Why? CEOs are naturally wary, after coping with the worst economic crisis for 80 years. The sheer magnitude of these trends is probably a big factor, too. Dealing with them is enough to tax any management team to its limit.
Yet, the future has an unfortunate way of sidelining those who simply wait and see. So what should CEOs do? We think there are two particular steps that would help: improving the strategy-setting process by adopting multiple planning horizons and improving the decision- making process by measuring an organisation’s total impact across multiple criteria to identify the best trade-offs.
I plan for ten years (dream), focus on five years and execute for three years.
Juan Pablo Calvo, CEO, Nuevatel PCS de Bolivia (VIVA), Bolivia
Adopting a multifocal perspective
CEOs recognise that they need to plan for the short-, mid- and long-term. Many are dissatisfied with their current planning horizons. There are those who want to look further out: of the 12% of CEOs with a one-year planning timeframe, 70% would like to plan for three, five or more than five years. And of the 51% of CEOs who currently plan three years out, 38% would like to plan for five or more years. Yet of the 24% of CEOs who do plan further out – on a five-year basis – 19% would like to plan over one or three years.
Mark Wilson, Group CEO of UK-based insurer Aviva, says: “When we are doing planning I don’t think we can look at it with just one lens. I think we’ve got to look at what we are doing next week, we’ve got to look at what [we’re] doing next year and then [we] also have to look at a three-, five-, ten-year cycle as well. Our process that we’re moving to is more iterative, as I don’t like a scenario where you have a definitive approach to planning year-by-year, because I think you need your long-term vision… We need to become more agile and dynamic in the way we plan.”
Adopting multiple planning horizons is admittedly very difficult, particularly for publicly quoted companies under pressure to report quarterly. As Sergio Pietro Ermotti, Group Chief Executive Officer of Switzerland- based bank UBS says: “Having a strategic plan for the next three to five years is always very important. But today, economic and political conditions and financial markets are so volatile, and the speed of change so rapid, that you cannot afford to ignore short-term influences. That applies in particular to exchange-listed companies that have to publish financial reports on a quarterly basis. The big challenge here is to maintain an appropriate balance between short- and long-term planning.”
Looking at the whole footprint
The planning horizons a firm uses aren’t all that matters, of course. So does the total impact of its activities across social, environmental, fiscal and economic dimensions. Most CEOs already recognise that business has social as well as financial responsibilities. They believe it’s important to balance the interests of different stakeholders, rather than focusing solely on investors, employees and customers. And they understand that this entails measuring the full impact of their company’s activities.
In this global, interconnected, uncertain world. I am thinking more and more that the two essential time horizons are ‘now’ and ‘the longer-term future’. ‘Now’ is naturally dependent on the industry. In our case, we have defined that ‘now’ [as] two years. What we are developing now very often has an impact within this two-year timeframe. Simultaneously, we are thinking about 10 years forward – and thinking actively all the time about whether our current vision, and hence our current business direction, is the right approach from this 10-year perspective.
Matti Alahuhta, President & CEO, Kone, Finland
But most companies only measure – and report on – their financial performance, and they use conventional measurement techniques to do this. In other words, they measure inputs and outputs. And they define risk solely in terms of factors that could throw their finances off course.
Measuring a company’s total impact shows management the full impact it’s making. So, for example, it shows a company’s social effect on the health and education of the communities in which it operates; its environmental effect on the air, land and water; its fiscal effect on the public coffers; and its economic effect in terms of the value it adds or the number of jobs it creates.
According to a report issued by the United Nations High-Level Panel on the post-2015 development agenda, about a quarter of large companies currently report on their social and environmental impact. The panel calls for all major corporations, as well as governments, to do so, as part of a series of recommendations aimed at eradicating extreme poverty by 2030. Adopting such measures, within a relatively short timeframe, would require a transformational shift, not only in terms of information gathering, but also in terms of the will of business leaders to do so.
Despite the challenges, quantifying an organisation’s footprint in a common business language has two major benefits. It helps management understand the trade-offs between different strategies and make the best decisions for all its stakeholders. That, in turn, helps the organisation earn more trust, more custom and so, more profit.
Construction and environmental services company Fomento de Construcciones y Contratas (FCC), based in Spain, is one company that is committed to exploring the wider impact of its activities. As CEO Juan Béjar says: “We are developing a project to assess the positive non-financial impact of our construction projects and service contracts. While our environmental services and water management activities are, per se, part of the cities’ sustainability policies, we want to go even further than that and find out what the real drivers behind social and shared values are.”
Meanwhile, US-headquartered global beverage company The Coca-Cola Company is leveraging local ties in different markets to better understand stakeholder interests. “We source locally, market and produce locally, and hire and distribute locally, and that gives us a tremendous insight into the markets we serve and an edge in actually operating sustainably,” Chairman and Chief Executive Officer, Muhtar Kent observes. “Now we want to connect even more closely with our communities to create value not only for a growing breadth of stakeholders, of course, but also for our bottling partners, retail and restaurant customers, consumers, suppliers, NGOs, civil service organisations, governments, and so on. Now, more than ever, business has to work across that golden triangle of government, civil society and business.”
I think that to stand a chance of ensuring prosperity for their companies, business leaders today have to… move towards the triple bottom-line thinking… The missing link today is measuring… Today, financial markets drive businesses,especially public businesses… There are three pieces of paper which ultimately determine how healthy a company is today in the eyes of the financial market: a balance sheet, a P&L and a cash flow statement. But these are three documents which don’t tell you very much about the overall impact of that business. So, we desperately need to develop a system to try and measure and quantify and communicate the wider stakeholder engagement.
Badr Jafar, Managing Director, Crescent Group, UAE
There’s no handbook to the future, though – and what makes the global trends we’re currently facing particularly hard to handle is the fact that they require a hybrid set of leadership skills.
CEOs must now be able to run the business of today while creating the business of tomorrow. They must foster creativity and yet make sure that it’s systematic; manage a multigenerational, multicultural global workforce; and satisfy the needs of consumers who are more disparate than ever before. They must pursue all these opportunities for growth while bearing the interests of society in mind, and without compromising on traditional values like quality or integrity.
To put it another way, today’s CEOs must be hybrid leaders capable of looking into the near and far distance, combining the best of the old with the new and piloting their organisations through enormous changes to make them fit for the future.
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