- Businesses are facing uncertain growth and challenges from politics, structure and regulation.
- Instead of cutting back and hunkering down, companies must go on the offensive, planning for multiple possible futures and conditions.
- With potential outcomes plotted, organisations can then align cost, strategy, investments and people to build a resilient and agile workforce.
The current climate for business is mired in great uncertainty. It can be seen in the geopolitical context in which companies operate, the structural uncertainty they face internally in their business models, the rapidly changing nature of work, climate change, changing consumer needs, and in the regulatory uncertainty of changing law, data privacy regimes and international tax policy. And of course, all businesses in all geographies are dealing with the spread and impact of the novel coronavirus, COVID-19.
In response to the increasing uncertainty, some 53 percent of CEOs in PwC’s 23rd Annual Global CEO Survey said they thought the economic growth rate would be lower in the following 12 months than in the past 12 months. What’s more, there are no signs that the current uncertainty will dissipate.
Unmoored, leaders reflexively reduce investment, freeze hiring, slash marketing and brand investments, avoid entering new markets, and sometimes stop making decisions altogether. Such defensive moves are entirely understandable. And in previous periods of uncertainty, they may have been necessary for survival. But they can be counterproductive in the short term, and even more so in the long term.
The interlinked and mutually reinforcing attributes required to succeed in uncertainty are clear. Organisations must have a bias toward action — align costs with priorities and strategy, invest in differentiated capabilities, and use traditional and digital levers to execute. Rather than setting on a single fixed course, they must continually engage in scenario planning, constructing and evaluating an array of options that offer a broader view of the landscape and possibilities for success.
They must build the capacity to be agile — possessing the balance and capability that enable them to shift focus, priorities, and resources to meet changing circumstances. And they must evolve to become more resilient — able to withstand strong external forces, quickly recover from setbacks, and stay in a position to benefit from new opportunities.
It all starts with moving to craft strategy in a new way. Strategy has historically been a linear enterprise: define a future vision, a way to play, and differentiating capabilities, and then put investments behind them. But when the environment is highly uncertain, it is difficult to have clarity on the path forward. The great challenge of managing amid uncertainty is that the potential outcomes are much more numerous than is typically expected. That means that leaders need to be as clear about what they will not do as they are about the initiatives they will pursue.
Technology and data play a crucial role in building a strategy that is agile, resilient, and dynamic. Big data and machine learning allow for a greater ability to model economic, corporate, and human behaviour. Defining a set of plausible futures can create a picture of how different drivers of uncertainty interact with one another. After implementing pilots to test selected moves in the real world and identifying the reinforcing factors and dynamics that drive differentiation, companies can focus their efforts on building out and scaling the capabilities that enable them to grow or reinforce competitive advantage.
In times of uncertainty, it is common for companies to reduce headcount, put hiring freezes in place, and leave positions open. Although this may make sense, simply freezing activity means companies can miss out on filling critical needs and areas. As companies contemplate a wider range of options and scenarios, they must ensure that their workforce has the new skills required by the new digital world.
Companies should recognise the potential of longtime employees. In many instances, the work and tasks they do can be taken over by machines. But their experience and capacity to learn are valuable assets. When budgets don’t allow for adding new headcount, it is even more vital to develop people so they can adjust to and fill the organisation’s evolving needs.
Organisations can also take advantage of dislocation in labor markets to attract people with needed skills. And whether they rely on new or existing hires, companies can build resilience by making their workforce more flexible. Given advances in technology, changing expectations, and the growth of the infrastructure supporting independent work, some chunk of the workforce prefers to work on a contingent basis.
Supporting the workforce
with agile operations
Companies can act on the options they generate only if their operations can support the execution. In times of uncertainty, it is imperative for organisations to focus on operational agility. Doing so prepares people to make the quick pivots that can be the key to surviving and thriving.
The challenge, and opportunity, for operations now is to use new technologies such as digitisation, AI, or robotic process automation to reshape operations rapidly so that they can mirror the constantly shifting commercial landscape. At root this approach means understanding which operations and capabilities give an organisation a competitive advantage, and making sure the company owns them and invests in them.
Uncertainty tends to paralyse deal making or push companies into transactions that are defensive and reactive. Companies naturally pull back on inorganic growth, and the risk tolerance of boards, management, and investment committees — as well as shareholders — declines. But companies that are sufficiently agile to execute transactions when they can, rather than when they have to, will find that deals present occasions to boost growth and pull ahead of rivals.
In evaluating deal opportunities, organisations should focus on acquiring technologies, operations, and units that bolster desired capabilities and enhance the core business. Divestment strategies should centre on selling non core assets that free up resources for investment. Companies that invest now, regardless of economic conditions, may be best suited to ride the next technological wave.
Adjusting to tax
and regulation reform
One of the biggest drivers of the current uncertainty is the truly complex landscape of tax and regulation reform. In order to be resilient to shifts in the tax and regulatory environment, companies must get ahead of the changes and, where appropriate, work with industry peers and government to improve outcomes.
In some instances, changes in the regulatory environment can fundamentally alter the business model. In other instances, regulatory and tax shifts may lead to a rethinking of existing practices and an opportunity to further align operating models with regulatory, legal, and fiscal policy.
Embracing technological solutions — such as around data — can help companies manage compliance issues while they assess the longer-term impact of other changes. Above all, being in a position to respond effectively will enable a business to continue focusing on its trading environment and not be further disrupted by legal or regulatory challenges at an already difficult time.
Companies can implement capabilities-driven strategies, invest in human capital, and execute deals effectively only if they rest on a strong financial foundation. To ensure effective action, it is vital not just for finance to act as an operationally involved partner and conscience of the business, but for all key operational functions, including commercial, procurement, and supply chain, to be actively engaged.
By harnessing data and information technologies to run scenarios involving their business, companies can review and challenge economic, business, and sales projections — and continually feed the results into updated forecasts.
No one action, by itself, can dispel a heavy cloud of uncertainty or significantly mitigate its impact. But if organisations can get out of their defensive crouch and assume a more aggressive stance, they have a better chance of maintaining their balance and shaping their future.
Building and harnessing the mutually reinforcing attributes of optionality, agility, and resilience will enable leaders to adopt the strategies and mindsets that allow them to succeed in the full spectrum of uncertain outcomes. Pursuing this path takes a lot of courage, but rather than being an excuse to detach or check out, uncertainty should be a spur to engage and build sustainable advantage.
This is an edited version of an article originally published in strategy+business on January 29, 2020.