In business, everything changes, everything evolves—yet nothing can compare to the levels of disruption and uncertainty leaders are facing in 2020. Even before the coronavirus (COVID-19) pandemic, a variety of political, economic, social, environmental, and technological factors were percolating, creating a perfect storm for disruption. These macro-forces continue to challenge the ways organizations think about doing business, raising many questions about what the new normal will look like when the dust settles.
With this in mind, it’s understandable that many organizations are struggling. How do you plan for the future with so many unknowns? How do you prioritize when so many external forces can reshape your business in the blink of an eye? How do you stay focused when the pace of change potentially requires your business to change tack with little or no warning? As we will discuss, in order to bounce back, businesses—and the finance function more specifically—need to fundamentally change how they operate.
It’s important to state that this new operational challenge is not solely a result of COVID-19. The winds of change have been coming for a while, but it often takes a significant event to drive such a fundamental shift. Businesses must look hard at their level of agility and ability to react quickly to change, and revisit relationships with stakeholders—from employees and customers to shareholders. Finally, organizations must plan and scale for the future, positioning themselves for change whilst accepting the fact that “I don’t know” might be the only answer available in today’s uncertain world.
A catalogue of external factors are cranking up the pressure on businesses. The coronavirus pandemic means a global recession is now highly likely, with far-reaching implications for global businesses. Strained trade relations between the U.S. and China, and the UK and its pre-Brexit EU partners, all point to additional market instability.
California’s recent wildfires and the 2019 Australian bushfires brought into sharper focus that extreme weather and other climate incidents will become increasingly common. Businesses will need to better understand how these factors will impact aspects of their operations, such as risk management, the supply chain, and ultimately the bottom line. Stakeholders will start to apply pressure on business leaders when companies are not making sufficient progress on sustainability-related disclosures and the practices and processes that underpin them. Climate change will no longer be viewed as a long-term risk, and CFOs will now be held accountable for guiding the business through the most turbulent of storms.
At the same time, we are seeing an evolution of our social, political, and economic systems that are driving social change. Under the banner of “stakeholder capitalism,” business leaders are increasingly under pressure to deliver a more inclusive, citizen-driven, sustainable economy where profits are optimized not maximized, and organizations function far more for purpose than profit.
Today’s employees are pushing back, wanting to work for companies that are purpose-driven and focused on a broad set of stakeholders. And they aren’t just demanding this for themselves. Consumers—whether purchasing for themselves or for their organization—increasingly want to buy from companies that demonstrate integrity in how they treat their employees, their customers, and the environment. These consumers seek honesty, transparency, equality, and a better overall experience.
This growing sentiment led to a Business Roundtable meeting in late 2019, where 181 CEOs representing nearly 30% of total U.S. market capitalization committed to lead companies for the benefit of customers, employees, suppliers, and communities in addition to shareholders. Of course, such talk has been met with scepticism from some quarters, but will this be a watershed moment in a much larger movement that investors and business leaders should brace for in the future?
While profit is not the ultimate goal, research shows that companies with high levels of purpose grow faster, have higher profitability, and outperform the market by 5% to 7% per year—on par with companies with best-in-class governance and innovative capabilities.
Many organizations will emerge from this crisis reshaped and revitalized—learning how to self-disrupt and change the way they do business, particularly when it comes to digital.
The slowing of global commerce as a result of COVID-19 has had wide-ranging impacts, causing businesses to fold and drying up demand worldwide. But it has also shown how organizations can mobilize when forced to do so. Emerging digital technologies allowed millions of workers to continue to work remotely and helped thousands of businesses keep moving during this unprecedented crisis. There is more to do in this area, particularly as we return to a new normal and companies re-examine how to prepare for the next big threat.
Many organizations will emerge from this crisis reshaped and revitalized—learning how to self-disrupt and change the way they do business, particularly when it comes to digital. Amazon, Birchbox, Uber, Airbnb, Twitch, Zynga, PillPack, Trov, and Klarna are examples of businesses that previously emerged on the back of disruptive business models. Meanwhile, established brands, such as Burberry, GE, and Nordstrom, all previously recognized the changing landscape and impending threat to their business models, choosing to self-disrupt and embrace digital transformation head-on to survive and thrive. Many more will follow as the world starts to spin again.
COVID-19 has also demonstrated how agile companies can pivot and shift their entire business model to respond to changing needs. McLaren and Nissan, Dyson, and Airbus have all refocused to collaborate in the production of ventilators. Perfume-makers, including Givenchy and Christian Dior, have switched production to hand sanitizers, as have alcohol giants such as Absolut Vodka and Brewdog. The Spanish fashion retailer Zara is sourcing material to make masks and hospital gowns to aid in the fight against the coronavirus.
The dynamic nature of business today means constant change, and in order to stay relevant, companies need to be able to pivot quickly. But many organizations were not built to support such rapid change. In uncertain times, how quickly can leaders move their two most valuable assets—people and money—across the business to where they are needed?
Few businesses have that level of flexibility but are finding that finance plays an important role in helping to increase agility to meet the challenges of change and uncertainty. In finance, the business systems that used to get the job done—however painfully or imperfectly—are now slowing organizations down. In addition to transforming the systems they use, finance leaders must also overhaul their processes, the way they think about recruiting and developing skills, and how they plan and measure success.
There is no crystal ball for the CFO. Yet the perfect storm of persistent change, digital transformation, and the demand from business leaders for insights to enable faster and more efficient reactions to a multitude of threats puts the finance function in a great position to lead from the front. Technology will continue to evolve, management teams will need to balance the demands of employees and customers with those of investors and shareholders, and societal change will force businesses to be more thoughtful than ever before about their practices. All of which means businesses need to embrace agility head-on.
In the next article of this series, we’ll take a look at what these massive changes mean for finance leaders and how they can set their organizations up for success.