However, our many dialogues with executives have highlighted that the strategic work is also particularly challenging at this point in time because both objectives and measures require new ways of thinking – the old, trusted toolbox will no longer suffice.
The strategic work in commercial companies has typically been focused on maximising conventional objectives such as growth, profitability and returns. These are relatively straightforward objectives with one-dimensional measures on customer relevance, efficiency, effectiveness and innovation. It has been relatively simple to create cohesion between the defined objectives and the derived activities in the company.
However, we are seeing two new objectives coming into focus – and this time not just as secondary objectives for show but as equal, strategic benchmarks for the company’s development.
Resilience is the first new objective that has become increasingly relevant. The Corona crisis has shown us that healthy companies can be toppled within the span of a few months – if conditions change quickly enough. This has led to a lot of scares and reflections in the boardrooms. The attempt to govern the companies’ risk profiles through conventional risk management techniques seem to have failed in many cases.
The reflection we hear repeated across companies is therefore that executive teams need to design their companies in such a way that they become able to absorb unexpected punches while still being able to progress. We are consequently seeing early signs of a break with the one-dimensional optimisation way of thinking that has characterised the strategy articulation and execution in a lot of companies. One example could be that many companies are currently shifting from single sourcing of components to dual sourcing in order to reduce their vulnerability, even if this comes at the expense of cost focus.
Creating resilience is becoming a strategic objective, even when it may cost you on your bottom line. And in order to achieve resilience, you need to work on both the robustness and agility of your company.
Is it a new objective? Not really. Sustainability as a obejctive is a movement we have seen for some years now. What is new is the focus that the objective is currently receiving. Many companies are no longer treating sustainability as a secondary objective. It is becoming an equally valid, strategic benchmark.
The challenge is that the operationalisation of sustainability as an objective (be it climate, resource consumption or any other of the SDGs) is still weak and open to interpretation. A lot of companies are therefore looking into the daunting task of defining a sustainability benchmark that is both relevant and manoeuvrable. We have practised having money as the benchmark for years – and the maturity of this benchmark is light years ahead of the maturity of sustainability as the benchmark. This is a problem – to both our societies and our companies. Companies will have to strengthen their competences in this field significantly.
And “new” measures
Just as new benchmarks are becoming part of corporate strategies, there is also a lot of debate about two “new” strategic measures that companies are beginning to see the necessity of. Measures that are being discussed in the boardrooms and with a lot of activity in terms of both investment interest and in risk appetite.
Digitalisation has been high on the agenda for many years now. But resilience and sustainability as the two new objectives will have a significant impact on the approach to digitalisation of companies. The majority of digitalisation initiatives we have seen in recent years has been focused on improving and optimising current business models and lifting the company towards defined financial targets.
In coming years, however, we will see a powerful acceleration of digitalisation initiatives – now also driven by resilience and sustainability. A lot of the progress towards these two benchmarks will be conditioned by a completely different, aggressive and targeted use of digitalisation compared with what we are seeing now. And we expect to see that a large part of the progress towards these two benchmarks will not even be possible without comprehensive digitalisation measures.
It is not the headline or the measure that is new. It is the content. We are seeing an interest and a will in many companies to try out completely new forms of organisation. The purpose is a higher degree of agility, less focus on boxes and titles and more focus on roles, a higher extent of delegation of responsibilities and focus on “the whole human being” as well as realisation of the individual’s potential for the benefit of the company – and of society. Happiness is likely to become a focus area.
So why are we seeing this trend now?, you may ask. We would argue that part of the reason is that the responsiveness of companies needs to be increased significantly. Also digitalisation will enable brand new types of organisations, partly because employees will demand. And finally the new sustainability benchmarks are also sign of a shift in attitude in society, which will trickle down to the way we all want to work together.
A new strategy with new objectives and new measures requires a new mindset
All of the above will make great demands of executives. It will require entirely new ways of thinking – not just about the strategy but also about its inception and continuous development and execution. As executives, we therefore have to dare to let go. We have to dare to look ourselves in the mirror and question everything we have learnt and regarded as constant. We have to dare to loosen the reins on both process and content when discussing strategy with our stakeholders. It is challenging. And it is necessary. It is necessary for our companies, which have to identify new raison d’êtres and new balances between more targets. It is necessary for our employees, who expect their workplaces to do more than earn money for shareholders. And it is necessary for our society in which sustainable and responsible companies form the basis for our welfare society. It has certainly not become any easier to be a leader. But it has become more interesting!