Is Your Business Future-Proof?

Neil Hodge


October 2, 2023

considering long-term viability of your business

For many companies, it is hard to imagine no longer existing in a decade’s time, but a growing number of chief executives believe such a scenario is frighteningly plausible. According to PwC’s recent 26th Annual Global CEO Survey, nearly 40% of CEOs do not think their company will be economically viable 10 years from now if it continues on its current path. Key factors cited included changing customer preferences, regulatory change, skills shortages and technology disruption, as well as the transition to new energy sources, supply chain disruption and the threat from new entrants. Nearly three-quarters of CEOs in Japan and 67% of CEOs in China did not believe their current business model would be viable in 10 years, while at the other end of the spectrum, only 22% in the United Kingdom and 20% in the United States were similarly concerned.

These viability concerns underscore the need for companies to reinvent themselves and reimagine what is possible, rather than stick with the status quo, PwC said. For example, Netherlands-based lighting turned audio/visual business Philips refashioned itself as a health technology company by bringing together the multinational’s consumer-insights capabilities, expertise in medical-device technologies, and strengths in data analytics and artificial intelligence. The company also exited some businesses, including its original lighting business, and de-emphasized others. As Frans van Houten, Philips CEO from 2010 and 2022, told PwC, “I recognized that the chances that we would transform lighting and health care simultaneously were not so high. And so we made a choice.”

As companies work out their value proposition and future customer base, similar transformations are likely. “Chief executives now perceive more risks to the business than ever before and see their companies as being more susceptible to changing dynamics that can shift quickly and fundamentally,” said Andrew McDowell, partner at Strategy&, PwC’s consulting business. “As a result, what a company’s core business might be today may not be its core business in just a few years’ time.”

Immediate, Intermediate and Long-Term Actions

Many share McDowell’s view that companies may be forced to substantially transform if they are to stay in business. Andrew Hersh, CEO at risk services firm Sigma7, said the threat of some businesses failing within 10 years is “very real,” fueled by key drivers like the rise of industry disrupters; macro-economic factors, such as inflation and supply chain problems caused by geopolitical risks; and the negative impact of regulatory policy and government intervention.

Hersh believes there are immediate, intermediate and future threats companies need to prepare for and which “should act as a galvanizing principle to take action now.” In the immediate term, companies should use the resources and skills they already have to determine where risks and opportunities lie. “Companies need to look at how they operate and work out what changes can be made quickly and easily to reduce costs, free up resources and create improvements,” he said. “The key is to use existing resources more efficiently and effectively to help make smarter decisions over the longer-term.”

In the intermediate term, companies need to consider what changes are likely to occur in the next couple of years, assess the impact these might have on the business, and prepare the business to react and reposition itself as necessary. In particular, companies should have two key intermediate-term trends on their radar: energy supply and pricing, and customer behavior. “The invasion of Ukraine has demonstrated how susceptible European companies, in particular, are to dips in energy supply and hikes in energy costs, as well as the disruption both can have on their supply chains and production cycles,” Hersh said. “Meanwhile, companies need to remember how the pandemic has shown how quickly customers can switch their priorities to suit their own needs.”

Companies will also need to consider the long-term viability of how the business currently operates. “Will the organization need as many physical sites to operate from? Will AI and emerging technologies change product design and service delivery? Will companies continue to source key components such as electronics and microchips from China and other low-cost countries? It is obvious there is going to be a much greater need for better scenario-planning going forward,” he said.

To cope with such change, companies need to implement a long-term strategy and review it regularly, ideally quarterly. “They should also consider what could kneecap it from succeeding,” Hersh said. This includes reviewing whether the business has the right amount of capital to adjust to potentially seismic changes in the marketplace and whether it has the right machinery, IT capability and people to change direction quickly.

The Importance of Flexibility

For many businesses, survival may hinge on the ability to pivot when situations require it. However, the way many companies prepare for such contingencies often means there is a ready-made, prescriptive action plan in place for them to follow, rather than a built-in capability to react to the unknown.

“There is a tendency in many organizations, especially larger ones, to encode a system of policies that are designed to maintain stability and oversight,” said Dr. Elizabeth Moore, head of leadership at the U.K.’s University of Law Business School. “Unfortunately, what often happens is that the organization gets strangled by its own rules and systems, which are no longer fit for purpose. Businesses need to maintain stability through uncertainty. To do this, they must be willing to create flexible internal systems that allow for change rather than rigidity.”

 To leverage opportunities from risk, organizations “must look at where gaps have occurred in moments of upheaval and consider strategies for taking advantage of those gaps,” Moore said. However, it is challenging to maintain a balance between staying the course and responding effectively to a new situation.

“Companies that fare best in these situations will be those that have a flexible and resilient infrastructure; those that have made contingency plans for worst-case scenarios; and those that have built positive and transparent relationships throughout the various levels of management,” Moore said. “When the crisis comes—and it will—the willingness of diverse individuals throughout the organization to work together to come up with solutions and find new opportunities will be the essential foundation leading to the organization’s success.”

Some industries—namely the financial services and technology sectors—may be better prepared for disruption and substantial change than others, partially because these industry executives are “acutely aware” of the limited timespan and appeal of their offerings. Such awareness “prompts them to think their organizations are only six months away from bankruptcy,” said Damian Handzy, managing director for risk technology vendor Confluence’s analytics business.

“There is no financial services firm alive that thinks it has a 10-year lifespan continuing as it does now,” Handzy said. “The sector is so competitive and prone to new disrupters that many firms think they need to overhaul their strategies and change within three years if they want to stay in business.”

The financial services industry may also be better prepared for disruption because it has consistently sought to attract talented individuals that thrive on challenge to work on managing risks in key service areas and rewards them with generous remuneration packages.

“Since the 1990s, the financial services industry has sought out the best people from academia and other industries who are good with numbers and analyzing data to help assess not just organizational risks, but risks associated with new products, complex instruments and emerging trends,” he said. “And it has paid them far more than they would ever get anywhere else. While these institutions are not immune to failure, the industry as a whole is good at recognizing what needs to be done to survive and is also good at taking the necessary steps to avoid becoming obsolete.”

better risk intelligence to future-proof business

Improving Decision-Making Through Better Risk Intelligence

Many experts believe better data collection and interpretation will be vital in enabling the kind of decision-making that underpins any business transformation, regardless of industry sector. Since the financial crash of 2008, companies across a variety of sectors have focused on putting controls in place to mitigate risks as they occur. However, they have largely done this in a patchwork fashion rather than as part of a coordinated, holistic effort to improve the risk management framework.

As a result, Rupal Patel, head of insights and risk intelligence at IT vendor Acin, said companies “have created their own operational risk” because they have likely duplicated controls to such an extent that the flow of risk and operational data is being slowed down, which is impacting decision-making.

“There needs to be an end-to-end view of data to understand the risks to the business and the opportunities that could be leveraged,” she said. “Risk managers need to push for a better culture of ‘tone from the top’ to involve executives more in ensuring that data quality is maintained and that data is easily accessible and up to date.”

Companies are also putting themselves at risk by failing to understand the importance and potential impact of non-financial risks to the business and not treating them as equally important as financial risks.

“Non-financial risk gets relatively little discussion in the boardroom as compared to financial risk, even though one impacts the other,” said Damian Hoskins, operational and climate risk specialist at Acin. “Executives are much more comfortable discussing market and credit risks than they are non-financial risks because they have been told to look at the numbers all their lives. Risk managers will need to continue to push for a broader discussion of both sets of risks so that executives can decide future business strategy more appropriately and effectively.”

According to Edgar Randall, managing director at business intelligence firm Dun & Bradstreet, companies need to have access to real-time information to facilitate more effective management decision-making. However, many companies are already disadvantaged compared to new entrants. “Disrupter firms, which are usually smaller, better resourced with the latest technology, and focused on a few core areas, are able to do this very easily and have leveraged data very aggressively to gain market share,” he said. “More traditional players, on the other hand, tend to suffer because they have legacy IT systems that prevent them from innovating and using data more smartly. These companies have tons of data but they cannot do anything with it.”

Risk professionals should improve the decision-making process so management can focus on core business risks. “If you look at the financial services sector, high volumes of automated decisions are carried out each day,” Randall said. “Companies in other industries need to follow suit. Risk managers should push for more automated decision-making for ‘low-risk’ tasks so that management time is concentrated on getting better information to inform more strategic issues.”

According to Dr. Clare Walsh, director of education at the Institute of Analytics, data analytics is “crucial” to ensure a better understanding of risks and opportunities for any business. However, effective analysis is dependent on the quality of the data, using the right analytical tools and taking the appropriate action.

“Using flawed, incomplete and inaccurate data is obviously going to skew any results, while a reliance on basic and error-prone tools such as Excel is going to produce poor results and lead to bad decision-making,” she said. “But even if data quality is good and the right tools are used, if executives don’t act on the information they have, the whole exercise becomes pointless. It can still be a challenge for chief data officers and risk managers to convince CEOs about what the data actually means and what insights can be drawn from it to inform strategy.”

 Risk managers need to do more to show executives that data analytics can help  inform future strategy and make business operations more resilient. This can be achieved by using clear metrics to show how much better off the organization is as a result of using improved data flows and more informed analysis. Risk managers “should pursue quick and easy wins that will show results in two months rather than two years,” Walsh said. 

For example, data analytics may show a retailer that poor complaint handling is contributing to declining customer retention rates. Consequently, they could implement a system that prioritizes emails and social media posts criticizing the company and sends them to the customer services team so they can tackle complaints more quickly. Data analysts and risk managers can then demonstrate the increase in sales, customer retention rates and speed at which complaints are addressed, as well as any decrease in refunds and number of complaints made, and show the impact on the company’s financials.

Overall, McDowell believes one of the key contributions risk managers can make is to perform more of the “day to day” risk operations and prioritize risk reporting more appropriately so that executives can focus on long-term strategy. “For the past couple of years, boards have been busy stamping out fires rather than thinking long-term,” he said. “As a result, risk managers will need to be more proactive in future. They will need to take greater control over how smaller, transient risks—such as some regulatory or inflation-related risks—are managed so that CEOs are free to focus on strategy.”

Accounting for Talent and Staffing Risks

Technology is obviously important, but if companies want to survive, they also need take people into account. “Employees drive change as much as technology,” said Dr. Alexandra Dobra-Kiel, innovation and strategy director at behavioral sciences consultancy Behave. If companies are going to adapt, they need to convince staff at all levels that the process is necessary, beneficial and achievable, and be transparent about how they intend to proceed. “You need to have a scenario in mind that sets out what the plans are for the future and the steps you will take to get there,” she said. “You also need to be clear that there will be risks, but that the benefits will outweigh these.”

Companies also need to make judgment calls about whether their current staff and leadership team have the skills and expertise to make the changes. “Not everyone in the organization will be capable of meeting the expectations that change demands, while others might be frightened by it, so recruitment and retention strategies become very important,” Dobra-Kiel said.

However, she cautioned against only hiring people with “gung-ho” attitudes who seem to relish difficult challenges. “Change is not reckless—it has to be well-planned and well delivered,” she said. While many companies assume it may be as simple as hiring eager young workers to execute dramatic changes, this is not an advisable strategy on its own. “Bringing in new blood of typically younger people who are ambitious, confident, aggressive and seeking challenges may not necessarily be the best answer in all scenarios,” she said. “Also, these people are unlikely to understand the company’s culture, so they may clash with existing key staff that the organization also needs.”

Improving Stakeholder Relationships

The global economic and geopolitical upheaval of the past few years has demonstrated how long-established business models can be shaken to their core and how quickly customer behavior can change, forcing companies to adapt accordingly.

Moving forward, companies’ survival will depend on having a better and deeper relationship with a wider range of stakeholders. “CEOs need to know what their stakeholders expect from the company over the long-term and how it will achieve its strategy and goals,” McDowell said. “Companies will need to explain their value proposition carefully to engender trust, taking into account issues such as climate risk, sustainability and ethics. Companies risk alienating key groups of stakeholders who will simply look elsewhere to do business if they don’t listen to or ignore their concerns.”

Neil Hodge is a U.K.-based freelance journalist and photographer.