- Business leaders are navigating increasing uncertainty, particularly during COVID-19, while also dealing with urgent, long-term megatrends such as sustainability and climate change.
- By building robust organizations and leveraging these megatrends, they can help their businesses to thrive in times of turmoil and disruption.
- For example, carefully considering the unfolding impact of digitalization and decarbonization will strengthen future investment and strategy decisions.
Today's business leaders are in a challenging position. On the one hand, they have to deal with issues calling for urgent action, such as sustainability and climate change. On the other, they are facing the challenge of uncertainty as different, simultaneous variables impact future scenarios.
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This dual threat came to a head with the COVID-19 pandemic. But even before COVID-19, forecasts had become little more than a shot in the dark, an attempt to predict the unpredictable. The results of increased uncertainty were clear: the average lifespan of companies on the S&P 500 index had shrunk by more than one-third since the mid-1960s, and the average CEO tenure rate had fallen by 50% since 2003.
Then along came COVID-19, the latest in a series of crises that have shaken the business world with increasing severity since the 1980s (see Figure 1). Unsurprisingly, leaders in the public and the private sector began asking themselves fundamental, even existential, questions about the future of their businesses.
Robust, all-weather organizations
I am convinced that the key to thriving in times of turmoil is to focus on making your organization robust. I use the term "robustness" here in a specific sense, to mean the ability of an organization to adapt, develop and evolve, navigating uncertainty while preserving its functioning, competitive stance and long-term growth.
Robustness is the answer to many of the questions CEOs are currently asking, from strategy issues and leadership questions to queries about technology and networks. Rather than trying to find the "right" reaction to specific events, being robust means that companies are able to remain standing as the ground shifts beneath them and turn megatrends to their advantage.
For me, robustness builds upon six key dimensions of a company's functioning: its purpose, culture and strategy; leadership and talent; financing and investments; process and organizational dynamics; ecosystems and networks; and technology and data (see Figure 2).
Some of these are "soft" areas, others "hard". Let's look at an example of each.
History shows us that long-lasting organizations are driven by a shared purpose and culture. Purpose-driven brands grow much faster than others, despite having to navigate times of crisis. Research published by Forbes shows that in the 12 years to 2019, brands with a high perceived positive impact saw their brand value grow by 175%, compared to 70% for brands with a low perceived positive impact.
Having a shared purpose is important for inspiring, not just customers, but also other stakeholders, from investors to local communities. And company culture is vital for building a dedicated and motivated workforce – especially with members of Generations X and Y, who are looking for jobs that reflect their personal values.
Research also shows a strong correlation between companies' focus on technology and their performance. Between 2016 and 2019, for example, leaders in digitalization achieved almost ten percentage points greater annual excess returns and 7.5 percentage points more total enterprise value growth than companies that dragged their heels on digitalization.
Mastering data and efficient information and data sharing are essential for driving growth. Robust organizations need effective, data-enabled business models and scalable IT systems.
How to build a robust organization
To become truly robust, I recommend taking a holistic approach that encompasses all of the six key dimensions above. That means discarding established thinking and examining your business in light of the requirements of a world that is changing in unpredictable ways.
One specific recommendation for companies is to develop the ability to adapt, rather than seeking the perfect recipe for success. Flexibility will reduce your vulnerability to unexpected disruptions and enable you to maximize your future options. In practical terms, this may translate into carefully planned liquidity management and responsive decision-making and resource-allocation processes, combined with the ability to sense changes in your ecosystem.
Your organization's structures should change over time to reflect shifts in the business environment and your competitive situation. Again, I recommend focusing on the underlying principles of adaptability rather than carving your organizational structure and processes in stone. Staying flexible will enable you to evolve and react to stimuli in your environment.
Finally, organizations should build in some slack. For sure, cost-cutting has advantages for organizations, but you need to be flexible at the same time in order to react and evolve. Having some variable resources in your organization can be extremely valuable – essential even – when changes are needed or growth options suddenly appear.
How is the Forum helping to navigate global value chain disruption?
The world economy is facing a perfect storm of disruptive megatrends, ranging from the climate crisis to geopolitical tensions and emerging technologies. These are challenging the foundations on which global value chains are built. And while issues affect various industry sectors in different ways, there are unique opportunities for pioneers to build resilience and shape the supply chains of the future.
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The World Economic Forum has been working with a community of manufacturing and supply chain leaders to anticipate how manufacturing companies can best move beyond reactively responding to disruptive forces towards proactively building the right set of capabilities to ensure long-term and sustainable resilience.
This work has resulted in the co-development of the resiliency compass, a unique framework aimed at helping manufacturing organizations assess their current level of resilience across eight dimensions:
- portfolio excellence
- customer orientation
- financial viability
- go-to-market versatility
- logistics flexibility
- manufacturing adaptability
- supplier diversity
- advanced planning
Through our work across industries and geographies, we also identified five profiles of resilience leadership, reflecting distinct priorities and approaches to starting and navigating a resilience journey: the collaborator; the planner; the enhancer; the adapter; and the provider.
To further help firms build and implement new resilience efforts and roadmaps, a series of strategy playbooks were co-developed in close collaboration with members of the Platform for Shaping the Future of Advanced Manufacturing and Value Chains. These playbooks outline the set of actionable strategies employed by leaders within each resilience profile to fortify their value chain.
Leveraging stable megatrends to gain competitive advantage
Among all this uncertainty, CEOs can find some comfort in the existence of two rather stable trends for the future. It is clear that the coming years will be shaped by decarbonization and digitalization. And both of these trends provide great opportunities for companies that act upon them. Being more sustainable than your competitors and making better use of data gives you a clear competitive advantage.
Of course, properly leveraging the megatrends of decarbonization and digitalization and turning them to your advantage is challenging. But knowing that their impact will continue to unfold over the coming decades at least provides some solid ground on which to make investment decisions and strategy choices.