Tag: Strategy

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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.

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Blog 12 of the Business Strategy Series

The final area to focus on in the 8 areas that need additional strategic focus is ‘From medium term strategies to long term scenario based strategies”.

Traditional strategic planning, with some sectoral exceptions such as the energy sector, has a medium term focus (Figure 12-1).  The typical time frame for a strategy tends to be in the 3 to 5 year period, closely linked to the normal tenure of a CEO and the incentive designs for the executive team.  

Figure 12-1

In the Harvard Law School Forum on Corporate Governance, in a post on 12 February 2018, they refer to a recent Equilar Study regarding the tenure for CEOs at large-cap companies (S&P 500).  The median tenure of CEOs sat at 5 years in 2017 with a declining trend (Figure 12-2).

Figure 12-2

With all the macro dynamics at play, this time frame for planning and incentive alignment is far too short.  In the current enviroment, strategic thinking needs to be longer term focused to accommodate potential disruptions, address major shifts in products and services from new technologies and accelerated adoption and convergence of existing technologies, align with the UN Sustainable Development Goals for 2030 and address climate change.  

The climate change path is not yet clear as we have been slow to react, and are therefore, too early in the cycle of creating deep impactful changes; however, we are clear that we are not moving fast enough to get on a climate scenario with acceptable potential outcomes.  What is clear is that the longer we delay taking action the more an extreme response will be required (Figure 12-3). With delays in strategic response to climate change, the future challenges for management will only increase.

Figure 12-3

With all these factors, only through really creating scenarios will it become strategically clear on the implications of certain decisions.  In addition with climate only really playing out in about the next 30 years, it will not be until closer to 2050 that we will have clearer understanding of the potential full impact and the trajectory we are on.  

These factors shine a light on the need for changes to strategic planning horizons and the disciplined use of scenarios (Figure 12-4).

Figure 12-4

Programmes of substantial change in major components of a strategy take time, such as a shifting to a circular strategy, geographic rebalancing of assets and supply chain with increased geo-political tensions, and adjusting to major changes given the lessons learnt from Covid 19.  The key is to try and understand potential key inflections points, non-linear and exponential type relationships where straight line extrapolations are invalid.  These points can be driven by internal actions, fundamental shifts in markets, core changes in the role of technology, and other macro shifts and disruptions, including climate change.  

In addition, to considering these points noted above is the need to reconsider the businesses view on the importance of sustainability and resilience versus a complete focus on pure efficiency with the hope that no extraneous events will interrupt this focus.  Since 2008, with the financial crisis, through to the current challenges from the pandemic, we are seeing that the winners are the businesses that are most resilient.  The businesses with single source or tight supply chains, high financial leverage with low rainy day capacity, or those that have been slow to embrace the power and value of technology for distributed working are requiring government handouts and/or bail out funding to survive.  This is not in the interest of investors or other stakeholders including the tax paying public.  Risks of disruption are increasing not slowing down, and not understanding and planning for them is irresponsible.

This analysis, thinking and understanding of the external environment and the market then needs to be married to the companies own internal analysis and understanding.  The internal analysis involves the management and boards strategic view on whether they want to be a leader, a near follower or a laggard (slow follower).  This view will be linked to the current situation of the business in terms of leadership, organizational capacity and capabilities, the infrastructure and technical debt of the business, the business’ innovation capabilities, the strength of their supply chain and third party relationships, and the financial capacity of the business to evolve.  The meshing of internal factors, the industry and competitive environment and macro factors is what underpins the choice of scenarios and the appropriateness of planning horizons.  

An interesting case history to look at is Orsted.  Orsted (formerly Dong) began life in the 1970’s, as a Danish state owned energy company focus on building coal fired plants and sea bound oil and gas rigs around Europe.  By 2006, they had started to build offshore wind farms and decided to focus more on green energy.  They then started to close down coal plants and sell off their oil and gas sites.  They now have 24 offshore wind farms with more under construction, have sold off their oil and gas sites and have committed to be coal-free by 2023.  Henrik Poulsen, CEO, recently said, “we’ve transformed a Danish utility predominantly based on fossil fuels into a global leader in green energy, which was ranked as the world’s most sustainable company earlier this year. In the process, we’ve increased the market value of the company by several hundred per cent. We’re now at a point where the transformation is completed, and we’ve built a strong platform for global growth”.

Scenario planning helps understand the variability of potential outcomes under different scenarios and select the right way forward with a deep understanding of the assumptions behind the direction and the tipping points where strategic adjustments are needed.  If you think of Orsted, the scenarios they would have had to explore would have had a set of critical assumptions on relative cost of energies, reliability of the energy sources, adoption rates of renewables, costs and risks of offshore windfarms, implementation risks etc.  Given that they started building their offshore windfarms in 2006 wind and solar were the high cost energy sources.  Projecting forward cost, capacity and quality curves on new technologies is a critical part of the scenario planning.

Figure 12-5

Different business scenarios will be required linked to different climate scenarios, and assumptions on regulatory changes, geo-political dynamics, investor behaviour with respect to the SDGs, etc.  Creating clarity around critical decisions that have strategic consequences, variable financial outcomes, and different impact outcomes is critical.

Finally, Boards will have to solve how to create focus and alignment against longer term goals vs. the short term tenure and wealth creation focus of executives.   

To summarise, the discussion on the eight areas requiring deeper strategic focus:

  • Strategic analysis has to evolve significantly and look at a number of issues in much more depth
    • Shifting from thinking about shareholders to stakeholders
    • Adding macro modelling on top of industry analysis
    • Extending risk monitoring with macro risks and then implementing resilience strategies and capabilities
    • Building a deeper understanding of customer – product fit and the forward looking dynamics of the market
    • Embedding technology, innovation, and design capabilities across the business which is critical in a rapidly changing world
  • Rethinking of business models and integrating impact into business objectives
    • Innovating through improving your business model
    • Setting  objectives around the ‘triple bottom line’
  • Strategic planning to create scenarios and look at longer timeframes
    • Move from short and medium term strategic planning to short, medium, and long term planning
    • Build scenarios of different sector, economic, social, environmental and technological scenarios to evaluate strategic decisions
    • Timeframes critically need to cover the impacts of alternative climate scenarios

In the next section, I will outline a high level system based strategic framework, with a long term view, that is much more fit for purpose than what has traditional been used for a core focus on shorter term shareholder returns.

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“Talent wins games, but teamwork and intelligence wins championships ” – Michael Jordan

Blog 10 of the Business Strategy Series

From product to company technology, innovation and design.

Just think about the smart phone – the i-phone – that was introduced to the market in 2007 and closely followed by the Android phone.  The previous generations of the phone included the fixed location home phone, then we moved to rather bulky mobile phones where you could only talk, then on to phones with messaging and some functions such as calendar, etc. And now we have the i-phone and what does it do with all its apps?  It is a phone, it lets you manage your emails, it is your console for social media, it can access and play any music, it can access and play videos, it can track and help you manage your health, it is a camera, it is a library, it is a research assistant, it’s a games console, it can let you do all your banking, it has Siri your assistant, it’s your mobile office, and the list goes on and on!  How much more will you be able to do when you add IoT, 5G and AI technologies?  That is the power of technology, innovation and design (Figure 10-1).

Figure 10-1

What are some of the interesting lessons that the smart phone illustrates in terms of the role of technology, innovation, and design (TID)? Just think back to the pre-smart phone era as to what it would take to do the same things – how much would it cost, how much space would it take, how much more time would it take to do the same task and switch between tasks, how does the performance of each task compare in terms of productivity, what level of physical resources would you have depleted, what would be the energy foot print of having all those capabilities and using them.  Across virtually every relevant dimension you can think of there is a learning curve from innovation.  

What do I mean specifically by learning curve?  With time, volume and experience a task or set of tasks has the potential to improve across a set of key dimensions including output quality and productivity, cost, resource use and breadth of capabilities provided.  This is progress –  continuous improvement – in key dimensions of performance over time.  It won’t all be a in a straight line.  There will be a combination of incremental improvements, step changes, setbacks; but, overtime there will be progress.  The smart phone in combination with broadband, computing power, big data, battery life has now made a significant change to the lives of billions of people.  

This concept of the learning curve has the potential to replicate across virtually all aspects of our life if we focus on learning and innovation.  Here are some examples of improvements that are being seen in the world in Figures 10-2 to 10-7.

Since 1820, World GDP has grown by about 100 times while population growth has been 8 times.

Figure 10-2

Since 1800, life expectancy at birth has increased from below 30 years to over 80 years in some countries.

Figure 10-3

The share of the world population in absolute poverty has dropped from about 90% in 1820 to now under 10% of the population.  Even since 1980, it has dropped from about 44% of the population to below 10%.

Figure 10-4

With all the growth in GDP and GDP per capita, the average weekly work hours per person has dropped.  This is also the case if you look at household work with the advent of the dishwasher, washing machine and drier, the oven, the vacuum cleaner, etc.

Figure 10-5

The death rates from pollution per 100,000 people have declined, as with homicide deaths, disease related deaths, deaths from other health conditions and traffic related deaths.

Figure 10-6

Cereal yield improvements have almost fully offset the need for additional land from the growth of the population since 1962 from 5.15 billion to the 2014 level of 7.3 billion people (we are now at about 7.8 billion people) and improvements in income per person which has driven growth in calorie intake.

Figure 10-7

If you want to really study this, I suggest Steven Pinker’s book ‘Enlightenment Now’ as a good place to start.  The other source to look at is www.ourworldindata.org which was founded by Max Roser.  

With the ability to create improvements across the world through learning, process improvements, focusing on reducing waste and development and use of new technologies, we should be systematically looking at how to improve all parts of a business. It may not all be on the Moore’s law curve that we see for computing power ( Figure 10-8) or a perfect experience curve. 

Why have I called this technology, innovation and design?  Technology is the availability of a new capability that has the potential to create an impact.  The common thinking of technology progression is Moore’s Law.

Moore’s Law is the observation that the number of transistors in a dense integrated circuit doubles every two years. Figure 10-8

Innovation is the conversion of a capability into a specific application to enhance or transform the value of a product or the performance of a business.  In the example below, are examples of how technology has driven down the cost-performance ratios of key products which open up large new market opportunities.

Figure 10-9

Design is the conversion of an application specific innovation into a product or service to drive adoption.  Without adoption of an innovation, no value is created.

Figure 10-10

What are the implications for business and strategy?  Everything!  What is the strategy to transform customer value, reach new customers, improve productivity, employ capital more productively, reduce costs, reduce resource use and reduce CO2 emissions?  A committed focus on innovation should drive medium and long term performance for shareholders, and improve alignment with key other stakeholders.  The opportunities go well beyond just product.  

Figure 10-11

Here are some 5 key areas to think about.  

  1. A continuous focus on understanding your customer in terms of how they make a decision to buy, how they buy a product and how they use the product and finding out where the business falls short will drive improvements across a whole business.
  2. Put as much data around decision making as possible.  De-average your analysis and decision making to help eliminate waste, improve safety and privacy, personalise, find new innovation opportunities and remove unproductive activities.
  3. Put in test and learning processes across your business – in service, in production, in administration, in technological innovation and in new product development.  Create a culture of continuous improvement.
  4. Explore getting the right mix of in-house vs. outsourced capabilities.  This could be efficient access to expert power where it would be hard to create internally.  Alternatively, it could also be outsourcing of non-mission critical activities to groups that are much more efficient.  In addition, it could also link to shifting to third party cloud based systems to de-risk, variabilise costs, reduce technical debt, and let experts innovate new functionality.  
  5. Find the right balance of focusing on continuous improvement vs. finding opportunities to create step changes; for example, from new technology or changing your business model. 

In summary, if you don’t keep moving forward you will be passed. In a rapidly changing world, integrating technology, innovation and design in the operating DNA of the business is mission critical.

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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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‘When the winds of change blow, some people build walls and others build windmills’ Chinese Proverb

Blog 4 of Business Strategy Series

In earlier blogs, we have talked about the broad range of externalities that can impact a business. We can see from our current experience of Covid 19 that a health crisis is an example of the depth of interconnected issues. Most key environmental, geopolitical, economic, technological or societal macro-factors have a heavy set of interconnections which can impact a business.  

These factors range from events with little or no warning such as floods, pandemics and cyber attacks, to events that are somewhat visible and require a reasonably quick response such as Brexit, regulatory changes, different forms of financial crises, and at the other end of the spectrum factors that are visible and will require large fundamental changes such as climate change, and perhaps AI and robotics.

At the global level, the 2008 financial crisis and the 2020 Covid 19 crisis has shown real weakness in the overall resilience of companies and the reliance of massive government interventions to backstop the collapse of our economies and way of life through both monetary and fiscal policies interventions.  However, it is important to note that the level of interventions that are taken are limited to the capacity of the government to assist.  Many governments, especially in low and middle income countries, lack this capacity.  For the affluent countries, it looks like that the cost of Covid 19 for the governments to keep the economy alive so it can recover will be up to 15% of GDP. There are many more examples at the national level where crisis have needed significant national and also. international responses.  At the company level, too many companies, from multi-nationals to small companies, have not properly addressed the dealing of potential disruptions at the macro level within their strategies to sustain the viability and performance of their businesses.  

Behind all these potential disruptions, the one issue that will not go away is environmental crisis.  No issue is bigger, more complex, or requires more structural change than the current environmental crisis with climate change at the center of this.  This challenge is going to last for decades, if not forever, and we should expect to have major disruptions requiring short term responses as well as longer term fundamental changes. 

Figure 4-1

As most businesses have been in denial, are avoiding the issue, or not are not taking action with any urgency, we have seen international organisations, governments, investors, and the public start to demand systems thinking to deal with this issue of climate change and environmental damage.  From the 2015 Paris Climate Agreement, 189 countries have signed up to individual targets as of February 2020.  A number of countries are starting to commit to net zero carbon emissions targets, including Denmark targeting to reduce their CO2 levels by 70% by 2025 and the UK targeting to achieve Net Zero by 2050 along with a growing number of other countires.  Behind these commitments there are/will be a set of policies, regulations, and incentives to achieve each countries targets.  

There are also investors who represent $130tn (per Mark Carney) of money under management and central banks requiring climate impact reporting.  In addition, a growing set of these investor, including major sovereign wealth funds and pension groups, are setting their own climate targets for their portfolio holdings and will be driving a shift in the investment and funding of companies depending on their climate and environmental impact strategies.  Finally, we can all see the public movements on this issue and the consumer purchasing trends taking shape against the environmental issues.

Next to the environmental movement, there has been ongoing focus on social and economic responsibility.  In 2015, the United Nations Sustainable Development Goals (SDGs) were announced that covered sustainability across environment, social and economic development.   The goals covered 17 core areas of focus, each with a set of sub-goals (Figure 2).  These SDGs were signed up to as a global consensus of most of the countries of the world.  They are the best universal view of goals and targets that a sustainable world should encompass.  These targets are effectively linked to the ESG (Economic, Social, Governance) reporting requirements for large public companies.  It’s worth noting that corporates that are looking at their external impact seriously, such as FMCG companies and supermarket groups, have based their strategies on aligning with the SDGs and not just environmental targets and climate specifically. 

UN Sustainable Development Goals
Figure 4-2

It is clear that companies are operating in a complex world that is disrupting the ideal steady state approach to doing business.  Climate change was the big issue that everyone was talking about until we had a pandemic which also triggered our economic crisis.  Instability is really the business environment that we need to be designing our businesses to work in.  By definition, then strategy must be looked at from a system perspective integrating the externalities of our global economy, society and environment and solving a sustainable way forward.  The best guiding light we have on sustainability and what we need to guide our system based strategy at this point in time are the UN Sustainable Development Goals. Businesses need to be designing their strategies integrated with and aligned to also creating external impact economically, at the societal level and environmentally (Figure 3).

Figure 4-3

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Blog 3 of Business Strategy Series

Now let’s talk about factors that affect our current global environment other than Covid 19.

Businesses sit within a complex ecosystem.   As long as all the factors in that ecosystem are relatively stable then running a business can be relatively straightforward, and if you have been able to build a strong competitive position then you have a good chance of maintaining your position.  However, once the number of dynamics affecting your business start growing the challenge can become exponentially more complex.  

These dynamics can come in many forms and from many sources, ranging from the development of new or existing technologies, to gradual changes in regulations, to activities that require a rapid response from events such as a pandemic, floods and fires, or a financial crash as in 2008.   To make it even worse a number of these dynamics could be happening simultaneously within a short geographic time frame.  Just in the last 9 months, we have had the severe fires that affected California and Australia, and now we have rolled into the Covid 19 pandemic that has also caused a financial crisis, a massive disruption to how we work, and there has been an oil price shock.  This is without looking in more detail into many countries where there will be whole sets of other ripple effects; such as, social instability being driven by lock down in low and middle income economies.

Figure 3-1

If you just look at the World Economic Forum 2020 Interconnections map below on macro risk factors, it is pretty clear that businesses will have to be continuously managing in an uncertain environment and they will need the flexibility and adaptability to deal with a broad set of challenges.

Figure 3-2

These events can require quick responses such as from cyber attacks/data fraud and the current pandemic, to medium term responses from factors such as changing trade relations, as is happening currently between US and China or with Brexit, to fundamental changes required for example in response to climate change.  

Another way to think about this is to look at what types of events can cause economic disruptions or create tipping points.  From this perspective, I am thinking of a tipping point as an event or set of events that drive a fundamental change in performance and/or require a material change in how you manage your business.  A historic straight line extrapolation of performance as an assumption of how to drive key decisions in a business can only looked at as an assumption of hope over reality.  Maybe you will get lucky!

These disruptions can come in many forms including those that are natural, man-made or health based.  As you can see from the graph below (Figure 3) on globally reported natural disasters, we are now in the range of 300 to 400 natural disasters per year vs under 100 in the 1970’s.  

Figure 3-3

It is worth noting that most of these events are weather related.  The extensive science on climate change suggests that the frequency and scale of these weather related disruptions will only increase as the planet is warming.  It could also be argued that the economic disruption per event will also be increasing over time as the world is getting smaller from globalisation.  For example, our food supply chains reach to all parts of the world and material sourcing for our manufacturing comes from many parts of the world.  So a local natural disaster can disrupt businesses all over the world.

There are also multiple sources of potential man-made disruptions as noted in Figure4. 

Figure 3-4

Not all disruptions are problems; although, with the wrong leadership they will be.  An oil spill maybe a problem for one company or an opportunity for another; or, low cost solar energy maybe be a problem for an oil company and an opportunity for clean energy focused companies.  In the digital space, there can be major disruptions from cyber attacks and ransomware, on the opportunity side a whole industry has arisen to help companies deal with these issues.

In 2007/2008 there was a convergence of a set of technologies/digital capabilities that would dramatically change how consumers would run their lives and how we could manage a business.  This was a tipping point.  The convergence included the ability to use computing power against big data, the emergence of cloud computing, the relatively ubiquitous availability of broadband, the launch of the first Apple smart phone and the large scaling of social media usage started by Facebook (only 58 million facebook users in December 2007).  Many companies have changed how they operate as a result of these combinations of technology and many new companies have emerged that are threatening older companies.

In health, this is not the first pandemic we have seen and will not be the last. As of 2 June 2022, we are closing in on 400,000 deaths from Covid 19 and we are still in the first wave.

Figure 3-5

We all know this has also had serious consequences for our economies, how we socialise and our international mobility.  We have no idea how long this will economically affect different sectors and how it will shift consumer and purchasing behaviour both temporarily and permanently.   

So in our environment, we can see an increasing frequency and scale of disruption, some of which are truly just temporary challenges and others that will question the strategy, structure and key operating assumptions about how a business operates. These disruptions may come as complete surprises, become visible with some element of time to respond or have a long term fuse but still need urgent attention, such as climate change.  They will also have different characteristics in terms of being solveable to requiring a fundamental change in the business model of companies that it is affecting.  The question for a business is are you going to deal with these disruptions as and when they occur, are you going to be prepared for certain disruptions and be able to rapidly respond to minimise the cost, or are you going to anticipate some happening and be ready to take advantage of them.  Recognizing that certain disruptions are really also tipping points and being able to react faster than others should be seen as a source of competitive advantage and a way to outperform in the marketplace.  

 In my view, business should consider ongoing disruptions as the ‘new normal’ business environment rather than stability as the normal situation. The potential benefits of resilience in a disruptive world may well be a better strategy than a tight manufacturing and supply chain that will be more efficient in a steady state world. More on this as we talk about risk and resilience in later blogs.

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“When written in Chinese, the word ‘crisis’ is composed of two characters. One represents danger and the other represents opportunity.” John F. Kennedy

Blog 2 of Business Strategy Series

Current Global Environment

You can’t start any conversation on the current global environment without talking about Covid 19.

It is useful to look at the global response to the current Covid 19 response.  Here are a few perspectives on how we are doing so far. 

In my lifetime, this is a completely unique situation.  The whole world has been affected from both a health and economic perspective.  There is a potential threat to each person’s life and livelihood.  Even in the world wars, many countries were safe at the local level, especially in the Americas (excluding Pearl Harbour) and in large parts of Africa.  That is not to say that they did not send people to help in the wars.  The war on ISIS which involved over 70 allies to defeat ISIS did not have a short term personal threat to the public in most of the ally countries.  So, this is a global war against an invisible enemy with huge consequences on the lives and health of many and with massive economic consequences.  For the countries that can afford it, it looks like the cost to the governments will be about 15% of GDP from responses and programmes put in place today.  Perhaps, there will be more to come!

Given this is a global war on this pandemic, how have we responded?  Here is my take so far.  

A screenshot of a cell phone Description automatically generated
Figure 2-1

On an overall basis, not particularly impressive!  Although, I would note that at the national level a number of countries (including South Korea, Germany, Vietnam), so far, have done well.  The problem is that we need a global solution if we are going to revert back to a similar life of massive mobility of people across borders. 

We should note that this ‘war’ has only just gone through its first phase.  How many more waves will there be?  Will we be able to defeat this virus, with a vaccine, or will we have to learn to live with it and effectively manage outbreaks? What will happen with mutations of Covid 19?  Are there other potential viruses that could come along? 

Perhaps, this isn’t a war; rather it is just a battle in what over time will be a war over lifetimes against pandemics. As an aside, we know that through the analysis of ice core samples, that with the melting of ice there could be a re-emergence of ancient bacteria and viruses that were not previously known to man.  From what I have read, the risks of further pandemics are growing.  This is unlikely to be a once in a century or once in a generation event.

There are still a lot of unknowns!  It is very unclear how this will play out over the next two or more years.  Almost certainly, geo-political tensions will rise unless there is a major shift in US policy after the coming elections.  I would think that we have to expect further economic ripples as the true cost and implications of Covid 19 add up and become clearer.

While we are dealing with this, we do need to face up to the need for action against climate change.  This Covid 19 report card also indicates there is a lot of work to do at all levels to have an effective response to climate change.

Back to Covid 19.  For businesses, if you created a similar business relevant report card, how did you perform?  Were you able to continue business or were you in the food lines to receive government aid to survive?  Did you look after your employees?  What further related economic ripples, or slow movement to a ‘new normal’, will cause you to take further drastic action or look for a bailout to survive?  

With the level of government assistance to businesses globally, it is clear that businesses in general have failed this resilience test.  The governments have had to step in as the lender, or funder, of last resort.  Many companies, if not most, have no rainy day financial capacity, supply chains have failed, retail sales for many companies have ground to a halt and it has not been possible for many companies to do remote working.  

So there are real resilience questions of leadership, financial capacity, preparedness for a disruption and speed and flexibility of response. Many companies will come out of this situation and realise resilience is a key component of strategic positioning, and if positioned properly out of crisis will come opportunities.

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Blog 1 in Business Strategy Series

Introduction

Thoughts on an upgrade to strategy development for  performing in a sustainable world.

The wake up call has come!  Real leaders are already on the journey!

We are seeing immense upheavals across the world with Covid 19, growing levels of disruption from extreme weather events, increasing rates of technological change and threats,  great geo-political uncertainty, growing levels of public activism on the stewardship of our environment, and the real medium term implications of climate change which will be irreversible if we don’t start moving fast.

This is not a once in a hundred years, or even once in a generation, coincidence of events. This is a trend in this Anthropocene era.  These are systemic  interconnected issues that cannot be dealt with one by one.  We will be failing ourselves and future generations if we do not get on top of this.

We are not moving fast enough to deal with the cumulative effect of these changes. But, at least we are starting to move and gain momentum.  Central banks are engaged, governments are increasingly engaged, investors are also rapidly resetting their expectations of how businesses must be focused on social and environmental impact as well as driving strong investor returns.  

Businesses have not been well equipped in dealing with these unpredictable and emerging disruptions, and most businesses  still have to get there heads around how to engage and be able to perform with these changes and increasing stewardship demands by both the government, regulators and investors.

This is a view on how companies need to evolve their strategic thinking and planning, be much better equipped to perform in this changing world and be aligned with the social and environmental need for balance in our world.  As well as new thinking, this requires dramatically more purpose driven leadership, being able to manage with competing priorities, speed, agility and innovation – more on this separately.

I will be adding new content every week. These blogs will cover three core topics. Firstly, the scene setting of a quick view on the ‘Global Environment for Business’. Secondly, discussion of the ‘Key Components To Evolve Strategic Thinking’. Finally, ‘Strategic Framework For The Future’ will be a view on a practical framework for developing strategies. Each blog will cover off a piece of one of these sections and will be sent out in sequential order.