on green energy.“

This is a Danish Company that started life as a state owned organisation focused on coal and oil.  Their current primary focus is on offshore and on shore wind farms. Most recently it has been recognised as the most sustainable company in the world in the Corporate Knights 2020 Global 100 Index.

Novo Nordisk

“Our purpose is to drive change to defeat diabetes and other serious chronic diseases such as obesity and rare blood and endocrine disorders. We do so by pioneering scientific breakthroughs, expanding access to our medicines and working to prevent and ultimately cure disease.“

How many other pharmaceutical companies have a missions to ultimately cure diseases where it derives all its revenues from?

Unilever

Vision – “to make sustainable living commonplace.”

Mission – “To add vitality to life. We meet everyday needs for nutrition, hygiene and personal care with brands that help people feel good, look good and get more out of life.” 

Tesla

Mission: “To accelerate the world’s transition to sustainable energy“

We all know Tesla for it’s pure electric vehicles; however, it now has a full suite of energy products that incorporate solar, storage and grid services.

Ikea

Vision: “To create a better everday life for the many people”

“Our business idea supports this vision by offering a wide range of well-designed, functional home furnishings products at prices so low that as many people as possible will be able to afford them.”

Microsoft

Mission: “To empower every person and every organization on the planet to achieve more”

“Our platforms and tools make small businesses more productive, multi-nationals more competitive, nonprofits more effective and governments more efficient. They improve healthcare and education outcomes, amplify human ingenuity, and allow people everywhere to reach higher.”

Patagonia, an outdoor clothing company, has had a sustainable mission since the beginning and has self imposed an earth tax of 1% of revenues for support activities to save the planet.  It has a very broad mission, “we’re in business to save our home planet”

It has defined it values in a different way to most companies that state the obvious ones of honesty, integrity, etc.  Their values are more action oriented, very honest,  and I think much more engaging:

“Build the best product – Our criteria for the best product rests on function, repairability, and, foremost, durability. Among the most direct ways we can limit ecological impacts is with goods that last for generations or can be recycled so the materials in them remain in use. Making the best product matters for saving the planet.

“Cause no unnecessary harm – We know that our business activity—from lighting stores to dyeing shirts—is part of the problem. We work steadily to change our business practices and share what we’ve learned. But we recognize that this is not enough. We seek not only to do less harm, but more good.

Use business to protect nature – The challenges we face as a society require leadership. Once we identify a problem, we act. We embrace risk and act to protect and restore the stability, integrity and beauty of the web of life.

Not bound by convention – Our success—and much of the fun—lies in developing new ways to do things.”

With a broader awakening of Boards and executive teams, as well as investor pressure, we should expect an increasingly rapid shift to much more purpose driven vision, mission and values? The companies not moving in this direction will inevitably be left behind.

The overall strategic framework tries to achieve 3 core objectives. Firstly, to ensure the business is systemically integrated into its economic, social and environmental situation context. Secondly, provide absolute clarity that the business is also focused on impact as well as profit to meet the needs of all key stakeholders. Finally, to have a true longer term perspective that considers both resilience and sustainability.

In the next two blogs, I will fill out the other components of the framework.

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Blog 8 of the Business Strategy Series

To date I have addressed 3 of the strategic topics that are integral to strategic thinking going forward.  The topics have been ‘from shareholders to stakeholders’, ‘from Michael Porter’s five forces to macro models, and ‘from risk monitoring to business resilience’.  In this blog, I will cover ‘from product – market fit to customer – product fit’. 

A more detailed understanding than product market fit is required in assessing the full  opportunity for a business.  Marc Andreessen, co-founder of influential Silicon Valley venture capital firm Andreessen Horowitz, coined the term product-market fit in a 2007 blog post, defining it as “being in a good market with a product that can satisfy that market.”  Traditionally this has been from primarily looking at the existing market.  In the venture capital world, this usually involves market testing to confirm that an exciting market opportunity exists which is the right place to start.  Unsurprisingly, with existing businesses this examination of an existing market is also done but often with not enough rigour on looking at the future.  

Customer – product fit is the matching of a product or service proposition with the needs of a large, and ideally growing, set of customers that will underpin a thriving business over time..  The reason that I choose to call it customer – product fit is that the critical thing is that only by truly understanding the customer will you match a need with the right product fit.  In addition, in an established business having a proper detailed understanding of market dynamics, opportunities and how they will evolve is mission critical to investment decisions.  Customer fixation is critical to success.  With markets evolving at increasing rates of change, too many companies are overly focused on competitors vs. customers.  

In an interview with Inc. magazine in 2019, Jeff Bezos talks of 4 key principles that drive Amazon’s business – Customer obsession, eagerness to invent, long-term thinking and operational excellence.  He says, “The first and by far the most important one is customer obsession as opposed to competitor obsession,” he says. “I have seen over and over again companies talk about being customer focused, but really when I pay close attention to them I believe they are competitor focused, and it’s a completely different mentality, by the way.”  He then goes on to say ” If you’re competitor focused, you have to wait until there is a competitor doing something. Being customer focused allows you to be more pioneering”.  Finally, this customer focus is encapsulated by a quote of his in Blomberg Businessweek, August 2014, “We don’t want to start with an idea and work toward the customer. We want to start with a customer problem and then invent to a solution.” – Jeff Bezos, Bloomberg Businessweek, August 2004

There are a number of factors that are creating a need to think differently by looking at customer – product fit (Figure 8-1).  Let me first talk about all the influencing factors and then I will come back to talk more specifically about customers.  Firstly, the need to focus on climate and environmentally sustainable products and services will be critical for all sectors with varying degrees of urgency.   With climate, leglisation, investor and public demand will be changing the shape and size of many consumer and b2b segments and the specifics of the product and service offers. For example, will your sector need or want to move from short cycle products (use – dispose) to long cycle products (eg. use – upgrade – resell – recycle), or go from a product purchase model to an asset sharing model.  Understanding how market segmentation will change as a result of both customer purchasing habits responding to the issue and other market requirements is essential to explore.

Figure 8-1

Secondly, the need to think about fit requires evaluation in the context of different time horizons.  For example, music has shifted in delivery format from LPs to cassettes to downloadable to live streaming.  With the acceleration of new technologies emerging many sectors will see fast and significant changes in what needs can be met, the design and delivery of the product or service, the payment models, the post-sale experience and the after-use experience.  The time between ‘new normal’ customer and market environments will shrink from a combination of technological shifts, climate change and other major disruptions.  

Thirdly, customers increasingly care about the sourcing of products; being on top of shifts in this thinking will be critical.  This care, and ultimately how they vote with their pockets, can link to environmental concerns (eg. deforestation), social concerns (eg. fair trade, child slavery, desire to buy local) and geo-political views (eg. anti-China).  

Fourthly, creating scenarios of potential market and competitive environments in the future will be more important than deeply understanding the current competitive environment.  The combination of new technologies, adoption curves of existing known technologies and the shift to sustainable businesses will change the shape of many markets.   You just have to think about how different your life was in 2007 when there were no smart phones and apps, limited bandwidth broadband, low data storage, much more limitations to on-line shopping and the use of social media was just starting!  When the key success factors, skills and capabilities change for a market sector, there will be changes in competitor sets and the dynamics between them.

Finally, with your customer – product focus what kind of innovation cycles will you need to stay relevant?  This isn’t just what we think of in terms of rapid ongoing upgrades to an existing product; rather, it is thinking about the time periods and likely fundamental shifts that the product or service may require to stay relevant.  All these factors can have a material bearing on customer – product fit going forward which is where strategy is focused.

Now back to the core thinking about customers.  I will focus on thinking about the dynamics in consumer markets, and then discuss business to business (B2B) markets.  I am amazed at how many people rely on impressions of what is happening that may well be 20 years or more out of date.  Two great books that deal with this are Enlightment Now by Steven Pinker and Factfulness by Hans Rosling. Challenge your executive team, and Board, to go through the 13 questions that Hans Rosling asks to see how current your thinking is on the world today.   Most groups that do this will be surprised by how much their knowledge is out of date.  Our knowledge base tends to be heavily biased by what is newsworthy as opposed to what is actually happening.  Up to date facts and knowledge is critical to picking the right geographies and customer groups to focus on; and, deeply understanding target customers and the potential market and product dynamics linked to them is fundamental to growth.

At the macro level, the global population continues to grow.  We are now approaching a global population of 7.8 bn people and we expect to hit 10 bn people by 2055. The dynamics of this growth have changed and will change significantly over time (Figure  8-2).

Figure 8-2

This is a growth rate of about 1.05% per annum currently which is expected to decline on an ongoing basis until population growth has virtually stopped by 2100.  The population growth rate was as high as 2.05% in the period between 1965 and 1970. A tremendous change occurred with the industrial revolution: whereas it had taken all of human history up to year 1804 for world population to reach 1 billion, the second billion was achieved in only 123 years (1930), the third billion in 33 years (1960), the fourth billion in 14 years (1974), the fifth billion in 13 years (1987), the sixth billion in 12 years (1999) and the seventh billion in 12 years (2011). During the 20th century alone, the population in the world has grown from 1.65 billion to 6 billion. (Source: worldometers.info, UN Nations – World Population Prospect: the 2019 Revision (June 2019)). In the 21stcentury, the population is expected to grow to about 11 bn by the end of the century at which point the population will have probably peaked.

If we then look at sources of population growth from 1950 to 2055 forecasted levels, the sources of growth evolve significantly by both geographic region (Figure 8-3) and by World Bank income classification based on the 2018 country classifications (Figure 8-4).   Firstly, from a geographic perspective, the combination of North America and Europe represented 28% of the global population in 1950 and by 2055 it will only be 11% of the population.  Europe will start to decline as of 2025, and North American growth will be very slow.  Asia will continue to grow through to 2055 and then start to decline; although, the sources of growth will change between countries.  Africa will continue to be high growth, and then effectively be all the growth from 2055 to 2100.  From an income growth perspective these growth patterns will be exaggerated further as income growth rates are higher in lower income countries.

Figure 8-3 Figure 8-4

If you look at growth using World Bank Income Groups as defined in 2018, both high-income and upper middle income group populations growth will have peaked by 2050 and all the growth will be in the lower middle income and low income group countries to 2100.  

Behind these numbers, there is the other dynamic of population breakdown by age (Figure 8-5).  These trends can also cause tremendous shifts in spend as populations age.  Figures 8-6, 8-7 show how different the dynamics can be when you compare Japan (the oldest average age country and a declining population) with a large high growth country young country such as Nigeria.

Figure 8-5
Figures 8-6, 8-7

Clearly these dynamics then need to be overlaid with consumption patterns and income availability to really understand and define opportunities.

The last aspect of B2C customer – product fit that I want to talk about is customer purchasing behaviour.  In consumer markets, we have gone through the different generations from Baby Boomer to Gen X, Y and now Z (Figure 8-8).  There have been massive shifts in attitudes, behaviours, purchasing and consumption.  These shifts cause great challenges across many businesses ranging from hiring, to work expectations and work environment practices, and clearly also to consumer spend on product and service offers. 

Figure 8-8

Through the generations, and with technology changes, we are seeing major changes to consumer spend in a number of ways.  Firstly, in the mix of spend such as shifts from products to experiences and trends towards wellness.  Post Covid 19, I think we can expect some further shifts in the mix of spend, perhaps less travel and more spend on the home. Time will tell! Secondly, there is the evolution of functional needs within product categories; for example, towards organic in food, or simplicity, time saving and integrateability in more technical products.   The functional elements then also blend in with the emotional factors, the third category.  These would include the potential need to express individuality, badges/brands for association, design, local vs. mass produced, etc.  Finally, there are some overall higher level themes that would go across sets of product categories linked to social responsibility and ethics such as climate, ethical sourcing and fair trade.  Being on top of these trends and understanding the link back to customer needs and segmentation is critical strategically.  

As with consumer purchasing, B2B markets have similar complexity and an ever greater importance of understanding technology and innovation trends that will affect a companies mix of spend and specific purchase criteria.  Bain & Company, my alma mater, has done some excellent work analysing and categorising the most important elements for a purchasing decision.  Figure 8-9 is their Elements of Value pyramid for B2B buyers.  Across industries, the most important factors will vary; and then, within an industry, markets will segment against certain clusters of factors.  

Properly, identifying these market segments and then understanding them is essential for properly mapping customer – product fit.

In summary, focusing on a clear existing market is essential; however, understanding how the market will evolve and purchasing patterns may change is what will drive the sustainability of your market opportunity.  All of this starts with truly understanding a company’s target customers and their needs and problems that they are trying to be solve.  This knowledge will drive investments, how you organise and focus your innovation initiatives, and your ability to compete and outperform.  

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“It’s your reaction to adversity, not adversity itself that determines how your life’s story will develop.”
― Dieter F. Uchtdorf

Blog 7 of the Business Strategy Series

‘From risk monitoring to business resilience’.   How many companies had put pandemics as a risk factor in their risk register and were well prepared?  This is despite infectious diseases being logged as a medium likelihood and a high impact risk in the World Economic Forum’s Annual Global Risks report.  And, since the beginning of this new millennia, in the last 20 years, we have had Sars, Swine Flu, Mers, and Ebola.  Clearly, there were not many companies prepared or we would not have needed government economic support of up to 15% of GDP in wealthy nations.  

In addition, how many companies were prepared for the financial crash in 2008, have fully considered the risks from global warming, the challenges of political, economic or climate based refugee movements, or the full range of risks from different forms of cyber attacks?  This discussion follows on naturally from the previous blog on the need for macro modelling beyond traditional industry analysis.  

The first area of attention is to add macro risks with multi-horizon views into the risk monitoring (Figure 7-1)

Figure 7-1

As the world is getting more complex and more interlinked, the likelihood of an event occurring increases.  In addition, the risk and impact of an event is increasing due to inherent trends that we are facing.  These trends include climate change, population growth, increasing reliance on technology and data, increased population concentration in cities, globalisation and increased levels of debt per capita.  The optimistic view is that behind each of these trends should also be some great opportunities and this is where the great companies will be focusing.  Rigorous analysis should help to identify opportunities out of a risk assessment.  

In the World Economic Forum’s Global Risk Report 2020, they have surveyed their member base to get their view of the likelihood of a risk occurring and its potential impact on a scale of 1 to 5.  The higher risk and likelihood events are listed in Figure 7-2.   

Figure 7-2

The outcome of this survey is set out in Figure 7-3 which shows the set of risks with a combination of high likelihood and high impact.  You can see the clustering of environmental concerns in the top right quadrant.   It is interesting to note that infectious diseases/pandemics were not ranked as high; although, still seen as serious.  

Figure 7-3

The perceptions of risk are not static over time with some of the perceptions being influenced by events that are occurring at the time, such as the 2008 financial crisis.  Since 2007, there are 2 visible trends. Firstly, the escalation in the risk levels related to climate and environmental issues.  Secondly, a growing view of risk levels on the technological front.  The good thing to take away from this risk assessment is that this indicates a growing understanding and view of the risks of climate change and environmental degradation.

Another interesting aspect of this report is that they compare the views of the WEF members against their Global Shapers Community which is the WEFs network of young people driving dialogue, action and change.  In most cases the Shapers see a higher likelihood of an event occurring and in virtually all cases a higher potential impact.  

What is not fully evident, and not addressed in the report, is the extent of government and business response in light of these risk assessments.  You would think that this could be one of the productive outcomes of the WEF Davos Meeting that happen annually.

For a specific business, the ratings of the risks would be affected by a combination of the sector and geography where they are involved.  Business risks can be divided into two broad categories of risk, direct risks (Figure 7-4) and macro, or indirect, risks (Figure 7-5).

Figure 7-4

Behind the direct risk, is the ongoing risk of one of the events occurring and the potential impact of that risk; however, there is also an implementation risk that occurs on an activity when you are undertaking a material action that is new and within your plan, or you are taking a substantive action to either mitigate a risk or respond to a risk that has occurred.  

Similarly, with Macro Risks, there is the physical risk which is the fallout related to the specific event. This would include second and third order effects as we have seen with the current pandemic.  However, there is also a transition risk which involves a fundamental change to the operating environment of the business; and, in these cases there are risks related to the period of change to a new environment.  Examples of transition risk are the risks arising from a transition from our current energy provision to a clean energy sector or a transition from a linear economy to a circular economy in a specific sector. 

Figure 7-5

Against these risks, the management and their boards clearly need to think through how to build resilience.  Resilience strategies can take several forms.  Firstly ‘Shaping’, the company could eliminate or at least partially eliminate risk by boldly implementing a plan upfront. This approach would also be deployed where there were also business opportunities.  An example of shaping, would be a technology company building a second manufacturing facility outside of China due to geopolitical concerns and trade risks. This approach is clearly bolder and requires more upfront investment; and if there is a market opportunity involved it may well be the right approach.  Another interesting example of this is IBM, who started as a mainframe computer business, then separately invested in mini computer business in case the market took off; and then finally, did the same thing with the micro-computer market.  

 Secondly ‘Hedging’, the company could build a specific risk mitigation response capability that would be pre-planned and tested.  This would include optioning, if there are a set of discrete scenarios that would require quite diverse responses.  The goal is to limit the upfront expenditure, but keep the company in the game and help accelerate the speed of response if required; thereby, mitigating the risk.  Thirdly ‘Reacting’, a company could build the information and systems requirements that would give better pre-risk warnings, improve in-risk analysis to help the response, and provide post occurrence monitoring.  Finally ‘Dry Powder’, is to ensure that you have the financial capacity to react to any residual risks including known risks with unknown outcomes and unknown risks. 

In addition to defining risks in terms of likelihood and impact, it is important to categorise the risk.  There are effectively three risk categories.  The first risk category is ‘Clear Outcome’.  An example of this would be the binary decision of a competitor to build a new plant in a key market that would significantly affect the supply – demand dynamics.  

The second category is ‘Range of Outcomes’. In this case there are a set of different scenarios that could describe the future.  In some of these situations, it may link to scenarios of the outcome and timing of regulations related to a sector.   The third category is ‘Unknown Outcomes’.  In these situations, they are known risks but no true understanding on the likely scope of outcomes.  An interesting example of this would be during the development of the electric car market. In 2010,  I think it would be safe to say that the categorization of the development of this market and its implication on diesel and fuel cars would be ‘Unknown Outcomes’.  In 2016, Norway agreed to ban all conventional cars by 2025 and then other countries and cities started announcing bans in 2017.  By this time the risk category in the EU had turned to ‘Range of Outcomes’ and it was just a question of when the bans would be enforced by country across the EU.  Clearly, different types of risk need different option evaluation approaches.  Doing additional research and analysis to be able to shift to a clearer set of outcomes can add significant value.  

Linked to evaluating resilience responses, a business should be able to see that certain actions can create resilience against several, and often unrelated, risk types. This is clustering.  For example, having two manufacturing facilities in two countries rather than a single facility could mitigate risks for floods, fires, geopolitical trade risks and foreign currency risks. Another example would be, moving to an environmentally friendly strategy would help mitigate the risks from changing consumer purchasing behaviour, reduce employee retention risks, get the company ahead of potential new regulations, and reduce the potential of brand and reputation damage from climate action groups. 

The other side of resilience response is to evaluate whether or not risk reduction can be coupled with a new business opportunity. Pressure test your resilience thinking to see if you can turn some of the needed activities into opportunities to create deeper strategic advantages and further customer differentiation. A simple example of this, has been the Covid 19 based rush of many retailers to build an online channel for remote ordering and home shopping.  Many of these retailers somehow missed understanding that adding a home shopping channel market is a basic requirement today and should have been part of their strategy long ago to grow sales anyway.

These different components can be pulled together into an overall approach to resilience management (Figure 7-6).

Figure 7-6

There are a number of ways to build resilience. The most important starting place is to have the right leadership and team in place that have the knowledge and the capacity to build resilience, and rapidly and effectively respond to risks.  This pandemic has shown some stark differences in country and company abilities to respond to risk and significant differences in speed and effectiveness of response.  

There are different ways to think of building resilience and some of them are noted in Figure 7-7  Firstly, diversification is a classic way of reducing risk.  Points of potential diversification would include raw material sourcing, manufacturing locations, distribution channels, data centre locations, geographic focus, and product range. Secondly digital innovation, which would include adding the ability to work remotely, home shopping, using cloud based systems, remote servicing.  Thirdly, product service innovation which would include having a more diversified set of products; but, also being able to rapidly change and adjust products and services for example as new regulations are put in place, software language use changes, and responding to disruptive new entrants into the market.  Fourthly, business model innovation is becoming increasingly important to look at.  We are now seeing a shift in some areas from single product purchasing models to locked in monthly payment models such as with digital news services vs. daily purchases of a newspaper.  Building reliability in revenue flows is a also critical part of resilience. 

Figure 7-7

Next is financial capacity management. In times of crisis, a strong balance sheet always wins.  It is increasingly hard to insure against all potential risks so residual risk may need to be covered off by a stronger balance sheet.   Just like at home, a business needs a cushion for a rainy day!  A strong balance sheet is also critical if a company is seeing increasing volatility of revenues and/or increasing seasonality of the business.  Private equity owned companies that are tightly financed and highly levered are particularly susceptible to small changes in trend lines.  I think everyone would agree that believing that the last line of defense of a business is a rescue by the government is not something worth relying on.

Finally, having partnerships-alliances or reliable third party support to help deal with, or be on call for, certain crisis types is usually a core part of a resilience strategy.  In technology based risks, having a specialised help to deal with cyber attacks is a common use of a third party.  They can help help reduce the risk of an attack succeeding as well as helping to respond to a threat that occurs.  Other examples could include having back up manufacturing capacity and some outsourced service capacity.  For many companies, having your data and software in the cloud results in the cloud supplier (eg. AWS, Google, Microsoft) providing the resources and skills to deal with a cyber attack risk.

Against this whole discussion of risk and resilience, it should be clear that resilience is a core component of strategy.  As noted in a 2016 HBR article, The Biology of Corporate Survival, companies are disappearing faster than ever before. “Public companies have a one in three chance of being delisted in the next five years, whether because of bankruptcy, liquidation, M&A, or other causes. That’s six times the delisting rate of companies 40 years ago.”  If you are focused on long term sustainable performance in a complex and rapidly changing world, resilience, speed, agility and innovation capability will outperform a low cost strategy.   

Source:  McKinsey wrote an excellent article in the HBR that helped shape some of this thinking.  “Strategy Under Uncertainty”, Harvard Business Review, November-December 1997

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REBOOT Business Strategy

“The future depends on what we do in the present”, Mahatma Ghandi

Blog 6 of the Business Strategy Series

‘From Michael Porter’s Five Forces to macro-models’.  In the last blog, we talked about the need to shift from a shareholder perspective to a stakeholder perspective.  In this article, I want to cover off the importance of overlaying onto Michael Porter’s 5 forces industry analysis two factors (Figure 6-1).  Firstly, an understanding and integration of what is happening in the macro environment into the strategic thinking and planning for a business.  In broad terms, these macro factors can be put into one of 5 categories – Economic, Environmental, Geopolitical, Societal and Technological.  Secondly, a detailed analysis and assessment of the threats and opportunities that could come from technology.  

Both of these factors need to be looked at from a multi-time horizon perspective. The external dynamics impacting a company can be significant on all these horizons; therefore, scenario modelling on each of these horizons is essential. As examples, in the short term, we are seeing how a pandemic can have dramatic effects on our business. In the medium term, the movement of a technology into a growth phase of rapid adoption could have a signficant effect on a competitive environment and customer purchasing dynamics. In the longer term, climate change is affecting most businesses and sectors, and may affect longer term investment decisions. Superior understanding about how an industry could be affected provides a real opportunity to outperform and improve business sustainability.

Figure 6-1

Starting with the macro environment, the World Economic Forum ‘Risk Trends Interconnection Map’ (Figure 6-2) illustrates well the range of macro factors that a business may need to watch and monitor. This will help a business decide how to adjust its strategy as these factors and their interconnections wax and wane over time.  

Figure 6-2

Just since February 2020 and the emergence of Covid 19, businesses are having to deal with a combination of many factors including the need for remote working, limited ability to make sales, massive financial pressures from the financial crisis, a collapsing oil price, increasing trade tensions between the US and China, increasing national sentiment, potential implications of greater control being put on Hong Kong by the Chinese government, and in some sectors a heightened level of cyber attacks.  Do any of these have any bearings on your strategy going forward?  This level of challenge to a business will not go away and for many the issue of climate change will only create even more profound challenges.  Thinking about these potential risks in different scenarios over the short, medium and long term is vital.  The key is really to solve how to take advantage of the situation to strengthen the performance potential of the business and strengthen its competitive position.

Secondly, it is vital to look at the threats and opportunities of technological change.  It is easy to forget the accelerating speed at which new technology is adopted at scale (Figure 6-3). For businesses, it affects what products and services can be provided, how businesses operate, which markets they can reach and focus on; and, it results in whole new market sectors being developed.

Figure 6-3

In addition, the speed at which new technologies are being developed and related products are being introduced is astonishing (Figure 6-4, 6-5).  In the research world, there are unprecedented levels of information sharing and collaboration coupled with increasing speeds of access to new research through digitization, open access and data sharing.  Over time, the profile of research is showing higher levels of collaboration and higher levels of cross border research cooperation.  As long as the world keeps opening up this will only accelerate; and in turn, continue the acceleration in the development of new technologies.  

Figure 6-4
Figure 6-5

The biggest challenge emerging from new technology being adopted to its full potential is the ability of individuals, businesses and governments to understand its potential and reap the full benefits (see illustrations in Figure 6-6, 6-7).  Increasingly we are also going to find that many high value applications involve the convergence and integration of multiple technologies. For example, an autonomous driving vehicle combines the use of recent and emerging technologies including AI, robotics, battery storage, big data and sensing.

Businesses need to be more focused than ever on understanding technology based opportunities and innovating new products and services. The old fashioned approach of driving leadership from focusing on primarily driving down its cost position or innovating within its existing knowledge and parameters will not survive. 

Figure 6-6
Figure 6-7

In the analysis of the potential impact of technology, a key factor to assess is the speed of adoption of new technologies.  Despite the potential for high speed adoption, this is not always the case. It is particularly important to analyse in sectors where there is a high concentration of market share among a few companies.  In these situations, there are two factors that affect the speed of change.  Firstly, for any of the key competitors is there a bigger profit opportunity in the short or medium term of adopting new technology?  If the business model of these competitors could be disrupted and their could be a leak of profitability then, depending on the level of competitor concentration, the adoption could be slowed significantly.  Secondly, once one of the big players makes an aggressive move to shift to adopt new technologies and adjust their business model, perhaps from shifting to a long term view of how they need to compete, then the rate of change in the industry is likely to change.  

This slowing down of the potential rate of adoption, was very prevalent in the research publishing sector with the likes of Reed Elsevier (now RELX plc) and Springer (now Springer Nature).  The rate of adoption of the real potential of digital technologies and its full implications to benefit the sector probably took at least 10 years longer than it could have.  Time bought them the ability to search for new sources of profitability before any core compression of performance in their core business. It would also be interesting to speculate what the energy sector would look like today if one of Shell, BP or ExxonMobil would have made a strategic commitment to commit to clean(er) energies say 15 years ago; after all, they knew about global warming in the 1980’s.  

Overlaying onto an industry analysis, how to take advantage of an increasing rate of technology introduction, understanding factors that may delay technology adoption, and managing continuously changing dynamics surrounding a market is fundamental to strengthening the performance potential and competitive postion of a business.

In the next blog, we will look at shifting from risk monitoring to business resilience.

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REBOOT Business Strategy

Blog 5 of Business Strategy Series

In Blog 4,  I completed the brief discussion on the current global environment.

To summarise the key points I made in Blogs 2 to 4, the thread of the story was as follows:

  • Covid 19 exposes how little we are prepared for serious disruptive events
  • We live in a complex world with many interconnected factors that will affect our businesses
  • There are multiple types of events that can occur over time that can be highly disruptive to businesses
  • We must move from thinking businesses operate distinctly from the global ecosystem and should only be profit focused.
  • Businesses need to be part of the global ecosystem, and will be mandated to look this way, so strategy must be looked at from a system perspective.
  • The perspective of how we fit into a sustainable world is best reflected by the global consensus represented by the UN Sustainable Development Goals.

The nested circles below (Figure 5-1) illustrate that a business needs to not only build on their identified business opportunity but it must do so in a way that is aligned with the sustainability requirements from an economic, social and environmental perspective.

Figure 5-1

There are eight gaps in conventional strategic analysis and thinking that need to be integrated into system based business strategy. The next set of blogs are going to these eight gaps that are critical to strategic thinking going forward.  The eight gaps are:

  1. From shareholders to stakeholders
  2. From Michael Porter’s five forces to macro models
  3. From risk monitoring to business resilience
  4. From product-market fit to customer-product fit
  5. From simple to multi-factor business models 
  6. From product to company technology, innovation and design
  7. From profit focus to triple bottom line
  8. From medium term strategies to long term scenario based strategies

The place to start is ‘from shareholders to stakeholders’.  Some of the early thinking on shareholders, was discussed by the well known economist Milton Friedman.  In his 1962 book ‘Capitalism and Freedom”, he stated, “there is one and only one social responsibility of business—to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game”.  This was linked to his view that the sole responsibility of management was to its shareholders.  

This Friedman doctrine, has been the driving force of thinking and management behaviour ever since.  Businesses are run with an intense primary focus on a mix of profitability, growth, and return on investment which are the critical drivers of shareholder wealth creation.  We see this every day in the stock markets and is the pervasive thinking in private equity.  If you look at the standard structures of incentives for CEOs and their management team, the core wealth generators for them are linked to financial performance and share price performance. This is coupled with the view that stock markets are focused on quarterly performance.

As the world has moved towards and into the 21st century, there has been a growing shift to increasing the view of stakeholders beyond investors to include other direct stakeholders (Figure 5-2).

Figure 5-2

This broader definition of stakeholders has to a large extent been at the core of many ‘family’ owned companies that have been around for decades.  It has also been a much more important part of the thinking of the companies situated in the EU and certain Asian countries.  The reality of these other direct stakeholders is that stronger relationships with each of them will create stronger and more sustainable economic performance. Alienating employees, not treating customers well to build customer retention, and having unstable relationships with suppliers tends to create financial and operating performance issues over time.  In a number of countries including Norway, Sweden, Germany and the Netherlands, company boards reflect the importance of a broader set of stakeholders by having specific representatives for the employees, unlike countries such as the US, Canada and the UK.

Through experience over the years, and as market and consumer behaviour has been changing, it has started to become clear to businesses that there is also a secondary set of stakeholders (Figure 5-3) that can also have a direct impact on the well being of a company and need consideration.

Figure 5-3

These impacts can come from a range of different groups and involve impacts such as regulatory challenges, acquisitions being blocked, government fines or additional taxes, and brand and reputation damaging press from advocacy groups or the media.  Clearly, strong relationships with these stakeholders can also have the opposite effects and open doors to opportunities.

Here are some examples that many of you will be aware of and I am sure there are many other examples that come to mind.

Figure 5-4

In May 2017, Facebook (Figure 5-4) received an EU $122m fine for the breach of anti-trust regulations, and then in 2018 the EU started  an action against Facebook for privacy breaches which had a potential fine of $1.6bn.  In 2019, the Federal Trade Commission imposed a $5bn fine for violating consumer privacy.  As well as the fine, the settlement order also required Facebook to restructure its approach to privacy from the corporate board level down, to establish strong new mechanisms to ensure that Facebook executives are accountable for the decisions they make about privacy, and that those decisions are subject to meaningful oversight.

Figure 5-5

In 2004 Coca-Cola (Figure 5-5) launched Dasani, a leading bottled water brand in the US based on tap water, into the UK. The use of tap water and an ‘interesting’ marketing campaign caused a negative media frenzy, and then a Coca-Cola headquarters frenzy, and resulted in Dasani having to be withdrawn from the UK Market and cancelling planned launches of Dasani in certain other regions of Europe.  I will let you search this incident on the web if you have time for the more detailed and amusing story.

Figure 5-6

The Volkswagen emissions scandal (Figure 5-6) began in September 2015 linked to a violation of the Clean Air act in the US. This breach resulted in plans to spend €16.2bn in reparations and a $2.8 bn fine (source: Wikipedia – https://en.wikipedia.org/wiki/Volkswagen_emissions_scandal). Another example of the failure to meet regulatory compliance and the need to be on top of all regulations and potential new regulations.

Figure 5-7

We are all aware of the environmental movement (Figure 5-7) and the impact it is having on many companies resulting in damaged brands and reputations, boycotting, or brand switching to more ethical brands.  A lot of this pressure has come from a combination of activist groups, such as Greenpeace, naming and shaming companies involved in areas such as deforestation of the Amazon, and public protests including the activities of Greta Thunberg.

Understanding the relevance of these different stakeholder groups is an essential component of strategy.   Evaluating the power, risk, legitimacy and urgency  of these stakeholder groups will affect strategies, priorities, investment spend and programs for effective management of the key groups.

Fully understanding stakeholders, does not end with incorporating secondary stakeholders into your thinking.  There are non-market stakeholders (Figure 5-8) who are outside of the market of the company but can be indirectly deeply affected and therefore affect the company in return. 

Figure 5-8

As can be seen in Figure 5-9, these are examples of the types of corporate related activities that have had significant effects on non-market stakeholders.  There could be future generations that have severe health and well being problems as a result of nuclear or chemical disasters, or poor and indigenous groups that had been taken advantage of but now have rights.  It could be severe economic damage  to indirect businesses, such as in the 2010 Deepwater Horizon Oil Spill involving BP.  By 2018, it was estimated that this had cost BP $65 bn, including $4.5bn in fines.  Finally, with the environmental movement, damage to Flora and Fauna could also have consequences for a company.

Figure 5-9

We have outgrown, Milton Friedman’s view that the sole objective of a company was to increase its profits within the rules of the game.  He argued that the appropriate agents of social causes are individuals—”The stockholders or the customers or the employees could separately spend their own money on the particular action if they wished to do so.”  Today, charity does not solve the concerns of the secondary and non-market shareholders!  Thoughtful strategic integration of the needs of legitimate and valuable stakeholders is essential.  Effective management of all material stakeholders needs to be a fundamental part of managing a business.  In relation to climate change and the environment, we are already seeing that companies not focused on sustainability are losing access to finance, having trouble attracting and retaining talent, and losing customers.  We are only in the early stages of this movement!!

In summary, the landscape of stakeholders is broad and complex and their potential impact on businesses is continually evolving and changing.  Organisations not understanding this will have strategic and performance shortcomings, and be remiss in their responsibilities.