The big pivot #3: How CEOs can move from thinking inside the box to operating out of the box

The world changed in 2020 — but this change was not evenly distributed by geography or sector. For CEOs, the issue is to understand what changed for their business, sector and addressable market and how to act quickly. They need to understand what is permanent or temporary and what underlying changes may be happening that are being masked by the current situation. Operating within the limits of the old business orthodoxy will not suffice. It will require thinking beyond their traditional boundaries.

Learn the lessons and act

The latest EY Global Capital Confidence Barometer found that 86% of respondents had conducted a comprehensive strategic and portfolio review in 2020 – and for two-thirds this was prompted by the COVID-19 pandemic. When we asked the 1,000 CEOs in the same survey whether the pandemic has increased disruption in their market, an overwhelming majority (91%) agreed; nearly as many (87%) expect some of those behavioral changes to be sustained, even after the pandemic.

Of course, CEOs and the C-Suite fully understand the impact on their own businesses that took place in 2020. What they plan to do now is identify the risks and opportunities that are emerging and transform to capture the upside and prepare for the future beyond the COVID-19 pandemic.

With ongoing uncertainty and little reliable external analysis to leverage just yet, the best data that CEOs can access quickly is their own. They need to tap into all of their data, better analyze different potential futures and understand implications for strategy, financial modeling and operations in order to take control of demand forecasting and scenario planning.

Effective scenario planning reduces the time required to develop a viewpoint of the future business state, as customer behavior is forever changing. The right data and analytical tools can position companies to better rethink their existing commercial and operating models and effectively plan to transform their business.

But critical to this is that first step of what lessons can be learned from the past year: what has been accomplished and what remains unfinished or not yet started. Once that first step has been taken, then the next one is to act and accelerate the transformation.

Unlock the future through constant innovation and new ways of thinking

For CEOs and companies, periods of massive and rapid change present an unprecedented opportunity to drive growth by harnessing transformation. It also comes with the risk of being left behind. To seize the upsides and avoid disruption, they must remake innovation processes to keep pace with rapid change, moving quickly from idea to transformation.

To deliver on market expectations, companies must run strategies that optimize the business of today while simultaneously investing in the technologies, talent and business models needed to survive and seize the upsides over the longer term.

The goal is to envision what lies beyond today’s market definitions and business models; to define the organization’s next growth strategies and finally; to establish the priorities and actions to drive the strategies in the immediate term.

Nearly a third (30%) of the CEOs surveyed strongly agreed, with another 57% agreeing when asked whether companies need to increasingly work in two ways: operate now and innovate for the future at the same time.

Thinking that business will revert to its pre-pandemic ways and norms is probably the biggest risk that CEOs face today. They need to start thinking outside the box.

Create a culture that rewards innovation and transformative behavior

Employees are the most important asset that companies have both for surfacing innovation and activating the transformation that will enable faster growth in the upturn. CEOs have a central role in creating the environment to accelerate this process.

For businesses that leverage innovation to get somewhere quickly, it helps to know where the business is going and why it is going there – and that employees are aligned and feel enthusiastic about the direction of travel. Those CEOs who can articulate the transformation journey required in a way that brings it holistically to life, align it with the company’s purpose, and show how it will help the shift toward long-term sustainable value generation, have a greater chance of success.

Companies with the greatest innovation successes often have ambitions centered on a purpose that energizes and unifies its people. They look beyond simply generating profits for shareholders to creating value for all their stakeholders.

These innovative companies also have a built-in competitive advantage: they have a clear purpose which attracts creative employees and their unique culture nurtures passion in their teams, which drives them to be more inventive. Having a clear purpose also enables them to differentiate with customers in a crowded market.

However, purpose on its own will not be enough. Reward and recognition are critical cultural attributes that can drive innovation and transformation. CEOs need to consider how to align the operational and financial benefits of innovation and transformation to employees’ own sense of success.

Learn, act, transform, engage

Companies with the most active strategic decision-making and capital-allocation processes will likely outperform their rivals, achieving higher returns than those who take a more passive approach. In the new-normal environment, companies will only sustain their growth trajectory and maximize value growth if they continually reassess where to deploy resources and capital in new and innovative ways. Simply optimizing resource allocation in a given business model may not suffice; more fundamental reassessments may be needed.

The questions leading CEOs are asking:

? How will the market or sector continue to change and what is needed to get ahead of that change?

? How can companies address continued performance challenges and become more resilient?

? How can businesses fully leverage the potential in technology and data?

? How can organizations identify growth opportunities, including both organic and inorganic paths?

? How well-understood are customers’ and employees’ priorities, and how are they being addressed?

? What innovations will help navigate the path to sustainable long-term value creation?

? How can companies create a culture of continual transformation?

? How can employees be best motivated and rewarded to accelerate innovation and transformation?

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.