Companies need to think through these topics on time and think them through strategically, so they can build up strategic competitive advantages
Companies face a variety of challenges. In a business environment characterised by multiple ongoing, simultaneous crises, managers can easily lose sight of what is happening from above. To be able to strategically align your company to the opportunities of the future in a timely manner, a strategic view of the profound transformation processes that are currently taking place is necessary.
The strategic framework affecting companies
Two of these profound transformation processes are currently overlapping as they unfold. They represent technical-ecological paradigm shifts that not only fundamentally change the rules of the economy, but also reflect the increasing development of a profound change in society’s values.
One paradigm shift concerns the unfolding wave of digitalisation, which began around the mid-1990s with the emergence of the internet and is now moving into the next phase. This phase concerns topics such as quantum computers, artificial general intelligence, crypto as a payment system and basis for uniform ownership rights, as well as the topic of physical/virtual immersion, which can be summarised under the term metaverse. What these topics have in common is that they will bring with them commercial availability in the next few years along with opportunities that are difficult to imagine today. However, forward-looking companies must prepare for them and prepare today.
The second paradigm shift is that of sustainability. This is currently showing increasing momentum, driven by the European Union’s immediate goals for decarbonization, as well as the 2030 Agenda regarding the 17 Sustainable Development Goals (SDGs). Europe has set itself the goal of becoming the world’s first climate-neutral continent by 2050, with the interim goal of reducing emissions by 55% by 2030 compared to 1990. Here too, this means that companies are under immediate pressure to act.
The third aspect that companies have to take into account are crises. The multitude of ongoing disruptions in recent years has coined the terms polycrisis and permacrisis demonstrating that they have become a normal part of everyday life. These disastrous events often come unexpectedly, and the extent of the individual crises is unimaginably high. Nevertheless, managers must incorporate them into their strategic considerations and be prepared to deal with them. Recent crises have included the Corona crisis, the supply chain crisis, geopolitical crises, the crisis of increased inflation coupled with economic stagnation and, depending on the country, even recession.
The need for strategic resilience
Companies must take these framework conditions into account to secure and expand their future competitiveness. A strategic look at the opportunities of the overlapping paradigm shifts of the unfolding next phase of digitalisation with that of sustainability is necessary. Only companies that identify these opportunities in a timely manner and align themselves with them in a timely and proactive way will also benefit from them economically. Focusing on opportunities is an essential factor in strengthening the company’s strategic resilience when dealing with ongoing crises. This enables companies to process unexpected shocks, realign themselves more quickly and consistently seize opportunities.
Strategic resilience combines hard and soft factors and is an emerging management discipline. In a forward-oriented view, it combines levers such as aligning on a continuously redefining core business, such as eliminating non-core businesses and structurally reducing the fixed costs while at the same time substantially increasing financial reserves. It rethinks the business model centring around a net zero growth plan and innovation, and elevates the corporate purpose, diversity and inclusion and agility within the company. The ability to communicate clearly, authentically, and continuously with targeted storylines becomes strategically relevant for distinguishing companies and building up differentiation advantages.
How to deal with an environment in danger
A key driver of change and thus key motivator to increase the strategic resilience of your company is not limited to, but certainly includes the topic of E within the ESG structure. It stands for environment and comprises the segments of energy use, water use, waste management, biodiversity, and greenhouse gas emissions. It is a necessity to act on these topics, but it can also offer opportunities to build up strategic competitive advantages for companies.
The targets are set: reducing greenhouse gas emissions to net zero by the year 2050 with the near-term target of -55% compared to the year 1990 by 2030. However, the calculation of the carbon footprint of companies will have to include all emissions scopes (scopes 1, 2 & 3), meaning that the entire supply chain will have to be incorporated. For most of the companies, scope 3 makes up the by far dominant part of its emissions. This leaves companies with the fact that they will have to tackle the supply chain issue strategically to turn emissions reductions into the right dimensions and to reduce risks. This fact alone will lead to the need to rethink the own business model regarding the origin, the use, the reuse, and the recycling of resources and will become a major risk factor in need of timely mitigation.
Furthermore, energy independence will become an increasingly important topic of strategic resilience and reduce risks for companies regarding energy supply. When considering the use of water, it is all about finding ways to reduce the usage to a minimum and to divide water use by drinking water and industrial usage. With regards to materials, it is about reducing the need for them to a minimum and avoiding waste along the way, as well as about reusing materials at the beginning and the end of industrial processes, thus prolonging the lifetime of materials in general. One specific aspect concerns the usage of plastics, as there is a lot of energy needed to produce them, but the usage is often very short and the afterlife unproportionally long – a good case for the cycling economy, if the right partner network is set. As a first step, any single use plastic should be eliminated as of tomorrow.
This leads us to the topic of biodiversity. Even though often unknown and underrated, biodiversity is a core enabler for many biological processes and affects food variety and security as well as the availability of raw materials. Therefore, it is of utmost importance, to work scientifically on securing and advancing biodiversity in areas which can be influenced by the company. Scientifically because it is a difficult topic to be understood and demands specific expertise.
Recommendations for companies
Companies need to think through these topics on time and think them through strategically, so they can build up strategic competitive advantages. For this purpose, the concept of double materiality needs to be followed:
This implies increasing the strategic resilience of the company, identifying risks on time, and providing mitigation strategies which are incorporated into the strategic initiatives of the company. In addition to that, companies need to start thinking more strategically about opportunities in time, and identify, where competitive advantages can be built up in an increasingly challenging environment.
About Vladimir Preveden:
Dr. Vladimir Preveden is an advisor for strategic transformation and has supported more than 200 companies in the DACH region as well as in Central and Eastern Europe in this role. After 20 years at Roland Berger, much of it in various management functions, he has been working independently for several years and focuses on topics of strategic resilience and sustainability transformation. He also teaches at the WU Executive Academy in Vienna. Dr. Vladimir Preveden is married and has three children.
Dr. Vladimir Preveden
Advisor for strategic transformation
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