Remember ‘business as usual’? For many, it seems lifetimes ago. 2016 was one of the most volatile socio-political years in living memory. Literally, overnight some of the world’s most permanent trading blocs suddenly felt precarious. If 2016 taught us anything, it was that anything can happen—and probably will. The only sure-fire prediction for 2017 has to be more unpredictability. So how can we build stable success in a world of seismic change? Steve Treagust, IFS’s Global Industry Director for Finance, outlines three key trends that will drive the industry in 2017.
One fact is crucial: In a globalized economy where only change is unchanging, the solutions we adopt must be as connected as the challenges we face. All three of the trends I focus on here are connected—and so are the solutions. The solutions to building agility and flexibility into our businesses lie in harnessing the power of the three big drivers of 21st-century change: globalization, responsibility and technology. Every challenge we face begins with these. And every solution does too.
In 2017, more and more businesses will embrace connected strategies
If change is the only constant, then strategy needs to be too. 2017 will see more companies realizing that if trading blocs can change instantly, then their strategy needs to be able to as well. Fixed 1-year or 5-year strategies bundled into an annual report and left to gather dust will become increasingly irrelevant. In a volatile world, companies need to really work their strategy in real time, connected to their underlying data. Connected “4-R” strategies are robust, resilient, responsive and real-time, letting businesses understand and plot a course of action quickly when change descends. They make full use of every last scrap of data, clearly identifying all assets—tangible and intangible—where they are, what they are and how they can be grown effectively.
Connected strategies integrate corporate social responsibility (CSR), sustainability, environmental and HR goals, not as peripheral add-ons but core KPIS. And they are driven by and drive internal and stakeholder involvement, being fundamentally built on the needs of both. Where can we see concrete examples? Traditionally, Asian business culture has been more holistic, with a tighter knit between corporate, social and regulatory obligations. Connecting business goals to strong civic, environmental or HR goals has been routine for many Asian corporations and many are ahead of the game in connected strategies.
Take the Maritime Port Authority (MPA) in Singapore. The largest transshipment hub, and second largest container port in the world, MPA was also the first maritime authority to integrate sustainability as a key element of its financial reporting. In 2016, its annual report, Building a Future Ready Maritime Singapore, continued its policy of integrating sustainability performance and skills development as core KPIs. In July 2016, the Singapore Stock Exchange (SGX) announced it was helping fund the uptake of integrated reporting amongst the rest of the island’s maritime sector too. The new integrated reports must appear annually and describe sustainability practices, including ethical and corporate governance policies. The benefits for companies doing this are extensive. As environmental lobbying groups focus increasingly on the emissions of global shipping, a port that integrates sustainability into every aspect of its operations achieves a powerful competitive edge. In 2017, we will see a growing number of companies in Europe following Asia’s lead—developing connected strategies that make ethical responsibility a core business driver rather than just a cost.
In 2017, how we define CSR will grow, driven by increased regulatory actions
The trend towards connected strategy reflects the growing demands from regulators and the public. 2016 saw a flurry of high-profile regulatory actions and fines against corporations around tax and finance reporting irregularities. 2017 will see the trend continue with a vengeance. When the European Commission ruled in September 2016 that the Irish government must collect 13 billion euros in unpaid back taxes from Apple, the important takeaway was not whether, or how much, Apple would ultimately have to pay. Rather, how the ruling put Apple’s accounts into the spotlight, a powerful sign of things to come. Apple is the poster child for globalization, the biggest tech company in the world. If Apple is shown publicly to be only paying 0.005% tax in one country it may be perfectly legal, it may be financially savvy—but from a CSR perspective, for stakeholders, customers and brand believers this is not living up to high ethical standards. In 2017, we will see more high-profile CSR actions come to the fore, driven by globalization, public awareness and technology that is more open. Look-ahead companies are already showcasing open, connected, integrated strategies and reporting with CSR, not a box to be ticked, but a powerful business driver.
Take Air France-KLM, listed as the number one airline in the Dow Jones Sustainability Index in 2016. Their entire strategy revolves around doing business that generates added CSR value. They cooperate with a wide range of third parties throughout their chain, holding them to the same sustainability standards, and maintain a robust dialogue with stakeholders. Air France-KLM’s ongoing strategy is flexible but includes plenty of space for innovation as well as ambitious goals for 2020 around energy, waste and catering. They offer travelers the chance to carbon neutralize every trip they make. Their strategy is responsible, broad, inclusive and open to innovation and stakeholder input.
UK firm, Pukka Herbs, places sustainability firmly at the heart of everything they do too. Pukka Herb reached their goal of being carbon neutral two years ahead of schedule. They have now set themselves the goal of being completely carbon neutral throughout their supply chain by 2045, 10 years ahead of the IPCC goal of 2055. Their 2016 Sustainability Review details their positive impact on people, plants and the planet, and how they reached zero waste goals for landfill. Like Air France-KLM, Pukka only works with suppliers who are as committed as they are to sustainable production. Pukka’s suppliers work with the company to help farmers deal with climate change impact. And like KLM, their strategy is ambitious but open, their 2017 goal being to be 100% fair trade certified for their teas by the end of the year.
2017 will see a skills race as companies rush to increase their data understanding
Bringing us full circle, back to the third of our powerhouse drivers for 21st-century change: technology. Building connected strategies requires companies, above all, to understand and harness the full range of their data. 2017 will see a growing number of firms placing data skills at the top of their HR agendas. Identifying exactly which data are important, transforming that data into information and then converting that information into intelligence will be a top priority. Building skills around data understanding, data cleansing and data analytics will be key. We will see a rapid rise in the number of companies pouring investment into developing data cleansing and analytics skills, to plug the gaps in organizations’ abilities.
Take Telekomsel, Indonesia’s largest mobile phone network operator, and most widely used mobile phone service provider in South East Asia. They have recognized that in this fast paced and technologically innovative industry, staying ahead of the competition requires investing in skills to nurture agile thinking and culture. Telekomsel is benefitting from the continuous development of the talent pipeline, where they have introduced an academy for finance professionals to hone their skills in traditional finance, business and data analysis. The three-year training program has two clear goals: to provide staff with the skills and knowledge to make better decision making in a rapidly changing environment and to produce business partners who can extract insights and commercial value from data.
2017 will see the choice for many companies become increasingly urgent. Where to invest: In proactively developing sustainable strategies or reacting better to high-velocity volatility? Connected strategy, integrated sustainability and digital skills development will all be powerful tools for mastering volatility and empowering agility in 2017. For those who invest in them, it could be a stable, prosperous year.
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