The 2020s are well on their way to earning the dubious distinction of being a volatile, disruptive period, but there remain viable opportunities amid the challenges. How do organizations sustain themselves during such unpredictable times? Protiviti’s Jim DeLoach explores the questions around our chaotic moment.
A global survey of about 1,500 corporate directors released last year found that directors “are not pleased with their performance on risk management.” Only 7% of the respondents believe their boards are “most effective” — the highest rating — at overseeing risk management, and only 40% indicated their organizations are prepared for the next large crisis.
A more recent survey of 3,000 CEOs and senior executives makes it clear that board members are not alone. This survey notes that three in four CEOs believe their companies face a significant level of disruption. Seven in 10 are concerned that their executive teams lack the agility to deal with this disruption. Almost all CEOs (98%) recognize they need to change their business model within the next three years in response to internal and external disruptions.
To be sure, the pandemic made everyone fearful that another wave of disruption is just around the next corner. But these research findings raise important questions: Why are business leaders expressing these concerns? What do these results mean in terms of the organization’s culture and processes for understanding opportunity and risk and communicating with key constituencies and internal stakeholders? What can the board and executive management team do to increase their confidence in the organization’s change readiness?
As to the why, there is the shell shock everyone has experienced from absorbing the continuum of disruptive events. The pandemic hit certain sectors hard, drove attrition on a massive scale and threw global supply chains, customer-facing processes and labor markets out of sync. Russia’s unprovoked war in Ukraine and the West’s punishing sanctions have added fuel to the fire of congested supply chains and an inflationary spiral. Executives are having to cope with inflationary pressures on a scale not experienced for almost four decades, creating uncertainty as to how far central banks will go in raising rates. China’s zero-Covid lockdown continued to suppress supply chains through the end of 2022 until a sudden policy reversal.
In addition, geopolitical tensions continue to fester between the U.S. and China and North Korea. The collapse of Silicon Valley Bank and Signature Bank spurred regulatory action to stem panic in the startup ecosystem and among depositors in general. Tensions over ESG reporting have created sharp political divisions, especially in the U.S. And, of course, there is the onslaught of game-altering emerging technologies — including generative AI.
That is quite a list — and it is by no means complete. As if all of this collectively were not enough, employee mental health issues have added yet another dimension to the talent management challenge. As employees cope with the scale and magnitude of rapidly changing markets, reassess their work/life balance priorities and express a need for more flexibility, many are experiencing unprecedented strain and anxiety. As traditional HR management processes remain pervasive in many organizations, leaders continue to struggle with organizing the workplace and developing and sustaining a resilient organizational culture.
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Simply stated, the pace of disruptive events and uncertainty about the future are stressing traditional management processes and tools. The lack of insightful and helpful data that give directors and executives confidence that they are in touch with the market forces that matter is a contributing factor. It may be time for leaders to take a pause to examine whether the organization is sufficiently agile and resilient to grapple with the realities of the times. To that end, here are seven points to consider:
Understand and focus on the pillars of disruption and their impact on value creation. Trends in demographics, geopolitics, customer experiences, talent availability, organizational culture, emerging tech, competition, product alternatives and supply chains are important considerations in shaping strategic conversations in the boardroom and C-suite. They should be considered in generating insights for formulating strategy to enhance organizational agility and resilience. Boards and senior executives should insist on frequent reports and briefings on disruptive market forces so that strategic discussions are grounded in reality.
Manage strategic opportunities and risks through actionable dashboard reporting. Regular briefings on “Here are our risks and how we are managing them” have become too static. Leaders should understand the critical assumptions underlying the strategy and the plausible but extreme scenarios indicating whether one or more of those assumptions remain valid. This analysis provides the foundation for gathering actionable intelligence on key indicators providing early alerts as to whether one or more such scenarios are emerging. In today’s markets, timely data is the new currency. Actionable data and trending statistics providing early warning to the C-suite and boardroom engender greater confidence in coping during disruptive times.
Think long term. Protiviti’s global study of the impact of risk on the viability of an organization’s strategy illustrates distinctively different perspectives from looking out 10 years vs. 12 months. The World Economic Forum (WEF) examines long-term threats on a global scale to the planet and world order. The WEF’s latest report highlights inflation, cost-of-living crisis, trade wars, capital outflows from emerging markets, widespread social unrest and geopolitical confrontation as top risks. It also cites recent developments such as unsustainable debt levels, an emerging era of low growth, lower global investment amid de-globalization, rapid and unconstrained development of dual-use (civilian and military) technologies and growing pressure from climate change impacts and ambitions.
These longer-term themes are shaping an environment many business leaders and public policymakers have not experienced. Directors and business leaders should think through how these themes could impact their organizations. A new world is evolving, one that features different geopolitical dynamics like friend-shoring, near- or re-shoring, natural resources that are not evenly distributed globally and increased sourcing, distribution and use of renewable energy. A forward-looking perspective is needed.
Think and act digital. In the digital age, the most successful organizations will most likely be those that embrace opportunities presented by emerging technologies. These will be the firms that are committed to deploy these technologies to reinvent business models and improve products, services and processes continuously. They possess the vision, mission, strategy, culture, structure, processes and accountabilities to empower their people to rethink ways of engaging with customers and deploying technology to improve processes and functions continuously and deliver enhanced value. They balance out-of-the-box thinking with the practical considerations of being agile in repositioning the business.
In a strategic context, “agile” is not just another software development approach but rather a way of thinking about pivoting quickly in rapidly changing markets. Through a strong customer focus, adaptive planning, evolutionary development, stakeholder engagement, high-velocity decision-making, early delivery, continuous improvement and disciplined change enablement, being agile enables organizations to develop flexible, shared perspectives in strategy setting and execution.
Strengthen the firm’s talent management and cultural alignment. Rarely has there been a more important time to sharpen the focus on the organization’s talent. Hearts and minds must be won, trust earned and genuine authenticity and wise compassion expressed. The game has changed, as employees have choices, opportunities and mobility. They want purpose. Emerging generations want to make a difference, which elevates the importance of management embracing sustainability priorities in formulating and executing strategy. Most important, people want a life.
These trends are undeniable. With the reality of evolving markets making skills acquisition and retention a top strategic imperative, smart boards and savvy leaders are refreshing their expectations, action plans and accountabilities for talent management and cultural alignment. They know that talent management decisions have near- and long-term implications, including those that may be unintended. They also know that the real purpose of a communications strategy is to build trust.
Pay attention to and manage reputation. Companies that have the strongest brand authority and market permission share attributes worth examining. They are data-driven in their focus on customers; understand their value proposition; develop powerful and distinctive messaging; listen well and act to improve their processes and offerings continuously; establish accountability for results with metrics, measures and monitoring; work social media effectively; and treat their employees well so they will passionately live the brand promise every day.
Strategic relevance and a strong commitment to quality, transparency, operational excellence and organizational resiliency set these companies apart. The board and executive management should evaluate the fundamentals underlying the organization’s brand image and reputation to ascertain whether there are opportunities to sharpen the focus.
Broaden and freshen perspectives at, and reporting to, the top. The diversity of experience and content expertise embodied in the board’s composition and boardroom discussions, as well as in executive management and C-suite discussions, should reflect changing market dynamics. Independent advisers and outside informational sources should supplement insights obtained from internal sources. New thinking regarding market developments, dashboards focused on the right strategic drivers, capital allocation proposals considering a balanced view of both opportunities and risks, and post-mortem reporting regarding major technology deployments, capital projects and M&A transactions sustain the institutional memory of the board and executive management and engender confidence in ongoing strategic conversations.
These conversations are changing dramatically. It is the reality of our disruptive times and necessitates a digital mindset, actionable data, fresh forward-looking perspectives, and a broader focus on agility and resilience in the boardroom and C-suite. These are keys to sustaining relevancy and value as markets evolve.
Questions for boards and executive management
Following are some suggested questions that directors and senior leaders may consider, based on the risks inherent in the organization’s operations:
- Do we assess the execution of the company’s strategy in a comprehensive manner with a forward-looking point of view linked to critical strategic assumptions and risks? Are strategic execution monitoring processes and actionable early warning capabilities in place to inform management and the board timely of new market developments?
- Are there periodic conversations in the boardroom and C-suite about organizational resilience and the need to be agile and, if necessary, disruptive in response to market developments? For example, do we give sufficient attention to dependencies on key suppliers and third-party vendors and the level of risk they introduce into the execution of the business model? Is conventional thinking challenged in an open environment that encourages tough conversations and feedback? Are the ideas introduced to the dialogue creative and do they lead to practical solutions?
- Are we setting the right tone for agility and resilience through actions and words emphasizing the importance of improving digital readiness, staying close to the customer, keeping an eye on relevant market trends, organizing for speed, and embracing change? Do we understand where the organization stands on the digital maturity continuum, e.g., are we a follower or a leader? If we’re a beginner or skeptic, what are we doing to advance our digital maturity?
Is there sufficient emphasis on the critical enterprise risks that could impair the organization’s reputation if not managed effectively? Does management apprise the board timely of significant changes in the enterprise’s risk profile and is there a process for identifying emerging risks?