7 strategic priorities to win in a dislocated economy

Reflecting on the key insights from the flagship “EY-Parthenon Board Series: Strategy Realized” regional webcast, there were 7 strategic priorities that companies in Southeast Asia must focus on. The question is: how do you pivot strategy faster than the speed of change?

In a recent “EY-Parthenon Board Series: Strategy Realized” regional webcast that we hosted, the audience of 200 board and C-suite members from Southeast Asia agreed that now is the time to take more risks and be bold with their strategies.

Across Southeast Asia, as economies open up in the endemic new normal, opportunities and risk abound. The so-called “K-shaped recovery” from the pandemic – with some businesses thriving and others struggling?– is very real in the region. And we generally see companies emerging in one of four cohorts: Strong, Transformed, Reshaped or the Unknown.

Twin disruptions of geopolitics and digital

The panel of speakers noted that the current geopolitical situation can be disconcerting. The volatility stemming from the war in Ukraine as well as US-EU-China relationship is expected to create tensions in markets, trade and policies. Clearly, there are rippling effects on business operations, especially cross-border supply chains and data flows.?

However, the news is not all bad. As China decouples from the US and Europe, this economic giant is likely to re-engage with the world in a different way and Southeast Asia could be a big beneficiary. In the post-global financial crisis recovery, China’s big wave of global expansion had benefited Europe and North America. This time, the populous markets of Southeast Asia will become an attractive destination for Chinese investment, alliances and partnerships.

At the same time, as more and more markets open up, Southeast Asia has an opportunity to set itself up for elaborate regional supply chains, for example, in manufacturing.

It is also clear that in this rapidly changing environment, those who cling to analog strategies will be in trouble. Tech disruption and digital transformation have created a new breed of innovators, blurred industry boundaries and formed new business flow and value. Businesses are compelled to re-evaluate their competition – and can expect disruption from homegrown unicorns, as well as those originating in China and India.

Against this backdrop, the panel suggested 7 strategic priorities for boards and executives to focus on:

1. Supply chain – In a post–COVID-19 and geopolitically unstable world, businesses are re-evaluating their supply chains with an eye on both resilience and efficiency. It is a hard balance to strike. Resilience comes at a cost. Where possible, companies should look to shorten supply chains by sourcing locally. Digital tools can support supply chain risk optimization, transparency and efficiency.

2. Transformation – The panel acknowledged the tension between the imperative to transform and the cost of digital investment, agreeing that the time has come to allocate substantial resources to digitize core businesses. Many may worry that digital models come with slimmer margins. Fellow panelist, Shaurya Ahuja, EY-Parthenon Partner, Consumer and Digital, Ernst & Young Solutions LLP, added that share prices are already demonstrating the value that capital markets attach to companies with progressive digital strategies.

Companies should look for “no regrets” projects and use a staged-gate funding model for all digital initiatives, with the goal of receiving five times the return on investment in a less than two-year payback period.

3. ESG – The panel is confident that region will soon catch up in ESG matters with its more mature counterparts in Europe. In an EY 2022 CEO Outlook Survey of Asia-Pacific CEOs, nearly three-quarters of respondents cited ESG as a more important driver of value over the next few years. Importantly, companies must go beyond window dressing and focus on materiality.

The panelists also recognized it can be difficult to build ESG capabilities organically, pointing to M&A as a route to both – bring in ESG skills and change an organization’s ESG profile.?

4. M&A – CEOs are expected to make bold inorganic moves in the next 12 months, taking advantage of the region’s robust M&A environment. The EY CEO Outlook Survey found 54% of respondents in Asia-Pacific – a 10-year high – actively planning to pursue acquisitions in the next 12 months. Cross-sector M&A will reframe and reshape their business models as they look to sectors and markets outside of their own.

5. Collaboration – The panel also noted the advantages of moving away from competitive rivalry and driving more collaboration and consortiums to drive benefits out of the shared economy. Participation in ecosystems, alliances and collaboration with other value chain partners, can deliver strategic value that far surpass what is accomplished through organic growth.

6. Skills uplift – One of the “soft blocks” inhibiting digital transformation is the lack of digital skills. The average shelf life of skills has shrunk from 20 years to 5 years, therefore making the upskilling of workforce critical. With the “Great Resignation” also exacerbating talent shortages, organizations must balance the ensuing cost pressures with the need to attract and retain key skills.

7. Wellbeing – To retain top talent, companies must turn their attention to wellbeing. Reducing people’s administrative burden and cognitive load gives them the mental capacity to focus on value-adding work that drives commercial advantage. A proactive, people-centred approach to wellbeing can give companies an edge in the fight for talent.

The pandemic has precipitated many short-term tactics by businesses. The imperative for business leaders now must be to look at the mid- to longer-term strategies – those that drive and thrive on transformational dealmaking, ecosystem play, as well as agility and putting humans at the center of business strategy.

Thank you to the panelists who contributed their views: Yew-Poh Mak, EY Asia-Pacific Strategy and Transactions Leader; Shaurya Ahuja, EY-Parthenon Partner, Consumer and Digital, Ernst & Young Solutions LLP; and Taimur Baig, Managing Director and Chief Economist, DBS Bank.

The views reflected in this article are the views of the author and do not necessarily reflect the views of the global EY organization or its member firms.