What does future fit mean for companies? Part 1

Agility, dealing with the impact of loadshedding and planning for the possibility of a total grid collapse, varying interest rates and volatile global exchange rates, and digitalisation; are some of the more pressing external challenges that companies need to deal with if they want to avoid financial distress. Is this an acheivable future?

The risk environment that companies are currently presented with resembles a minefield rather than an obstacle course. Senior leaders are then presented with the challenge of prioritising the response to these challenges. As Tolkien wrote in The Fellowship of the Ring: the quest stands upon the edge of a knife. Stray but a little, and it will fail, to the ruin of all.

The interconnectivity of 90% of the earlier mentioned risks means that future-proofing a business means that embracing digitalisation encourages agility providing companies with access to data that will allow them to plan growth effectively. To successfully embark on this quest, an article by McKinsey points out that companies need to adhere to nine strategic imperatives. We will focus on the first three in this article.

Strengthen identity

The article points out that economist and eventual Nobel laureate – Ronald Coase

 – argued that corporations exist to avoid the transaction costs of the free market. Yet with transaction costs plummeting (spurred by rising connectivity), this rationale no longer holds up.

Why, then, do companies exist?

The article adds that the answer is identity. People long to belong, and they want to be part of something bigger than themselves. Companies that fixate only on profits will lose ground to organizations that create a strong identity that meets employees’ needs for affiliation, social cohesion, purpose, and meaning.

Future-ready organizations accomplish this in three ways: they get clear on their purpose; they know how they create value and why they’re unique; and they create strong and distinct cultures that help attract and retain the best people.

Imperative 1: Take a stance on purpose

The article points out that top-performing organizations know that purpose is both a differentiating factor and a must-have. A strongly held sense of corporate purpose is a company’s unique affirmation of its identity—the why of work—and embodies everything the organization stands for from a historical, emotional, social, and practical point of view.

Future-ready companies recognize that purpose helps attract people to join an organization, remain there, and thrive. Investors understand why this is valuable, and factor purpose into their decision making: the rise of environmental, social, and governance (ESG)–related funds is just one of the ways they acknowledge that purpose links to value creation in tangible ways.

The article adds that few companies harness purpose fully. In a McKinsey survey of employees at US companies, 82% said organizational purpose is important, but only half that number said their purpose drove impact. How to bridge the gap? Take action to set the company’s purpose in motion; help make it real for people. This only happens when employees identify with and feel connected to their company’s purpose. While such connections can be encouraged and reinforced through meaningful, symbolic action—for example, Amazon leaves an empty chair at meetings to represent the customer’s role in decisions—purpose must also be forged in tangible choices and behaviours. Consider CVS Health’s choice to stop selling tobacco products to more fully achieve the purpose of “help[ing] people on their path to better health.”

It’s often said that “where your talents and the needs of the world cross, there lies your vocation.” Indeed, employees aspire further (and even live longer) when their energies are channelled to purpose. McKinsey research finds that people who say they are “living their purpose” at work are four times more likely to report higher engagement levels than those who say they aren’t.

The article points out that, when centred at the heart of work, purpose helps people navigate uncertainty, inspires commitment, and even reveals untapped market potential. Future-ready organizations will clearly articulate what they stand for, why they exist, and will use purpose as the glue to connect employees and other stakeholders in ways that inform their business choices.

Imperative 2: Sharpen your value agenda

The article adds that while all companies have a strategy for how they create value, few can show precisely how the organization will achieve it. Future-ready companies, by contrast, avoid this dilemma by creating a value agenda—a map that disaggregates a company’s ambitions and targets into tangible organizational elements such as business units, regions, product lines, and even key capabilities. Armed with such a depiction, these companies can articulate where value is created in the organization, what sets the company apart from the pack, and even what might propel its success in the future.

The key is to use the value agenda to focus the organization’s efforts and instill a sense of what really matters in every employee. When organizations can leverage this clarity—knowing exactly what differentiates them from everyone else—the results are powerful and hard to replicate. Consider how Apple rallies itself behind creating the best user experience. The company’s obsessiveness when it comes to pleasing customers includes obvious things like product design but extends to how products are packaged: the company has a small team dedicated just to packaging to ensure that the experience of opening the box elicits just the right emotional response.

The article points out that the power of a clear value agenda isn’t only that it helps a company better achieve its strategic priorities today but also that it gives the organization a line of sight into how to shift resources as priorities change. Top-performing companies, after all, reallocate their people aggressively, dynamically, and continuously against their core priorities, recognizing that this activity is both an economic engine and long-term competitive strength. According to McKinsey research, companies that frequently reallocate talent to high-value initiatives are more than twice as likely to outperform peers on total returns to shareholders.

Imperative 3: Use culture as your ‘secret sauce’

The article points out that, in addition to having a clear why (purpose) and what (a value agenda), companies that thrive in the next normal will distinguish themselves by their cultures—the how of any organization. Culture is that unique set of behaviours, rituals, symbols, and experiences that collectively describes “how we run things.” Among the most successful companies, culture forms the backbone of organizational health and fuels sustained outperformance over time: companies with strong cultures achieve up to three times higher total returns to shareholders than companies without them.

Tell-tale signs of a strong culture of performance include leaders who consistently carry out the behaviours the company aspires to, work practices that stand out and feel fresh to outsiders, and innovative approaches to important moments—everything from employee onboarding to how meetings are run. Amazon, for example, famously enforces its “two-pizza rule” mandating that no team should be larger than two pizzas can feed. The rule supports the company’s idiosyncratic approach to meetings: keep them small, no PowerPoint, and start with silence to give participants time to reread the required premeeting memo (time that CEO Jeff Bezos refers to as “study hall”). These approaches might seem like quirks, but, in fact, they directly support a valuable business goal: helping the company reach faster, better decisions.

The article adds that leaders hoping to create a robust performance culture need to start by cooking up their organization’s own unique “secret sauce.” The main ingredient: specific, observable behaviours that employees at all levels of the company adhere to.

Broad themes won’t cut it. Instead, behaviours must be made an integral part of core business activities and specific work tasks, especially for the moments that matter. A global manufacturer, for example, wanted shop-floor workers to view operational discipline as everyone’s job. To promote this, the company encouraged frontline teams to briefly huddle at the start of every shift to review the company’s “golden rules of safety.” Ultimately, the manufacturer created tailored interventions for different groups of employees based on their respective roles, goals, and even particular mindsets that might otherwise have held employees back.

The article points out that culture can’t just exist in slogans painted on the walls or in catchy email signature lines. Defined principles and ways of working are critical to creating a cohesive, long-lasting organization. And culture plagiarists be warned—culture is devilishly hard to copy and should ultimately be unique to each organization. When leaders choose—and build—the kind of culture they want the organization to embody, they create a virtuous cycle, attracting the right talent that will thrive in their culture, unlock their value agenda, and “turbocharge” performance.

A good departure point

It is interesting to note that the McKinsey article was written in January 2021, which was the height of the Covid pandemic. The fact that the information in this article is relevant almost two years later indicates the lasting impact of the pandemic on the business world.

There is a lot of information to absorb in this article, and business rescue/turnaround professionals will take away what they feel will benefit their business. However, one point stands out to me.

While all companies have a strategy for how they create value, few can show precisely how the organisation will achieve it. Future-ready companies, by contrast, avoid this dilemma by creating a value agenda—a map that disaggregates a company’s ambitions and targets into tangible organisational elements such as business units, regions, product lines, and even key capabilities. Armed with such a depiction, these companies can articulate where value is created in the organisation, what sets the company apart from the pack, and even what might propel its success in the future.

This is a good departure point to plan any digitalisation journey.