Businesses Will Sink if CEOs with Short-Term Mindsets are at the Helm
Events of the last two years forced leaders into uncharted waters, but now they must embrace integrated business planning to improve agility and visibility to better navigate future challenges.
A vast majority of chief executives worldwide were torpedoed into uncharted territory when the coronavirus crisis struck two years ago. None of us leaders had experienced anything like the pandemic before. Keeping businesses above water required a more short-term approach, with a greater focus on the immediate safety of organisations by delivering results despite the seismic disruption. And while the cascade effects of COVID-19 will be felt for years, in various ways, my concern is that many CEOs are still flailing in survival mode and not taking the time and effort required to steer their ships in the right direction for future success.
When the pandemic hit, CEOs shifted to one of two extremes, depending on the industry in which they operated. The first group had to deal with skyrocketing demand, which required considerable energy and collaboration with supply chain partners when chaos reigned. The second cohort suffered from a plummet in demand, which necessitated a reshaping of their businesses to cope. The two polar-opposite positions, dictated by fortune, both drew attention to near-term outcomes.
The major challenge that CEOs have today, as a result of events since March 2020 – some predictable and others less so – is whether they can look further forward and understand the obstacles on the horizon they must circumnavigate for the business to succeed in the longer term. They need to be strategically aware and make decisions today that will influence future outcomes in two or three years. For example, leaders must consider supply chain operations, including efficient and environmentally friendly sourcing, lead times, the evolution of the cost of goods, and the shifting dynamics around pricing.
Managing the future for optimal results
Drawing on the ship analogy again, CEOs have to ask themselves whether they are busy below deck shovelling coal in the furnace and going full-steam ahead in a direction without looking to see if there is a massive iceberg in the immediate vicinity that they should be steering around. Like big ships, it takes a long time for larger companies to change course. They might get away with a few near misses, but if you’re travelling blindly and not planning that move well in advance, then you sink eventually.
During the coronavirus pandemic, CEOs moved their big ships in ways they were never designed. The key learning is that leaders need to cope in all situations and have agile processes in place to navigate volatility for a smoother journey. It’s about taking the high performance in the short term and ensuring that it becomes part of any future process and that the right people are held accountable. At Oliver Wight, we call this integrated business planning or IBP.
Learnings should inform the process library so that CEOs can handle any situation. IBP is about steering the ship in the right direction but recognising that it could take two or three years to do so if you move the rudder now. If you miss that decision point, you run the risk of making knee-jerk reactions and dealing with events versus being proactive and managing the future to achieve optimal results.
Admittedly it’s difficult to balance future planning, and investment in research and development, with near-term performance, especially with stakeholder pressures. Companies will go out of business if they don’t manage the short term well, but better-integrated visibility of the future is imperative and should be at the heart of decision making.
Customer insights and greater visibility
To know which direction to steer the ship, it is vital to gain insights from customers. What value are they looking for in the future? Once those insights have been gathered, a CEO must evaluate the business’ competencies and capabilities. For instance, are there likely to be supply-chain problems, or is marketing fit for purpose? What do you need to do to reshape the organisation if there are challenges?
It’s interesting to note that several large organisations have recently appointed CEOs outside of their industry. For example, Jim Rowan, who has been CEO of Dyson and has no experience leading an automotive company, has been positioned at the helm of Volvo. It’s a good move. Businesses are resetting, and by bringing outsider experience and perspective, organisations will be better placed to refocus and chart a successful course for the coming years.
To predict and understand how the market is likely to develop, a good level of visibility is essential. It comes back to knowing your potential customers. You have to anticipate their needs and demands and make sure you can serve them. Technological advancement and societal trends are driving rapid change, meaning that businesses have to evolve at the same pace to survive in the longer term. It’s clear: business as usual is no longer enough.
Embracing technology is critical, as it can take us beyond what the human eye can see. But it is equally important to invest in people. Leaders and their teams have to know how to interpret the greater visibility gained by technology and be empowered to make better quality decisions and smoother, more agile processes.
Ultimately, implementing a strategic plan needs to be a holistic process to ensure the sustainable running of a business united towards growth. And by running an IBP process today CEOs and their organisations can gain the agility to process data quickly and make smarter decisions for tomorrow.
Three benefits of integrated business planning
Look further into the future
Scenario modelling allows planners to explore the options in the case of potential disruptions, such as a delay in the delivery of a raw material or what would happen if VAT changes in a particular market. By running a wide range of scenarios across the organisation, companies can anticipate the impacts on their ability to meet demand and the load on the supply chain as well as any financial consequences. Then, they can identify specific vulnerabilities or emerging opportunities and take appropriate decisions to prepare for them. A planning horizon of at least 36 months enables companies to align themselves to developing market requirements and detect new trends that may affect specific product development requirements or peaks in demand.
Spend time on analysis, not data collection
Unified data management eliminates the need to compile reports manually from multiple sources. Furthermore, with robust processes supported by advanced technological capabilities in place, employees have the time to run scenarios and carry out analysis rather than collecting and collating data. Intelligent artificial intelligence and machine learning analytics help ensure easy access to meaningful insights, enabling planning executives to focus on business-critical decision-making.
Make data-driven decisions based on the latest information
Strategy is determined on gut feel rather than in-depth analysis of the market all too often. Where decision-making is based on data, yearly budgeting practices can mean that information is out of date. By shifting to a rolling financial forecast, companies can make decisions based on the very latest data-driven predictions. In this way, planners are not simply relying on historical data but are instead navigating their way forward using the latest insights into market trends and opportunities. Additionally, the constant reevaluation of market conditions allows businesses to pivot quickly and change direction if required.
Les Brookes is a Partner and Chief Executive at Oliver Wight EAME.