Last year, 12 layers of complexity for leadership teams were identified in these notes. Since the world’s complexion has once again significantly changed within a short time, here is the proposed revised list, in no particular order:
1. Managing cost input inflation, deflation, and pricing
Anticipate the impact of cost input inflation (wages) and deflation (commodities) on profit margin in 2023; adjust pricing strategies to a cyclical slowdown; net impact on profitability?
2. Communicating in an unusually volatile economic environment
Adapt financial guidance (wider ranges, real vs. nominal terms); expect further volume vs. price scrutiny; calibrate tone/topics in earnings call since AI-tracked and minimize IR volatility
3. Managing the cost-of-living crisis
‘Affordability’ as a concern for employees and other stakeholders with direct business impact (productivity, mental health, social cohesion) and contrasting with peak corporate profitability
4. Prioritizing material business drivers to fight attention fragmentation
Focus on material issues in ESG and beyond following the 80/20 rule; control the corporate resources and narrative accordingly with discipline; beware of distractors, incl. financial markets
5. Re-assessing the risk and opportunities related to emerging economies, including China
Monitor the economic situation on a country-by-country basis; assess the impact of exposure to China (sourcing, manufacturing, sales) on the firm’s risk-adjusted growth profile
6. Integrating sustainability concepts into the organization and IR/PR activities
Achieve board/management alignment; evolve from ‘ESG strategy’ to ‘strategy,’ i.e., from ‘cherry on the cake’ to ‘cherry cake’; articulate how ESG impacts capital allocation/performance
7. Dealing with new disclosure obligations
Manage the ESG disclosure regulation overload; avoid being side-tracked by investors on immaterial ESG/business drivers; develop internal ESG control systems; assess greenwashing risk
8. Optimizing the supply chain without compromising on supply security and productivity
Reshoring, automating, digitally optimizing; implementing concrete steps towards a circular economy; raising employee engagement in developed economies
9. Accelerating the corporate asset portfolio transformation
Build up M&A skills, including corporate venture capital expertise, to consolidate young industries and branch into new tech post the VC bubble burst; exit low-growth, ‘sunset’ assets
10. Building capabilities to assess sustainability-linked projects and drive long-term value creation
Differentiate between long-term ‘value-creating’ and ‘value-destroying’ ESG: there is ‘good’ and ‘bad’ ESG; Analyze sustainability-linked innovation projects like any investment decision
11. Engaging with governments without falling into the politicization trap
Strengthen connections with government bodies to contribute to the crafting of industrial policies; defend corporate values while avoiding politicization
12. Preparing for and managing crises
Shareholder (ESG) activism; social media risk including meme stocks, cyber-attack, covid lockdowns, climate risk (floods, fire), regulatory change (politics), war; scenario planning
Considering the nature of these challenges, there may not have been an opportunity in many decades to make a difference like today.