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12 Layers Of Complexity - Revisited

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

9. Accelerating the corporate asset portfolio transformation

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.

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