Tag: Sustainable Development Goals

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Covid

Post Covid

“Individual commitment to a group effort – that is what makes a team work, a company work, a society work, a civilization work”, Vince Lombardi

Blog 5 on Post Covid disruption, resilience and innovation

In earlier blogs, we have explored how this pandemic will affect consumer behaviour and how businesses and governments need to respond to build back better to create a ‘new normal’.  This final blog of the series will take a macro level view of the way forward and how a coordinated response needs to come together.  The Covid crisis does not sit on its own, it is surrounded and complicated by all the other pressures that need to be addressed simultaneously including employment and economic recovery, climate, inequality and geopolitical tensions.

Unfortunately, the end of the crisis is not just around the corner as Donald Trump likes to tout.  We are now deep again into the Covid crisis.   According to WHO as of 30 October, we are now approaching 1.2m deaths and 45m confirmed cases.  Many countries are now going back into a deeper level of lockdown.  This looks like we will continue with uncertainty for at least another few months, at which point we will have gone past a year of Covid.  The scale of this crisis dwarfs the ‘great recession’ which started in 2008.  No organisation should be passively watching what is happening; rather, the focus should be on ensuring survival and then coming out stronger for a ‘new normal’.

One of the critical things that must happen for the post-Covid period, or living with Covid period, is that all the actors necessary for a strong recovery (public, companies, government, 3rd sector) need to participate and move in the same direction.  This alignment needs to also work on a multi-lateral basis. 

Summarising from previous blogs, at the macro level there are 5 areas where there needs to be a strong aligned response to create a ‘new normal’ (Figure 5-1).

Figure 5-1

Assuming we come out of this period either learning to live with Covid in a relatively normal way or with a massive vaccination program, the most vital area of focus will be economic and employment recovery.  In the second quarter, virtually every economy had significant year on year negative growth with Spain and the UK having in excess of a 20% year on year decline.  The third quarter will be better than the second quarter, but it will still be substantially down year on year.  The ILO (International Labour Organization) at the end of June 2020 had a baseline global scenario of a 4.9% loss of working hours in this second half of 2020 which equates to an equivalent of 140 million jobs.  This assumed no second wave of Covid!  All predictions involve a massive task to restore the economy to restore employment to previous levels.  

The economic damage and loss of employment have hurt the lower income sectors of all economies the most.  This crisis has also more adversely affected women vs. men and the younger groups in employment.  Addressing this imbalance is essential as well as dealing with all the overall issues of inequality.  

What is clear from our current experience, is that there is also significant work to do in both the health and education sectors to create fit for purpose capabilities that can deal with the challenges of repeat disruptive events and move forward providing higher quality and more reliable day to day services going forward.  Across all sectors of the government, especially in health and education, digital innovation or the delivery of ‘fourth industrial revolution’ capabilities are vital.

One of the large controversial areas that has significant attention in many countries is the right of governments to impinge on constitutional rights of citizens during the Covid crisis.  These rights include, key rights of movement, ability to gather, rights of free speech, rights to gather and use information.  There have been a number of situations in several countries, particularly in Germany, where the courts have stepped in on government interventions and defined them as overreaching, unenforceable and unconstitutional.  Restoration of these rights will be a critical part of restoring social balance.  There are some more insidious things that need to be dealt with that I will cover off with respect to privacy, freedom and democracy in my next blog series on ‘The individual, the market economy and the state’.  There will also need to be a restoration of the rights and abilities of companies to do business without the restrictions that have been imposed on them.  

The final area and the largest looming challenge, that has not taken a break, is the urgent need to address climate warming and biodiversity.  Decarbonisation and recovering biodiversity must be integrated into creating a ‘new normal’ for the living with Covid or post-Covid world.

To create alignment against these factors, ideally requires 4 key components.  Multi-lateral coordination, public-private alignment, financing and frameworks and a strong focus on innovation (Figure 5-2).

Figure 5-2

When I first started writing this blog at the beginning of the year, my biggest concern regarding the climate and fairness global challenges was the lack of global coordination and response to these issues.  This was then exacerbated by the pandemic.  Since the end of the second world war, the US has shown the leadership to help coordinate and bring together the countries necessary to address key multi-lateral challenges across the full range of issues from health challenges such as HIV/Aids and Ebola, to security and nuclear threats, to the need to address the erosion of the ozone layer.  They were one of the leaders to set up the UN Nations post World War II. 

Unfortunately, under the misguided leadership of Donald Trump, the US has turned inward, moved to an “America First” win-lose focus and escalated geo-political tensions.  Let’s see what happens in the elections and the post-election response.  The first signal will be whether or not the US finalises their withdrawal from the Paris Climate Accord which was targeted for November 4.  For the sake of global progress in dealing with these urgent issues of the pandemic, climate, inequality, and the recovery of a proper democratic process in the US, let’s hope that this is the last we see of Donald Trump in the political arena!  

Multi-lateral coordination is often seen primarily as coordination between countries to drive different agendas.  The scope of these challenges will require responses well beyond just the political sphere.  It needs the involvement of the 3rd sector including of some of the great foundations, such as the Gates Foundation which is working on some of the big issues around health, education and gender equality.  And, most importantly, it needs the productive involvement of the private sector (investors and corporations) with their scale, reach, investment capacity and innovation capabilities.  After all, in the advanced economies most of the wealth lies with the private sector and this investment capability must be tapped into to help solve these challenges with urgency.   

Even deeper alignment of public and private sectors are required at the national level.  The pandemic has seen a much higher inward focus than we have seen for decades.  Local economies are inextricably linked to the health of the private sector and the support of the government, especially in these Covid times.  We should also not forget that the full multiplier effect of the role and services of the government is a substantial part of any countries employment base.  This inward focus, and also the self centered national response to the Covid crisis such as the control of PPE, suggests that governments and companies need to rethink their global supply chains and identify where there needs to be more local sourcing.  Public-private alignment and partnerships are also required in order to have any chance of achieving progress in meeting the Paris Climate Agreement targets and to make progress against inequality.  

The alignment and working together of the public and private sectors requires proactive and productive involvement of the government, key leaders in business and key influential investment groups.  It is in the interest of all parties to contribute to the ‘new normal’.  It does mean that investors and companies have to be thinking in a longer term context and from a multi-stakeholder perspective.  The good thing is that there has been a growing movement in this direction linked to climate change, inequality and the United Nations Sustainable Development Goals.  The integration also requires the convening power of groups such as the World Economic Forum, who this summer initiated such an initiative called ‘The Great Reset’.

The need for financing and improving of market frameworks is substantial and of an unseen scale since the rebuilding post the second World War.  This includes the recovery of employment and repositioning of economies to meet the needs of the future not the past.  We have already invested over 10% of annual gdp in the advanced economies to weather the pandemic storm and substantial new rules, regulations, emergency measures have been put in place to deal with the storm.  A lot more money will be required to restore economies, and there will be a need to remove the often oppressive pandemic related rules, regulations, and collection of personal information.  And, even more financing and framework adjustments are needed to make sure we can prosper and de-risk our future.

The rebooting of our way of life needs to result in a world that is inclusive, multi-stakeholder oriented, more long term focused and aligned to an environmentally sustainable world.  It also need to make a step change in its preparedness for large disruptive events – pandemics, cyber, climate related.  To this extent the frameworks (legislation, regulatory frameworks, reporting requirements, etc.) need to be fit for purpose and future oriented.  This does not have to be more layers of rules and regulations; hopefully, it will be new frameworks replacing or updating old frameworks and not the further layering of bureaucracy.

The financing requirements of the recovery and the setting of a new normal will be vast.  This is going to require the combined financing and investment power of the public and private sectors.  As well as further debt financing, governments will need to look carefully at their taxation programs to not only finance the needs for public services going forward but also to ensure that the right frameworks and incentives are in place to drive private investment in the right places with the right urgency.  In a number of countries, this would also involve a rethink about the focus of some of the current subsidies; such as agricultural subsidies in the US that are driving mono-crop farming in the US vs. regenerative farming.  

Finally, the ‘new normal’ way of life should look and feel very different to the pre-Covid normal.  The driver of achieving this is private and public innovation.  This is accelerated digitisation of the economy and all its sectors including building remote and hybrid working capabilities, hybrid medical and education delivery.  It needs to result in countries predominately driven by clean energy, that have heavily shifted to the electrification of mobility and have significantly changed through the use of AI, sensing and other digital capabilities. Companies need to shift to ‘circular’ strategies and innovation will help them achieve their Net Zero targets.  Innovation is also needed to drive large shifts in food production and consumption and the move towards regenerative farming and rewilding. Increasing carbon sequestration on land and in the oceans is a fundamental part of dealing with climate change and biodiversity.

With the convergence of all these challenges, we are fortunate that we have never been better equipped to meet them head on. We already have the technological know how to drive massive change and new technologies and capabilities are well underway to help us complete this shift.

This is a challenging but also exciting time. As Barack Obama said in a UN General Assembly in 2016, “if you had to choose any moment in history to be born, you would choose right now. The world has never been healthier, or wealthier or better educated…” Obama then called on the audience to look with optimism to the future. “Not blind optimism, but hard-earned optimism, rooted in very real progress.”

#Covid #pandemic #WHO #UN #Donald Trump #economy and employment #inclusivity and fairness #health and education #freedom and privacy #decarbonisation and biodiversity #inequality #climate change #net zero #Barack Obama # sustainable development goals #multi-lateral #public-private # frameworks and financing #innovation

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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

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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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REBOOT Strategy

REBOOT Business Strategy

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

Blog 6 of the Business Strategy Series

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

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

Figure 6-1

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

Figure 6-2

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

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

Figure 6-3

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

Figure 6-4
Figure 6-5

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

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

Figure 6-6
Figure 6-7

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

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

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

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

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REBOOT Strategy

REBOOT Business Strategy

‘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