Strategic talent management for the post-pandemic world

Posted in Aktuellt, Board work / Styrelsearbete, Leadership / Ledarskap on November 22nd, 2020 by admin

As COVID-19 accelerates talent management trends, CHROs can take action now to craft a strong talent strategy for later.

In the COVID-19 era, chief HR officers (CHROs) are playing a central role in how companies reimagine personnel practices to build organizational resilience and drive value. There is no shortage of new responsibilities, from fostering connectivity early in the pandemic to developing and implementing plans for the return to offices.

Additionally, the COVID-19 crisis is now accelerating preexisting talent management trends in the CHRO playbook. By acting in five such areas, CHROs can craft a strong and durable talent strategy for the post-pandemic world.

  1. Finding and hiring the right people. Efficient and effective hiring continue to be important.For example, organizations are re-thinking the role of on-campus interviews in the hiring process, given the success they’ve experienced with remote interview methods. And since temporary labor is poised for a faster recovery, organizations should be ready to use that flexible labor in additional ways.CHROs should take a fresh look at tools that make it easier to connect people to employment, based on a deeper understanding of their skills and how those match with available jobs.
  2. Learning and growing. CHROs must consider the effects of large workforce transitions accelerated by the COVID-19 crisis and the key role that reskilling plays in helping close talent gaps.The agenda for post-pandemic learning and development extends beyond reskilling to three categories of cost-effective training:• Broad-based digital training in essential skills
    • Focused upskilling rooted in changing work
    • Leadership development
  3. Managing and rewarding performance. The crisis is accelerating shifts in how organizations manage and reward performance. It has dramatically affected goals and performance plans, while making remote workers further reliant on performance management for feedback.To encourage effective performance management now and beyond, CHROs should:• Transparently link employee goals to business priorities and maintain a strong element of flexibility.
    • Invest in managers’ coaching skills.
    • Keep ratings for the very highest—and lowest—performers but also celebrate the broad range of good performance.
  4. Tailoring the employee experience. The blurring line between work and life while working remotely means that employee experience is even more critical.CHROs must help establish norms of working that foster engagement and inclusion for all employees. The solution will be based on talent needed, which roles are most important, how much collaboration is necessary for excellence, and where offices are located today, among other factors.HR departments should also consider the range of analytics tools they can use to understand and promote connectivity and engagement, from social network analyses to listening tools such as mobile text platforms.
  5. Optimizing workforce planning and strategy. Given shifts in how value is created in the post-COVID-19 world, the talent base required may need to shift as well. Workforce planning, strategy, and change is the HR spending category that McKinsey survey respondents cite as most likely to increase over the next 12 months.Components of workforce planning and strategy include:• Critical roles. Research suggests that a small subset of roles is disproportionately important to delivering a business-value agenda. For each role, identify core jobs to be done, qualities needed of leaders, and whether the role is set up for success.
    • Skill pools. Organizations should look at their major skill pools to understand the skills required for the future and whether they are long or short on the required talent.
    • Talent systems. CHROs now have more workforce-planning tools to help them match people to jobs. Such tools will become increasingly critical for CHROs to meet the challenges ahead.

For more information, please read our article, “HR says talent is crucial for performance—and the pandemic proves it.”

 

 

Source: McKinsey.com, 20 November 2020
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The board’s role in embedding corporate purpose: Five actions directors can take today

Posted in Board work / Styrelsearbete on November 21st, 2020 by admin
A large spotlight is shining on corporate actions these days, and all stakeholders have growing expectations. A board’s involvement in defining purpose helps meet those expectations.
Multiple forces have increased attention on stake­holder capitalism, and most boards have not sufficiently grappled with the significant implications for their organizations. Last year, Business Roundtable, an association of CEOs who run major US corporations, committed member companies to serving the interests of all stakeholders, but their signatories have found it challenging to deliver fully on their promise. While 181 chief executives signed the roundtable’s statement, only one did so with board approval. Could boards have used this moment to engage more deeply with manage­ment teams to embed corporate purpose within their organizations—a role that fits squarely within a board’s obligation to enhance the company’s long-term performance?Democratization of information has increased scru­tiny of corporate actions and raised the stan­dards. As one board member told us, “Corporations exist with the permission of society, and any sector can be regulated out of business.” Purpose serves as the foundation that guides those actions and behaviors. In a nutshell, it is a company’s core reason for being. It answers the question, “What would the world lose if our company disappeared?” By articulating a clear purpose, anchored in measurable environmental, social, and governance (ESG) commitments and goals, companies can better deliver on societal expectations. Organizations that define their purpose and use it to guide their activities see a clear upside in improving company reputation, alerting management to risks early, establishing the organization as a leader in raising industry standards, and enhancing business performance.But delivering authentically on corporate purpose is difficult. As such, boards must ensure that their companies’ management teams understand the urgency of the issues that the purpose aims to address, and the potential value at stake.

The growing importance of purpose

Even before the pandemic, attention on corporate purpose and ESG was on the rise. Stakeholder groups, from investors and regulators to employees and customers, have increased pressure on businesses to address humanitarian, social, and environmental problems. A full third of global assets under management today are screened for ESG considerations, and investors are taking increasingly activist stances for sustainable corpo­rate practices. The Government Pension Fund of Norway, known as the Oil Fund, for example, has asked portfolio companies to share detailed plans to shift to a low-carbon economy, and voted to exclude three companies from its portfolio due to perceived violations of human rights norms.

Employee and consumer pressure is also growing. The reputations of some tech firms have been undermined by allegations of inequitable working conditions inconsistent with external statements, brought to light by employee whistleblowers. Recently, 65 percent of consumers declared they will buy or boycott a brand depending on its actions during the COVID-19 crisis.

Purpose and ESG commitments help companies address vulnerabilities and contribute to increasing shareholder returns. A compelling corporate purpose attracts talent and unleashes its potential, improving long-term employee well-being and quadrupling engagement. In fact, we recently quantified five links between a strong ESG propo­sition and improved business performance and long-term value.

Yet despite the value associated with purpose and ESG, and the risks that inaction poses, many companies struggle to rise to stakeholders’ expectations. Some take a check-the-box approach or bolt simplistic catchphrases onto existing corporate social responsibility reports. Superficial branding efforts around purpose that are not anchored in the organizational DNA only serve to undermine leadership credibility.

The board’s purpose agenda

How boards approach purpose and ESG differs based on regional regulations and norms, but a growing group of business leaders recognize that attention to all stakeholders is essential to protecting their companies’ interests. Companies oriented to the long term outperform short-term companies, given the material impact purpose and ESG can have on companies’ long-term perfor­mance, ensuring these commitments are ingrained within the organization and fall within the board’s mandate.

Board directors can serve as thought partners to the management team in developing a purpose narrative and embedding it in the organization. Purpose can become a guiding lens for board engage­ment on strategy, investments, risk and performance management, HR and culture, governance, and external reporting (see sidebar, “Applying a purpose lens to a board’s engagement with management”). In essence, purpose provides the North Star against which the board can stress-test key management decisions.

Below, we outline five specific actions around building, owning, assessing, reinforcing, and driving purpose (exhibit). These can assist board directors in partnering with management to create a purpose narrative with clear commitments and targets, fully embedding the purpose in the organization, and monitoring progress.

  1. Build an authentic purpose narrative with management. The creation of a purpose statement and a supporting narrative should not be a branding exercise but rather a deeply reflective process. Accordingly, boards should encourage top executives to take the time to understand all stakeholders’ perspectives on the company’s strengths, vulnerabilities, and relevant industry trends in developing the purpose.Board members themselves should engage with stakeholders to listen to concerns, as these can simmer under the radar until they boil over into a public backlash. One board was recently caught off guard when an employee used social media to raise concerns about the company’s contract with a foreign government. Boards need to create confidential channels through which employees can raise issues for their consideration in a safe way. They should also proactively monitor internal and external sentiment alongside management. For example, the board of a leading industrial company recently replaced a planned board meeting with a listening tour with employees on the shop floor. Such insights can help the board incorporate stakeholder concerns into the purpose orientation.
  2. Own purpose in board practices. Boards should ensure that purpose and ESG considerations are regular parts of their discussions. Further­more, one of the board committees should include purpose as part of its oversight. One UK financial services regulator pointed out that, given his agency’s access to the minutes of board meetings, “I can measure whether or not purpose and ESG are taken seriously.”Additionally, board composition criteria should include ESG expertise and diversity (in gender, ethnicity, age, and sexual identity). For example, only 10 percent of board members at compa­nies on the Russell 3000 Index are considered ethnically diverse, and women hold only 19 percent of board seats, suggesting signifi­cant room for improvement around diversity in governance.
  3. Assess purpose commitments, ensuring management sets clear and measurable goals, actions, and accountability. Purpose is made real when it connects to clear commitments, targets, and action plans that cascade down through the organization. The purpose statement should be specific enough to guide decisions on investments in time, capital, and other resources. A powerful litmus test of a purpose statement is to ask what the company should stop doing because of it. Board members can guide the management along this process by posing questions, pressure testing answers, and suggesting ESG metrics.The board should also encourage management to report externally on its progress in meeting the goals the company’s purpose sets out. For example, the Brazilian cosmetics company Natura &Co’s purpose is “to nurture beauty and relationships for a better way of living and doing business.” To support it, the company set ambitious goals around climate change, human rights, and economic circularity. Each pillar of its purpose strategy features specific initiatives, such as engaging supply-chain partners in ensuring sustainable sourcing and bolstering female empowerment through microfinance loans. Natura tracks and reports progress to both the board and in its annual reports. “They live and breathe this,” says a board member about the company’s management.
  4. Reinforce purpose lens in core board decisions. Boards can use purpose to pressure test decisions and trade-offs in company strategy, investments, risk and performance manage­ment, HR and culture, governance, and external reporting. For example, in 2010, the board of directors of Danish power company Orsted approved a long-term vision shift to support a commitment to the environment. In subsequent years, the company moved its portfolio from primarily oil, natural gas, and coal generation to renewable energy. By 2017, wind power accounted for 91 percent of Orsted’s earnings before interest, taxes, depreciation, and amortization and its market cap has grown 64 percent since its 2016 IPO. Boards should also be vigilant in monitoring manage­ment decisions that could undermine the stated purpose. For example, during COVID-19 some companies were criticized for laying off workers while instituting share buybacks or increasing executive compensation. Dissonance can also arise when a company engages with industry groups or lobbyists whose goals are inconsistent with the company’s purpose orientation.
  5. Drive organizational accountability for purpose through management evaluations and reporting. As part of its oversight role, the board should establish organizational accountability around purpose. At the highest level, it can link ESG performance metrics to compensation for the management team to ensure these goals are treated as seriously as profit and revenue targets. For example, Danone is factoring the cost of estimated emissions into its “carbon-adjusted” earnings reports. The board can also take the lead in celebrating purpose-linked achievements, and noble failures (such as products recalled for not meeting new ESG standards). Boards can encourage management to share inspiring stories with employees and the public, via annual reports, ESG reporting, and press releases.Importantly, the board cannot allow purpose and ESG goals to drop off its agenda during crises. The COVID-19 pandemic and the subsequent economic downturn have imposed unprecedented difficulties on many companies, but purpose-related considerations should guide decisions even—or especially—when orga­­ni­zations must make hard choices. Purpose can help companies evaluate short-term costs, such as offering employee-retraining programs in place of layoffs and loans to suppliers, as important investments in a better future—for both their stakeholders and society as a whole. Fundamentally, purpose is about leadership, and companies need all their leaders to provide purpose-driven inspiration during difficult times.

    Source: McKinsey.com, 20 November 2020
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Hur påverkar det nya aktieägardirektivet er?

Posted in Aktuellt, Allmänt, Board work / Styrelsearbete on October 29th, 2020 by admin

Johanna Sommarlund är delägare och konsult på Novare Pay, ett bolag som arbetar med ersättningsfrågor för ledande befattningshavare. Under 2019 blev EU:s aktieägardirektiv svensk lag vilken får stor påverkan för många bolag.

Vad är aktieägardirektivet och vad det tjänar till?
– Enkelt sammanfattat togs aktieägarrättsdirektivet fram för att stärka aktieägares ställning och försäkra att besluts fattas för bolags långsiktiga stabilitet. Direktivet behandlar bland annat frågor om ersättning till VD och vice VD och förhoppningarna hos EU-kommissionen var att aktieägarnas möjlighet att ta ställning till ersättningsfrågorna ska skapa en bättre koppling mellan företagsledares prestationer och löner.

Vilka av era kunder påverkas och vad är nytt?
– Direktivet omfattar bolag som har sitt säte i en EU-medlemsstat och är noterade inom EU. De statligt ägda bolagen och bolag som följer Svensk Kod för Bolagsstyrning omfattas också av de nya reglerna. Direktivets räckvidd är alltså omfattande och det här innebär att flera av våra kunder nu måste anpassa sig efter de nya reglerna. Ersättningsriktlinjerna, som nu är mer omfattande än tidigare, lades fram och godkändes tidigare under 2020. Till årsstämman 2021 ska nu för första gången en ersättningsrapport upprättas och publiceras, något som är en helt ny utmaning för dessa bolag.

Vad är viktigt att ha i åtanke med anledning av de nya kraven?
– Till att börja med bör de berörda bolagen starta sitt arbete med ersättningsrapporten nu, om inte igår. Det är en lite trasslig rapport att ta fram och det kommer att krävas noggrann kartläggning och diskussion internt för att arbeta fram den information som rapporten ska innehålla. I vår rapport ”Ersättningsrapport 2020” har vi gjort en sammanställning och bland annat ska data som sträcker sig över de senaste fem räkenskapsåren redogöras för och bolagen bör därför tänka över hur och med vilka mått resultaten ska redovisas. Ersättningsriktlinjerna ska också följas upp och ställas i relation till hur ersättningen faktiskt har sett ut, så det är helt klart en ökad arbetsbörda som faller på de publika bolagen.

Hur hjälper ni era kunder i arbetet med rapporten?
– Vi är specialister på ersättningsfrågor och arbetar med alla frågeställningar som kan uppstå på området, såväl i rollen som projektledare som bollplank. Även om ersättningsrapporten är en ny utmaning, kan vi genom vårt breda nätverk och kundbas bilda oss en god uppfattning om hur trender och normer utvecklas. Vi har möjlighet att se frågan ur ett helhetsperspektiv och kan därför identifiera problem och lösningar så att våra kunder kan få hjälp med alltifrån specifika tolkningsfrågor till att ro hela rapporten i hamn.

 

Källa: Novare.se, oktober 2020
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How to plan a successful leadership succession at a start-up

Posted in Aktuellt, Board work / Styrelsearbete, Leadership / Ledarskap on October 20th, 2020 by admin
After spending ten years turning their start-up into a highly profitable unicorn business, the cofounders of PropertyGuru were able to successfully hand over the reins of the business and safeguard its continued success.

When founders decide it’s time to move on after nurturing their start-up into a successful enterprise, years of hard work can quickly come undone if they don’t plan the leadership transition well. Steve Melhuish, cofounder and former CEO of PropertyGuru, spoke to McKinsey’s Tomas Laboutka about the painstaking transition process he and his cofounder put in place to ensure the success of the company and its new CEO.

Key insight #1: Business founders need to recognize when it’s time to turn control of the business over to someone else.

Tomas Laboutka: There are numerous success stories of start-ups handling leadership succession well, but also countless examples of failures. When did you know it was the right moment to bring in a new CEO for PropertyGuru?

Steve Melhuish: It was a personal decision. My cofounder, Jani, and I bootstrapped the company, building it from scratch into a regional market leader in ten years. It was a grueling and relentless time, as we worked seven days a week, without vacation and with little salary, for most of that period.

As my twin children approached their third birthday, I realized I’d missed so much and was scared that I would miss their formative years unless I took action. So I decided my priorities needed to change and promised my wife I’d hand over operations of the business by the time the kids were five years old.

I discussed it with Jani, and he was reaching a similar conclusion, having recently had a son. We knew it would be a complex, challenging, and lengthy transformation and transition process, so we set the wheels in motion early.

Key insight #2: Laying the foundations for a successful leadership transition can involve several years of planning.

Tomas Laboutka: How did you communicate your intention to your investors, partners, and employees?

Steve Melhuish: We presented our proposal to the board in 2014 by explaining that every leader needs to plan for an eventual succession. The shareholders at that stage were understandably concerned, since they’d invested in a founder-led business for two years and worked alongside us.

In addition, while we already had a presence in four countries at that time, 96 percent of our revenues were generated in Singapore, primarily by Singapore real-estate agents. And decision making within the company was still largely concentrated with me and Jani, so we lacked depth in our regional leadership and middle management.

So we agreed to a three-step plan focused on revenue diversification and professionalizing the organization before identifying and transitioning to a new CEO. We made a commitment to the board to execute this plan over the subsequent three years.

To support revenue diversification, we heavily increased product, team, and marketing investment in Indonesia, Malaysia, and Thailand. We also added a fifth country to our portfolio by acquiring Vietnam’s market leader. And we acquired two companies focused on serving real-estate developers, to enhance our value proposition to these valuable clients.

We hired the company’s first CFO, CMO, CTO, and CHRO and invested in new IT systems and processes underpinning these functions. Additionally, we invested in training and development to help increase our middle-management capability.

Nine months after starting this transition process, we successfully completed PropertyGuru’s largest round of funding. We made it clear to the prospective investors right at the outset that we were in the middle of a transition that would hand over control of the company to a new CEO in roughly 18 months. But at that stage, we didn’t yet communicate our succession plan to employees, since we wanted the whole team laser-focused on our business priorities: diversification and organizational development.

Key insight #3: Taking the time to choose a new CEO who fits a carefully considered candidate profile can reduce the risk of ‘organ rejection.’

Tomas Laboutka: Finding a replacement for cofounders who helmed the company for a decade couldn’t have been easy. How did you design the CEO selection process?

Steve Melhuish: Bringing a new CEO into a ten-year-old, founder-led business is clearly a high-risk proposition for the founders, company, and shareholders, all who worry whether the new CEO will fit in and enhance, or damage, the company. It’s also high risk for the incoming CEO, who worries whether the existing company culture is a good fit for him or her and whether the founders will actually step back to let him or her do the job unencumbered.

The process we designed was aimed at not only identifying the best CEO but also minimizing the risk of “organ rejection.” The candidate profile we developed placed a heavy emphasis on culture, values, and talent development, as well as experience in building fast-growing businesses. We aligned with and received support from our board members and then hired an executive search firm we’d had success with in the past placing some of PropertyGuru’s CXOs.

We were surprised at the quality of the shortlist and how quickly it came together. Many of the candidates were well-known senior executives leading large Asia Pacific or Southeast Asia teams for Fortune 100 tech firms. We were taken aback that talent of this caliber would want to join a much smaller, earlier-stage private tech firm.

However, it became clear during the interview process that some candidates were frustrated by bureaucracy, politics, slow decision making, low Asia investment, and the lack of significant “face time” with stakeholder management back at headquarters. Given their lack of decision-making authority within their large organizations, candidates were attracted by the prospect of owning the full P&L, functions team, and strategy in a smaller company.

In the final stage of the hiring process, the top three candidates presented their growth plans for PropertyGuru during a two-hour interview with Jani, me, and the board. The CXOs were involved and conducted background checks, including via back channels with team members, customers, and suppliers. We ultimately selected Hari Krishnan, who had successfully built and was leading LinkedIn’s Asia Pacific business. It turned out to be a great decision.

Key insight #4: Smooth leadership transitions require meticulous planning, transparency, and patience—before, during, and after the handover.

Tomas Laboutka: How did you ensure your new CEO fit within the culture of PropertyGuru? How did you prevent “organ rejection”?

Steve Melhuish: We implemented a three-step process to reduce this risk, which included coaching, a pre-handover soft landing, and post-handover founder support. We created a new chief business officer role, which owned all commercial aspects of the company, for Hari for the first nine months. Hari, Jani, and I also met weekly, and through this process we were able to accelerate learning and guide Hari on any historical or personnel issues.

This enabled Hari to accelerate his onboarding, deliver some wins, build credibility internally and with the board, and determine whether PropertyGuru was a good fit for him. At the same time, Jani, the board, and I had the opportunity to monitor progress against expectations, assess the cultural fit, and minimize risk before handing over the keys to the company.

We also hired an executive coach for the first four months of Hari’s tenure with PropertyGuru. This involved individual coaching for me, Jani, and Hari to help us manage any specific concerns and expectations. We later moved to group coaching sessions to bring out and address any bigger issues. It was a highly uncomfortable but highly valuable process.

After nine months, I announced my handover of the CEO role to Hari via a live broadcast to all PropertyGuru offices, followed up by an email and live town halls with all three of us in each of the five countries where the company operates.

We also reassured the team that Jani and I remained committed to the company and would continue working within the organization, as well as on the board of directors and as shareholders.

Over the next 12 months, I moved to the back seat, handing over responsibilities and decision making as Hari, Jani, and I continued to meet weekly to review progress and issues. By January 2018, I had handed over all operations and was able to shift into a half-time role working on strategy, M&A, and some key client relationships.

The transition process took three years and was incredibly smooth, thanks to a well-managed and phased approach, strong board support, as well as empathy and openness between Hari, Jani, and me.

Key insight #5: Planning a successful leadership transition also includes contingency plans for failure.

Tomas Laboutka: The leadership transition seems to have worked out quite well. You recently reported strong growth figures, and PropertyGuru is profitable. What if the transition hadn’t worked out? Did you have a contingency plan?

Steve Melhuish: Business momentum has continued throughout the process, and we recently reported strong annual results, with 24 percent revenue growth, 64 percent EBITDA growth, and an increased market leadership position across the five countries where PropertyGuru operates. The succession was a success. Hari and the team have done a great job building on the foundation created by Jani and me over the first ten years.

As with all plans, though, success is never guaranteed. Our contingency plan in case of failure was for Jani and me to step back into the business. Underpinning this possible scenario was the phased process over a three-year period, which included working full-time alongside the new CEO for 15 months after the formal announcement. After the CEO transition announcement, we remained fully engaged in the business. We were involved in leadership meetings and social activities with the CXOs, engaged with the wider team, held weekly meetings with the new CEO, and maintained full visibility of key priorities and challenges. This minimized the risks and also enabled Jani and me to assume leadership again at short notice, if necessary.

Key insight #6: Cutting the cord to a business you’ve poured years of your life in to building can be painful but also opens up exciting new opportunities.

Tomas Laboutka: Looking back, what was the most difficult aspect of the leadership transition and how did you resolve it?

Steve Melhuish: I’m grateful the transition process went smoothly, and the results speak for themselves. The most challenging aspect of the leadership transition was actually on a personal level. Despite initiating and driving the succession plan for more than two years beforehand, I struggled with turning over the reins, and it took me close to a year after the announcement to adjust to this new reality. I realized it was hard to just switch off and step back after ten intense years of building a business. I also discovered that I had an ego. I enjoyed leading the company, calling the shots, and being interviewed by the media. I missed social interactions with the team as well.

I struggled emotionally, had a crisis of confidence, and suffered from lack of purpose. It was during this time that my wife remarked, “You’ve achieved all you set out to do, but you are now more miserable than I’ve ever seen you. Do you want the CEO role back?” My answer to her was an emphatic “no.” My priorities had shifted, and I was determined to spend more time with my family, while thinking about “what next?” This started the process of my transitioning into a more positive mode.

Thankfully, I had amazing support from my wife and my Entrepreneurs’ Organization colleagues. I also received coaching from some fellow founders who’d been through similar experiences when exiting their start-ups.

I began meditating, exercising more, going on vacations, reengaging in the regional start-up scene, and investing time and money in the climate and social-impact space. Two years later, I’m having fun. My last ten angel investments have all been in the sustainability space, and I’m working with some inspiring start-ups, founders, investors, and organizations.

Source: McKinsey.com, October 15, 2020
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Talent retention and selection in M&A

Posted in Aktuellt, Board work / Styrelsearbete, Executive Team / Ledningsgruppsarbete, Leadership / Ledarskap on October 14th, 2020 by admin
Retaining critical talent and ensuring the right people are in key roles are essential to a successful merger.

An organization is only as good as its peopleas the adage goes. At no time is that more true than during a merger integration. A deal can create an opportunity to upgrade talent across the organization; in some cases, gaining access to highly skilled employees is the primary reason for an acquisition. Conversely, mismanaging talent issues can seriously affect the success of even a relatively straightforward transaction.

Organizations undergoing a merger need to tackle two core challenges around talent: how to retain people critical to the combined company’s performance and how to manage the employee selection and appointment process in a way that causes the least disruption and anxiety. Thorough preparation and management of both processes is paramount to achieving a merger’s goals. This article presents our insights into talent issues that arise during M&A and how to handle them to foster a smooth transition.

Understand your merger archetype

Managing talent in a merger integration should not follow a one-size-fits-all approach. Rather, the type of deal you pursue needs to guide how you go about employee retention and selection.

In the case of two organizations of similar size coming together in an approximate merger of equals, both the acquirer and the target company need to pay close attention to retaining key talent. This type of deal often happens during industry consolidations or when a company is trying to reinvent itself by acquiring a competitor with complementary products and customer relationships. While leadership teams tend to protect their own core cadres and corporate cultures, the focus here needs to be on keeping the people best suited to driving the combined company’s performance. Accordingly, a fair and transparent selection process is needed to avoid (real or perceived) biases or favoritism on the part of either legacy company.

When a larger, often better-performing company acquires a smaller or lower-performing firm that operates within its core business, employee selection tends to favor the acquirer’s incumbent talent. In such cases, the acquirer’s retention focus may be quite narrow, aimed at the best performers or employees deemed critical for maintaining business continuity.

In an acquisition involving the entry into a new business or market, the buyer’s talent retention focus will likely be quite different. Typically, retaining the target firm’s employees is essential to the deal’s value, and there is usually limited overlap between the target’s workforce and that of the acquiring company, aside from support functions.

Tailor your talent retention strategy

During the anxiety-filled period of merger negotiation and integration, talent deemed critical to the combined company’s future needs to receive special attention. Since talent flight can undermine performance, value creation, and both the near- and long-term success of the deal, organizations should develop talent retention plans as soon as possible—often before the acquisition is finalized.

The key steps in a talent retention program are determining its scope and approach, defining retention levers, and implementing and monitoring the results.

Determine retention scope and approach

In most merger scenarios, the vast majority of employees do not receive retention packages—typically, less than 2 percent of staff should receive such incentives. However, those few critical employees need to be identified quickly. They could have highly specialized and hard-to-access skills or knowledge vital to running the combined business (such as expertise in the legacy IT systems). They may be important for ensuring stability during the integration phase or they may be high performers essential to building the next phase of the combined organization.

For example, when a global medical device company acquired a small but fast-growing healthcare solutions firm, the target’s product innovation capabilities were a core reason for the deal. The acquirer’s CEO knew he had to move quickly to engage and retain the R&D team, so the head of the integration group promptly flew across the country to meet with the staff, reassure them about their roles in the future organization, and express the company’s enthusiasm for their product innovation plans. The integration leader also committed to ring-fencing the R&D team to allay their concerns that the multinational’s “bureaucracy” would stifle their activities. All the core innovation staff ended up remaining with the new company, with limited financial retention investment required.

It can be challenging to identify the most valuable individuals or know which ones represent a flight risk. Often, top leaders create lists of employees they feel are important to retain—a top-down approach that, being fast and simple, is well suited to mergers with short time frames and high potential for significant loss of talent. However, unless an organization had recently undertaken a talent-to-value exercise, top corporate leaders may lack a comprehensive understanding of the critical talent and roles in the company. As a result, the company may end up offering retention bonuses to too many people, some of whom do not hold essential roles, potentially causing integration cost overruns. Conversely, complex hierarchies or unconscious biases may shield top executives’ views of who really matters in the legacy company, leading to omissions in retention efforts that end up costing the combined company valuable capabilities.

A more comprehensive but time-consuming alternative is a bottom-up approach, which gathers input from multiple management tiers and combines it with other information, such as employee interviews, surveys, or social network analysis. While this provides leaders with a more detailed understanding of the talent they should try to retain—including people at lower levels of the organization—it is not always feasible given pre-close limitations on who can be engaged for input and what information the target company will provide.

A solution that balances the above two approaches is for the legacy heads of each function and the HR business partners of both organizations to nominate the 2 percent “critical talent” in each area—individuals in mission-critical roles, high performers, or those with strong future potential. The HR team can then vet the list with the CEO, the chief human resources officer (CHRO), and the integration leader to determine the need for retention incentives based on the impact and probability of each individual’s departure. (For more on identifying critical talent, see “Matching talent to value” and “Finding hidden leaders”.)

Define incentives

 

Talent-retention programs typically target critical employees the company believes it may lose with a mix of financial and nonfinancial incentives. While financial measures tend to be the first lever organizations turn to, this approach can be both expensive and often less effective than companies anticipate. Financial incentives are best used for addressing short-term needs, such as inducing a finance manager targeted for layoff to stay for a few months after merger close to help with the transition from legacy financial processes to new ones adopted by the combined company. Generally, however, organizations should lead with “soft” incentives such as praise, attention from leaders, and opportunities to take on more responsibility, all of which have proved to be more powerful at keeping talent motivated. A McKinsey survey of more than 1,400 integration executives, for example, reported that “praise and commendation from an immediate manager” was the most effective retention lever, scoring above performance-based cash bonuses and increases in base pay.

In general, incentives should be offered in waves rather than at one time, as not all essential employees will be immediately known to management. Additionally, leaders may find that some highly valued talent does not need special incentives to stay after the deal is announced.

Implement and monitor retention

Once companies have identified their critical talent and determined suitable incentive plans, they should waste no time in implementing the retention program. With financial incentives, it is usually best to conduct the program discreetly so as not to alienate those not offered incentives to stay. There is much less sensitivity around the many nonfinancial retention levers, such as opportunities to participate in training programs or invitations to lead projects, as these are common incentives or rewards for high-performing individuals. With both retention approaches, perceived fairness is critical. In particular, functional heads and HR staff need to be prepared to answer questions about the methodology and thoroughness of the process that determines which individuals receive financial bonuses.

Tracking the impact of the talent retention program is important, both as it applies to the overall workforce and employees identified as critical. Companies can use metrics such as unwanted attrition, turnover costs and employee satisfaction, and should be proactive in adapting the retention program in response to the findings. For instance, engagement surveys can deliver early alerts of declining staff morale, providing time to reengage select employees or employee groups before they decide to move on.

Selecting the right talent

Identifying the candidates for key positions in the combined company is a priority that HR leaders should start addressing even before the deal closes. From determining the selection criteria to communicating, implementing, and tracking outcomes, the decisions made at this stage will bear heavily on the integration’s success. This is particularly important in deals involving the merger of similarly sized firms as such situations require more finesse than other M&A integrations.

At a time when companies are competing for talent in a global arena, offering a positive employee experience—by enabling staff to create personalized, authentic workplaces that ignite their passion and give them purpose—is a key driver of retention, especially among millennials. Our research shows organizations that focus on employee experience as a core element of talent management have a 65 percent chance of achieving superior total returns to shareholders.

Designing, managing, and delivering a positive experience is especially important during the post-merger talent selection process—not only for employees offered positions but also for those not selected or who choose to leave. How the HR and integration teams treat the latter groups can have far-reaching effects on workplace morale and the company’s reputation as an employer of choice.

There are four core elements to ensuring that the selection process leaves a positive impression on all involved: designing a fair and transparent methodology, ensuring the process is well coordinated, managing stakeholder expectations, and effectively onboarding employees starting new positions. Most of these tasks are best handled by a central talent selection office.

 

Establish a fair and transparent process

“Will I have a job in the new organization?” During a merger, that is the primary concern of most employees, so step one in the talent selection process should be providing information. Defining how staffing choices will be made—including selection criteria, legal parameters, and timelines—and communicating this to the organization will help allay anxiety, as will an explicit commitment to fairness and transparency.

Naturally, the approach to selecting high-level executives (such as those reporting directly to the CEO) will differ from the one used for most of the workforce. While the executive selection process is often opaque to the broader organization, the outcomes send a message to all employees about the values and culture they will experience in the combined organization. For example, if the CEO only selects individuals from the acquiring company for the new management team, this may be interpreted as a signal that the acquirer’s employees will be favored for lower-level positions as well, creating the risk of critical talent leaving the acquired company.

Typically, at least the top two levels of leadership below the CEO are chosen before the deal closes, usually by the combined company’s chief executive, and the appointments are often subject to board approval. In selecting direct reports, the CEO should first focus on roles essential to maintaining business continuity along with those needed to fulfill the growth or transformation ambitions that motivated the acquisition. For example, if the CEO is moving from a sales-led geographic structure to a more matrixed brand structure, selecting a chief marketing officer should be a top priority, and if no sufficiently strong candidate is present at either organization, the company should quickly launch an external search. Furthermore, the new leadership team ideally should be introduced to the organization as a group rather than through appointment announcements over time, as a one-time transition in management will help lower uncertainty and distraction among employees.

For the rest of the staff, the selection principles and process should be communicated as soon as possible to reassure employees that the methodology will be consistent and equitable. The principles are typically developed by the CHRO, endorsed by the CEO, and shared with the employee base as the talent selection process kicks off. They may range from strategic, outcome-oriented goals (such as supporting and protecting the core businesses and enabling the vision for the combined company) to specific guidelines (for example, if a position in the new organization consists at least in half of new responsibilities, all eligible employees from both companies can apply for it).

What matters most is that the principles resonate with the organization and increase confidence in the process. They should address questions such as: What does the talent selection aim to achieve? Will employees from both companies receive equal consideration for positions? Who decides who will be offered positions in the merged company? And, will downgrades, grandfathering, relocation, trial periods, and other individual factors be part of the decisions?

The selection process also needs to establish “guardrails”: legal parameters by which decisions must abide, such as regulatory approvals, the WARN Act (for US businesses) and works council stipulations (for European businesses mostly) that apply to HR practices and may vary by role, geography, and timeframe (for example, pre-close, day one, and post-close). Such guardrails are typically shared only among HR employees responsible for defining and executing the selection process and with managers involved in conducting interviews or choosing talent for the new company. The parameters should be defined and disseminated as soon as possible after the deal is announced and reviewed regularly by the general counsel overseeing the integration.

Finally, management needs to define and communicate the criteria, process, and timeline for selections. These are often constrained by how quickly a company needs to make staffing decisions, how involved direct managers are in the process, and the availability and quality of talent assessment data. Typically, the criteria cover the following kinds of questions:

  • How do you define the talent pool eligible for each role in the new organization (for example, can potential candidates come from both legacy companies)? If someone is not selected for a CEO-2 role (reporting to a CEO’s direct report), can the individual be eligible for a CEO-3 role? Could he or she be offered positions in other parts of the company?
  • What guides the selection when multiple incumbent employees apply for a role?
  • What data (such as performance ratings or R&D patent applications) and other inputs (resumes, for example) are considered and how do you calibrate their relative importance given different practices in the legacy organizations and potential functional or individual biases?
  • For which roles will you conduct interviews or seek additional internal or external applicants, and how will you source external talent if needed?

In terms of schedule and time frame, the following questions should be answered:

  • Are you prioritizing talent selection by seniority and level of responsibility, or handling multiple employee tiers at once?
  • When will candidates be notified, when will new roles begin, and what will be the exit dates for those leaving?
  • Will the dates vary by office location or country?
  • What do HR business partners, managers, and other decision makers need to do, and by when, in order for candidates to be notified of selection outcomes by a certain date?

Establish a central office to coordinate selection

Deciding which employees should stay, go, or move to different roles is often a complex process involving many decision makers and urgent time pressures. If managed poorly, it can cause the new company to lose critical talent and capabilities, miss synergy targets, face business disruptions, and even risk lawsuits and reputational damage. What’s more, during the hectic integration period, the HR team often lacks the capacity to adequately support talent selection, especially as the department is likely undergoing its own functional integration. Creating a talent selection office (TSO)—a temporary, centralized command group—can improve the employee experience, produce better selection outcomes, and reduce potential legal risks.

A TSO is particularly valuable during large employee reorganizations driven by ambitious synergy targets and undertaken within short time frames. It can also play a vital role in ensuring exits happen quickly when one or both of the merging companies operate in multiple geographies or industries with complex labor laws or strong union relationships. For example, when one US-based company acquired a European firm of similar size with a significant number of employee overlaps across numerous regions and functions, it established a temporary TSO and placed a member of the target company in charge. Not only did the central TSO enable the combined organization to reach its synergy targets roughly six months ahead of schedule, but the choice of lead helped reassure the target company’s employees that the selection process would be fair to them.

As the command center, the TSO is responsible for guiding leaders involved in the selection process in how they manage organizational anxiety around potential head-count reductions. This includes instructing managers and job candidates on the interview and selection steps and timelines and coordinating with the communications team of the central integration management office (IMO), where appropriate, on responses to questions about the process. The TSO also ensures that the employee choices align with the new organization’s strategy, desired culture, and synergy objectives related to employees, and that the selection and retention processes adhere to the established principles and other guidelines.


Communicate with stakeholders

 

Typically, the TSO is also responsible for the third element of the selection process: managing stakeholder expectations. This can range from defining who will be consulted in talent selection decisions to helping managers conducting interviews understand how much time is required and when they need to commit. The TSO needs to become the “one source of truth,” tracking decisions in real time and making sure systems are updated promptly and accurately.

Doing this effectively requires regular communication among several stakeholder groups, including the IMO (to coordinate the timeline with other integration activities), employees involved (both those who interview or select candidates and the candidates themselves), the communications team (to align messaging related to talent, such as the announcement of a new leadership team), and finance and IT (to coordinate updates to HR management and payroll systems). The TSO also needs to be in close touch with the company’s HR partners to coordinate the execution of the selection process, as when new external employees are brought onboard.

Onboard employees into new jobs

Once talent selection is completed and announced, the talent team often thinks its job is done. However, the selected employees still need to be properly onboarded. Given the intense pace and workload before, during, and right after a merger, this crucial step is often neglected, leaving employees who start new jobs insufficiently prepared for the realities of the merged organization.

To avoid a decline in workforce performance and employee experience, the TSO should work with HR staff and line managers to define the onboarding requirements, at least for critical roles and talent. It should also solicit feedback from employees on their experience of the integration process and report that to the IMO.

Källa: McKinsey.com, October 2020
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De viktigaste trenderna i styrelserummet

Posted in Aktuellt, Board work / Styrelsearbete on August 18th, 2020 by admin

I slutet av 2019 genomförde Admincontrol en undersökning bland styrelseledamöter (där 963 styrelseledamöter svarade) i sex länder (Sverige, Norge, Danmark, Finland, Storbritannien och Nederländerna) för att kartlägga de viktigaste trenderna, förändringarna och utmaningarna i styrelserummet.
Detta har gett oss värdefulla insikter från framstående och erfarna styrelseledamöter.
Här har vi gjort en djupdykning i feedbacken och sammanfattat några av de viktigaste resultaten:

Styrelseledamöter vill prioritera IT-säkerhet, miljö, socialt ansvar och ägarstyrning (ESG) – och anser att digitala verktyg förenklar arbetsdagen

1: IT-säkerheten måste sättas högre upp på agendan

Något av det första som slog oss var att styrelseledamöterna som svarade på undersökningen är oroade över IT-säkerheten. 50 % av respondenterna anser nämligen att säkerhet bör sättas ÄNNU högre upp på agendan i företaget de sitter i styrelsen för.Det kommer inte som någon större överraskning att styrelseledamöter är måna om säkerheten. I en alltmer digitaliserad värld, där allt från företagens ekonomi till affärsprocesser är beroende av säkra och robusta lösningar, blir hotbilden mer och mer omfattande. Cyberattackerna kommer oftare, är listigare och orsakar mer skada än tidigare. Om man inte har bra och säkra system på plats är man naturligtvis mycket mer sårbar.Vi på Admincontrol har också märkt att våra kunder har blivit mer säkerhetsfokuserade de senaste åren, och att det är fler som använder säkra plattformar, t.ex. en styrelseportal, när de kommunicerar och delar känsliga dokument.

2: Tar samhällsansvaret på allvar
En annan trend vi kan utläsa av svaren från undersökningen är att flera av styrelseledamöterna är intresserade av Environmental, Social och Governance (ESG) – dvs frågor inom miljö, socialt ansvar och ägarstyrning. Glädjande nog svarade 69 procent av styrelseledamöterna att ESG-investeringar är viktigt för företaget de representerar.

3: Mer utmanande att vara styrelseledamot
Ett annat intressant resultat i undersökningen är att hälften av de tillfrågade svarar att det har blivit mer utmanande att vara styrelseledamot de senaste åren, och de uppger att arbetsuppgifterna har blivit allt mer tidskrävande.

I en mer utmanande styrelsevardag uppger 77 procent av respondenterna att en styrelseportal förenklar arbetsuppgifterna, och 83 procent påpekar att användningen av digitala verktyg ökar säkerheten, effektiviteten och kontrollen.

Hela 73 procent av styrelseledamöterna uppger att digitaliseringen generellt har gjort företaget de representerar mer effektivt.

77 procent av respondenterna uppger att en styrelseportal förenklar arbetsuppgifterna.

Sammanfattningsvis

De flesta styrelser är oroade över IT-säkerheten, och det bör flyttas ännu högre upp på agendan tillsammans med ESG. I en mer krävande och utmanande vardag är det vitalt att ha rätt digitala hjälpmedel och lösningar på plats för att trygga säkerheten, öka effektiviteten samt att digital kompetens även säkerställs i styrelserummet, bland ledamöterna. 

Källa: epost.realtid.se, augusti 2020
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Mer om Admincontroll här

Börschefers privatliv angår aktieägarna

Posted in Aktuellt, Allmänt, Board work / Styrelsearbete, Leadership / Ledarskap on August 10th, 2020 by admin
Skulle du köpa aktier i ett företag där vd:n kan misstänkas vara en tvångsmässig lögnare privat?

En ny bok med bäring på ett stort svenskt börsbolag visar på faran i att bländas av karismatiska företagsledare. Vd:n ska till exempel ha tillsatt en kompis till en hög chefspost trots att det fanns bättre lämpade kandidater.

Så sent som för ett par veckor sedan sparkades McDonald’s vd Stephen Easterbrook efter ett förhållande med en anställd, något som bröt mot företagets policy. För många år sedan träffade jag en förvaltare som helt hade slutat att ta personliga möten med vd:ar. Orsaken var att han alldeles för många gånger blivit så påverkad av direktörernas utstrålning att det grumlat omdömet och lett till misslyckade investeringar.

”En charmig vd är i princip omöjlig att stå emot”, suckade han.

En vd i ett stort börsbolag är i dag inte bara verksamhetschef utan också varumärkets främsta ansikte utåt, ett slags maskot som helst ska vara både siffersnille och estradör på en global arena. Men vad du ser hos en vd är inte alltid vad du får. En intressant studie i detta fenomen utgör boken ”En halv man” som kommit ut under hösten. Där skildrar den ensamstående läraren Åsa Ahlund sitt mångåriga förhållande med en hyllad svensk företagsledare, som i boken fått det fingerade namnet ”Anders”.

Två saker bör påpekas direkt: för det första är denna typ av bok per definition en partsinlaga där bara ena sidan får komma till tals. I alla mänskliga relationer finns minst två lika giltiga versioner. Trovärdigheten stärks dock av att stora delar av innehållet i boken vilar på en mycket omfattande sms-trafik.

Datum och händelser stämmer också, så långt Di kunnat kontrollera, med verkliga skeenden i de aktuella företagen. För det andra är ett trassligt privatliv, även utomäktenskapliga affärer, knappast unikt eller på något sätt olagligt. Det behöver inte betyda att vederbörande inte sköter sitt jobb på ett fläckfritt sätt. Det går att argumentera för att denna typ av uppgifter faller inom ramen för skvaller och borde stanna där.

Men det som kommer fram i ”En halv man” väcker allvarliga frågor om företagsledarens omdöme även i jobbsammanhang. Enligt boken berättar han exempelvis för Åsa Ahlund att han är på väg att byta jobb, något som mycket väl skulle kunna utgöra ett så kallat obehörigt röjande av insiderinformation, ett brott med fängelse i straffskalan.

”Anders” medger också enligt Åsa Ahlund att han tillsatt en kompis till en hög chefspost trots att det fanns bättre lämpade kandidater. Och han ger sin älskarinna nycklarna till sin tidigare arbetsgivares representationsvåning, ett misstänkt missbruk av aktieägarnas resurser för privata ändamål.

Det är uppgifter som en ansvarsfull styrelse inte bara kan vifta bort. Den fråga som borde gro hos en samvetsgrann styrelseledamot är: har ”Anders” även vid andra tillfällen handskats vårdslöst med insiderinformation eller företagets tillgångar?”

En knivigare, men ändå relevant fråga, handlar om karaktär. Hur sannolikt är det att en person som, om man ska tro boken, lever ett dubbelliv baserat på en strid ström av lögner, får en perfekt kalibrerad moralkompass så fort han kliver in genom dörren till vd-rummet? En individ som tar den typen av risker är också en tacksam måltavla för olika typer av utpressning, i värsta fall från främmande makt.

Att en vd:s privatliv i högsta grad kan bli en fråga för styrelse, ägare och aktiemarknad finns det gott om exempel på.

Så sent som för ett par veckor sedan sparkades McDonald’s vd Stephen Easterbrook efter ett förhållande med en anställd, något som bröt mot företagets policy. Renault och Nissan-bossen Carlos Ghosn dramatiska fall från stjärna till utpekad skurk handlar delvis om att han blandat ihop företagets pengar med sina egna.

Hur bolaget bör förhålla sig till uppgifterna om ”Anders” är upp till hans styrelse att avgöra. För alla andra är ”En halv man” en nyttig lektion i vikten av att inte hänga upp sina uppfattningar om företag för mycket på enskilda personer.

Vd:ar är inte robotar utan människor med styrkor och brister som alla andra. Ett skäl så gott som något att ägna lika mycket tid åt att plöja årsredovisningar som att lyssna på färgstarka företagsledare. Visst kan även siffror ljuga ibland, men eftersmaken blir inte lika bitter.

Källa: DI.se, 10 augusti 2020

Coronavirus: 15 emerging themes for boards and executive teams

Posted in Aktuellt, Allmänt, Board work / Styrelsearbete, Executive Team / Ledningsgruppsarbete on June 2nd, 2020 by admin
As Winston Churchill said, “Now this is not the end. It is not even the beginning of the end. But it is, perhaps, the end of the beginning.” We are seeing some faint signs of progress in the struggle to contain the pandemic. But the risk of resurgence is real, and if the virus does prove to be seasonal, the effect will probably be muted. It is likely never more important than now for boards of directors and executive management teams to tackle the right questions and jointly guide their organizations toward the next normal.Recently, we spoke with a group of leading nonexecutive chairs and directors at companies around the world who serve on the McKinsey Resilience Advisory Council, a group of external advisers that acts as a sounding board and inspiration for our latest thinking on risk and resilience. They generously shared the personal insights and experiences gained from their organizations’ efforts to manage through the crisis and resume work. The 15 themes that emerged offer a guide to boards and executive teams everywhere. Together, they can debate these issues and set an effective context for the difficult decisions now coming up as companies plan their return to full activity.

Managing through the crisis

1. Boards must strike the right balance between hope for the future and the realism that organizations need to hear. There are many prognostications on what comes after COVID-19. Many will be helpful. Some will be right. Boards and managers may have some hopes and dreams of their own. Creating value and finding pockets of growth are possible. It is important to have these aspirations, because they form the core of an inner optimism and confidence that organizations need. However, leaders should not conflate aspirations with a prescience about the future.

2. The unknown portion of the crisis may be beyond anything we’ve seen in our professional lives. Boards and managers feel like they might be grappling with only 5 percent of the issues, while the vast majority are still lurking, unknown. Executives are incredibly busy, fighting fires in cash management and other areas. But boards need to add to their burden and ask them to prepare for a “next normal” strategy discussion. Managers need to do their best to find out what these issues are, and then work with boards to ensure that the organization can navigate them. The point isn’t to have a better answer. The point is to build the organizational capability to learn quickly why your answer is wrong, and pivot faster than your peers do. Resilience comes through speed. This may be a new capability that very few organizations have now, and they will likely need to spend real time building it.

3. Beware of a gulf between executives and the rank and file. Top managers are easily adapting to working from home and to flexible, ill-defined processes and ways of working, and they see it as being very effective and also the wave of the future. Many people in the trenches think it is the worst thing to happen to them (even those that are used to working remotely). Remote working is raising the divide between elites and the common man and woman. There is a real risk of serious tension in the social fabric of organizations and in local and national communities.

4. Don’t overlook the risks faced by self-employed professionals, informal workers, and small businesses. These groups are often not receiving sufficient support. But their role in the economy is vital, and they may be noticed only later, when it is too late.

5. Certain industries and sectors are truly struggling and require support. Several disrupted industries and many organizations in higher education, the arts, and sports are severely struggling and require support to safeguard their survival.

Return to work—the path ahead

6. Mid- to long-term implications and scenarios vary considerably. It’s important to differentiate between industries and regions. Some industries may never come back to pre-COVID-19 levels.

7. What went wrong? Boards and executives, but also academics, need to debate the question. Where should we have been focusing? Take three examples. Why did companies ignore the issue of inadequate resilience in their supply chain? The risks of single sourcing were well known and transparent. Also, why did we move headlong toward greater specialization in the workforce, when we knew that no single skill was permanently valuable? Finally, why did we refuse to evolve our business models, although we knew that technology and shifts in societal preferences were forcing us down a treadmill of ever decreasing value-creation potential?

8. How can we prevent a backlash to globalization? The tendency toward nationalism was already strong and is growing during the crisis. The ramifications will be challenging. For example, in pharmaceutical development, residents of the country where a pharma company has its headquarters may expect to get the drug first. Global companies, despite their experience, may find it harder to address and engage directly with diverse, volatile, and potentially conflicting stakeholders. In such times, societies may need someone to mediate between the private sector and some of these stakeholders.

9. Companies need help with government relations. Strong government interventions are occurring on the back of a serious loss of confidence in free-market mechanisms. There is little question that different governments will land on different answers to the debate around how free markets really ought to be structured. The corporate community has been thrust into a new relationship with government, and it is struggling. The government landscape is fragmented, with highly varied approaches and competencies. Companies are looking for a playbook; no one has an infrastructure to manage this complexity.

10. Where will the equity come from, and with what strings attached? Governments are propping up various sectors with new capital. What will they receive in return? Will they distort markets? How can companies manage this process carefully to emerge from the crisis with a stronger balance sheet? Further, much more capital is likely needed; presumably some of it will come from the private sector. Will capital markets be effective and trusted in such times? Who governs this overall process, and what role should the government play? Is it the time for more state funds?

11. The balance between profits and cash flow is tricky, and essential to get right. Many companies are caught right now and are sacrificing their bottom line in order to pay for their financing. That’s not sustainable; companies will need guidance on how to balance the two.

12. It may be time for responsible acquisitions, including to help restructure certain industries. Many “resilients” have “kept their powder dry,” and are now ready to acquire. But they need to be sensitive and allow sellers a good path to exit. We need guidelines for responsible acquisitions.

13. Cyberrisk is growing. Remote working increases the “attack surface” for criminals and state actors. Both are more active. Chief information officers and chief information security officers are grappling with the overwhelming demand for work-from-home technology and the need for stringent cybersecurity.

14. Innovation may never have been so important. Innovation has always been essential to solving big problems. The world is looking not just for new things but also for new ways of doing things (especially on the people side, where we need new behaviors, long-term rather than short-term), capabilities, and work ethics.

15. The path ahead will surely have ups and downs and will require resilience. As lockdowns are relaxed, and segments of the economy reopen, viral resurgences and unforeseen events will keep growth from being a straight line going up. It will likely be a lengthy process of preserving “lives and livelihoods” over several months, if not years. The reality is that many or even most business leaders made choices over the past decades that traded resilience for a perceived increase in shareholder value. Now may be the moment to consider that the era of chipping away at organizational resilience in the name of greater efficiency may have reached its limits. This is not to say that there are no efficiencies to be sought or found, but more that the trade-off between efficiency and resiliency needs to be defined far more clearly than it has been in recent years.


It is the board’s responsibility to coach and advise its management team, especially when the terrain is trickier than usual. However, boards should not mistake the need for vigorous debate with the need for consensus. More than ever, a bias to action is essential, which will frequently mean getting comfortable with disagreement. Apart from all the operational focus needed for the return to work, it is even more important that boards and management teams take a step back to reflect upon these 15 core themes. In summary:

  1. Take the time to recognize how the people who (directly or indirectly) depend on the company feel.
  2. Have aspirations about the post-COVID world, but build the resilience to make them a reality.
  3. Strengthen your capability to engage and work with regulators and the government.
  4. Watch out for non-COVID risks, and make sure to carve out time to dedicate to familiar risks that have never gone away.
  5. Find out what went wrong, and answer the uncomfortable truths that investigation uncovers
Source: McKinsey.com, June 2, 2020
Link
About the author(s): Cindy Levy is a senior partner in McKinsey’s London office,
Jean-Christophe Mieszala is a senior partner and the global chief risk officer 
in the Paris office, Mihir Mysore is a partner in the Houston office, and 
Hamid Samandari is a senior partner in the New York office

From thinking about the next normal to making it work: What to stop, start, and accelerate

Posted in Aktuellt, Allmänt, Board work / Styrelsearbete, Executive Team / Ledningsgruppsarbete on May 16th, 2020 by admin

What’s next? That is the question everyone is asking. The future is not what we thought it would be only a few short months ago.

In a previous article, we discussed seven broad ideas that we thought would shape the global economy as it struggled to define the next normal. In this one, we set out seven actions that have come up repeatedly in our discussions with business leaders around the world. In each case, we discuss which attitudes or practices businesses should stop, which they should start, and which they should accelerate.

1. From ‘sleeping at the office’ to effective remote working

Stop assuming that the old ways will come back

In fact, this isn’t much of a problem. Most executives we have spoken to have been pleased at how well the sudden increase in remote working has gone. At the same time, there is some nostalgia for the “good old days,” circa January 2020, when it was easy to bump into people at the coffee room. Those days are gone. There is also the risk, however, that companies will rely too much on remote working. In the United States, more than 70 percent of jobs can’t be done offsite. Remote work isn’t a panacea for today’s workplace challenges, such as training, unemployment, and productivity loss.

Start thinking through how to organize work for a distributed workforce

Remote working is about more than giving people a laptop. Some of the rhythms of office life can’t be recreated. But the norms associated with traditional work—for example, that once you left the office, the workday was basically done—are important. As one CEO told us, “It’s not so much working from home; rather, it’s really sleeping at the office.”

For working from home to be sustainable, companies need to help their staff create those boundaries: the kind of interaction that used to take place in the hallway can be taken care of with a quick phone call, not a videoconference. It may also help to set “office hours” for particular groups, share tips on how to track time, and announce that there is no expectation that emails will be answered after a certain hour.

Accelerate best practices around collaboration, flexibility, inclusion, and accountability

Collaboration, flexibility, inclusion, and accountability are things organizations have been thinking about for years, with some progress. But the massive change associated with the coronavirus could and should accelerate changes that foster these values.

Office life is well defined. The conference room is in use, or it isn’t. The boss sits here; the tech people have a burrow down the hall. And there are also useful informal actions. Networks can form spontaneously (albeit these can also comprise closed circuits, keeping people out), and there is on-the-spot accountability when supervisors can keep an eye from across the room. It’s worth trying to build similar informal interactions. TED Conferences, the conference organizer and webcaster, has established virtual spaces so that while people are separate, they aren’t alone. A software company, Zapier, sets up random video pairings so that people who can’t bump into each other in the hallway might nonetheless get to know each other.

There is some evidence that data-based, at-a-distance personnel assessments bear a closer relation to employees’ contributions than do traditional ones, which tend to favor visibility. Transitioning toward such systems could contribute to building a more diverse, more capable, and happier workforce. Remote working, for example, means no commuting, which can make work more accessible for people with disabilities; the flexibility associated with the practice can be particularly helpful for single parents and caregivers. Moreover, remote working means companies can draw on a much wider talent pool.

2. From lines and silos to networks and teamwork

Stop relying on traditional organizational structures

“We used to have all these meetings,” a CEO recently told us. “There would be people from different functions, all defending their territory. We’d spend two hours together, and nothing got decided. Now, all of those have been cancelled—and things didn’t fall apart.” It was a revelation—and a common one. Instead, the company put together teams to deal with COVID-19-related problems. Operating with a defined mission, a sense of urgency, and only the necessary personnel at the table, people set aside the turf battles and moved quickly to solve problems, relying on expertise rather than rank.

Start locking in practices that speed up decision making and execution during the crisis

The all-hands-on-deck ethos of a pandemic can’t last. But there are ways to institutionalize what works—and the benefits can be substantial. During and after the 2008 financial crisis, companies that were in the top fifth in performance were about 20 percentage points ahead of their peers. Eight years later, their lead had grown to 150 percentage points. The lesson: those who move earlier, faster, and more decisively do best.

Accelerate the transition to agility

We define “agility” as the ability to reconfigure strategy, structure, processes, people, and technology quickly toward value-creating and value-protecting opportunities. In a 2017 McKinsey survey, agile units performed significantly better than those who weren’t agile, but only a minority of organizations were actually performing agile transformations. Many more have been forced to do so because of the current crisis—and have seen positive results.

Agile companies are more decentralized and depend less on top-down, command-and-control decision making. They create agile teams, which are allowed to make most day-to-day decisions; senior leaders still make the big-bet ones that can make or break a company. Agile teams aren’t out-of-control teams: accountability, in the form of tracking and measuring precisely stated outcomes, is as much a part of their responsibilities as flexibility is. The overarching idea is for the right people to be in position to make and execute decisions.

One principle is that the flatter decision-making structures many companies have adopted in crisis mode are faster and more flexible than traditional ones. Many routine decisions that used to go up the chain of command are being decided much lower in the hierarchy, to good effect. For example, a financial information company saw that its traditional sources were losing their value as COVID-19 deepened. It formed a small team to define company priorities—on a single sheet of paper—and come up with new kinds of data, which it shared more often with its clients. The story illustrates the new organization paradigm: empowerment and speed, even—or especially—when information is patchy.

Another is to think of ecosystems (that is, how all the parts fit together) rather than separate units. Companies with healthy ecosystems of suppliers, partners, vendors, and committed customers can find ways to work together during and after times of crisis because those are relationships built on trust, not only transactions.

Finally, agility is just a word if it isn’t grounded in the discipline of data. Companies need to create or accelerate their analytics capabilities to provide the basis for answers—and, perhaps as important, allow them to ask the right questions. This also requires reskilling employees to take advantage of those capabilities: an organization that is always learning is always improving.

3. From just-in-time to just-in-time and just-in-case supply chains

Stop optimizing supply chains based on individual component cost and depending on a single supply source for critical materials

The coronavirus crisis has demonstrated the vulnerability of the old supply-chain model, with companies finding their operations abruptly halted because a single factory had to shut down. Companies learned the hard way that individual transaction costs don’t matter nearly as much as end-to-end value optimization—an idea that includes resilience and efficiency, as well as cost. The argument for more flexible and shorter supply chains has been building for years. In 2004, an article in the McKinsey Quarterly noted that it can be better to ship goods “500 feet in 24 hours [rather than] shipping them 5,000 miles across logistical and political boundaries in 25 days … offshoring often isn’t the right strategy for companies whose competitive advantage comes from speed and a track record of reliability.”  

Start redesigning supply chains to optimize resilience and speed

Instead of asking whether to onshore or offshore production, the starting point should be the question, “How can we forge a supply chain that creates the most value?” That will often lead to an answer that involves neither offshoring nor onshoring but rather “multishoring”—and with it, the reduction of risk by avoiding being dependent on any single source of supply.

Speed still matters, particularly in areas in which consumer preferences change quickly. Yet even in fashion, in which that is very much the case, the need for greater resilience is clear. In a survey conducted in cooperation with Sourcing Journal subscribers, McKinsey found that most fashion-sourcing executives reported that their suppliers wouldn’t be able to deliver all their orders for the second quarter of 2020. To get faster means adopting new digital-planning and supplier-risk-management tools to create greater visibility and capacity, capability, inventory, demand, and risk across the value chain. Doing so enables companies to react well to changes in supply or demand conditions.

One area of vulnerability the current crisis has revealed is that many companies didn’t know the suppliers their own suppliers were using and thus were unable to manage critical elements of their value chains. Companies should know where their most critical components come from. On that basis, they can evaluate the level of risk and decide what to do, using rigorous scenario planning and bottom-up estimates of inventory and demand. Contractors should be required to show that they have risk plans (including knowing the performance, financial, and compliance record of all their subcontractors, as well as their capacity and inventories) in place.

Accelerate ‘nextshoring’ and the use of advanced technologies

In some critical areas, governments or customers may be willing to pay for excess capacity and inventories, moving away from just-in-time production. In most cases, however, we expect companies to concentrate on creating more flexible supply chains that can also operate on a just-in-case approach. Think of it as “nextshoring” for the next normal.

For example, the fashion industry expects to shift some sourcing from China to other Asian countries, Central America, and Eastern Europe. Japanese carmakers and Korean electronics companies were considering similar actions before the coronavirus outbreak. The state-owned Development Bank of Japan is planning to subsidize companies’ relocation back to Japan, and some Western countries, including France, are looking to build up domestic industries for critical products, such as pharmaceuticals. Localizing supply chains and creating more collaborative relationships with critical suppliers—for example, by helping them build their digital capabilities or share freight capacity—are other ways to build long-term resilience and flexibility.

Nextshoring in manufacturing is about two things. The first is to define whether production is best placed near customers to meet local needs and accommodate variations in demand. The second is to define what needs to be done near innovative supply bases to keep up with technological change. Nextshoring is about understanding how manufacturing is changing (in the use of digitization and automation, in particular) and building the trained workforce, external partnerships, and management muscle to deliver on that potential. It is about accelerating the use of flexible robotics, additive manufacturing, and other technologies to create capabilities that can shift output levels and product mixes at reasonable cost. It isn’t about optimizing labor costs, which are usually a much smaller factor—and sometimes all but irrelevant.

4. From managing for the short term to capitalism for the long term

Stop quarterly earnings estimates

Because of the unprecedented nature of the pandemic, the percentage of companies providing earnings guidance has fallen sharply—and that’s a good thing. The arguments against quarterly earnings guidance are well known, including that they create the wrong incentives by rewarding companies for doing harmful things, such as deferring capital investment and offering massive discounts that boost sales to make the revenue numbers but hurt a company’s pricing strategy.

Taking such actions may stave off a quick hit to the stock price. But while short-term investors account for the majority of trades—and often seem to dominate earnings calls and internet chatrooms—in fact, seven of ten shares in US companies are owned by long-term investors. By definition, this group, which we call “intrinsic investors”—look well beyond any given quarter, and deeper than such quick fixes. Moreover, they have far greater influence on a company’s share price over time than the short-term investors who place such stock in earnings guidance.

Moreover, the conventional wisdom that missing an estimate means immediate retribution is not always true. A McKinsey analysis found that in 40 percent of the cases, the share prices of companies that missed their consensus earnings estimates actually rose. Finally, an analysis of 615 US public companies from 2001 to 2015 found that those characterized as “long-term oriented” outperformed their peers in earnings, revenue growth, and market capitalization. Even as a way of protecting equity value, then, earnings guidance is a flawed tool. And, of course, there can be no bad headlines about missed estimates if there are no estimates to miss.

Along the same lines, stop assuming that pursuing shareholder value is the only goal. Yes, businesses have fundamental responsibilities to make money and to reward their investors for the risks they take. But executives and workers are also citizens, parents, and neighbors, and those parts of their lives don’t stop when they clock in. In 2009, in the wake of the financial crisis, former McKinsey managing partner Dominic Barton argued that there is no “inherent tension between creating value and serving the interests of employees, suppliers, customers, creditors, communities, and the environment. Indeed, thoughtful advocates of value maximization have always insisted that it is long-term value that has to be maximized.” 2 We agree, and since then, evidence has accumulated that businesses with clear values that work to be good citizens create superior value for shareholders over the long run.

Start focusing on leadership and working with partners to create a better future

McKinsey research defines the “long term” as five to seven years: the period it takes to start and build a sustainable business. That period isn’t that long. As the current crisis proves, huge changes can take place in much shorter time frames.

One implication is that boards, in particular, should start to think about just how fast, and when, to replace their CEOs. The average tenure of a CEO at a large-cap company is now about five years, down from ten years in 1995. A recent Harvard Business Review study of the world’s top CEOs found that their average tenure was 15 years. 3 One critical factor: close and constant communication with their boards allowed them to get through a rough patch and go on to lead long-term success.

Like Adam Smith, we believe in the “invisible hand”—the idea that self-interest plus the network of information (such as the price signal) that helps economies work efficiently are essential to creating prosperity. But Adam Smith also considered the rule of law essential and saw the goal of wealth creation as creating happiness: “What improves the circumstances of the greater part can never be regarded as an inconveniency to the whole. No society can surely be flourishing and happy, of which the far greater part of the members are poor and miserable.” 4 A more recent economist, Nobel laureate Amartya Sen, updated the idea for the 21st century, stating that the invisible hand of the market needs to be balanced by the visible hand of good governance.

Given the trillions of dollars and other kinds of support that governments are providing, governments are going to be deeply embedded in the private sector. That isn’t an argument for overregulation, protectionism, or general officiousness—things that both Smith and Sen disdained. It is a statement of fact that business needs to work ever more closely with governments on issues such as training, digitization, and sustainability.

Accelerate the reallocation of resources and infrastructure investment

Business leaders love words like “flexible,” “agile,” and “innovative.” But a look at their budgets shows that “inertia” should probably get more attention. Year to year, companies only reallocate 2 to 3 percent of their budgets. But those that do more—on the order of 8 to 10 percent—create more value. In the coronavirus era, the case for change makes itself. In other areas, companies can use this sense of urgency to change the way they put together their budgets. Sales teams, for example, are used to getting new targets based on the prior year’s results. A better approach is to define the possible, based on metrics such as market size, current market share, sales-force size, and how competitive the market is. On that basis, a company can estimate sales potential and budget accordingly.

In previous economic transitions, infrastructure meant things such as roads and pipelines. In democratic societies, governments generally drew up the plans and established safety and other regulations, and the private sector did the actual building. Something similar needs to happen now, in two areas. One is the irresistible rise of digital technologies. Those without access to reliable broadband are being left out of a sizable and surging segment of the economy; there is a clear case for creating a robust, universal broadband infrastructure.

The second has to do with the workforce. In 2017, the McKinsey Global Institute estimated that as much as a third of workplace activities could be automated by 2030. To avoid social upheaval—more high-wage jobs but fewer middle-class ones—displaced workers need to be retrained so that they can find and succeed in the new jobs that will emerge. The needs, then, are for more midcareer job training and more effective on-the-job training. For workers, as well as businesses, agility is going to be a core skill—one that current systems, mostly designed for a different era, aren’t very good at.

5. From making trade-offs to embedding sustainability

Stop thinking of environmental management as a compliance issue

Environmental management is a core management and financial issue. Lloyds Bank, the British insurer, estimated that sea-level rises in New York increased insured losses from Hurricane Sandy in 2012 by 30 percent; a different study found that the number of British properties at risk of significant flooding could double by 2035. Ignore these and similar warnings—about cyclones or extreme heat, for example—and watch your insurance bills rise, as they did in Canada after wildfires in 2016. Investors are noticing too. In Larry Fink’s most recent letter to CEOS, the BlackRock CEO put it bluntly: “Climate risk is investment risk.” 5 He noted that investors are asking how they should modify their portfolios to incorporate climate risk and are reassessing risk and asset values on that basis.

Start considering environmental strategy as a source of resilience and competitive advantage

The COVID-19 pandemic froze supply chains around the world, including shutting down much of the United States’ meat production. Rising climate hazards could lead to similar shocks to global supply chains and food security. In some parts of Brazil, the usual two-crop growing season may eventually only yield a single crop.

As companies reengineer their supply chains for resilience, they also need to consider environmental factors—for example, is a region already prone to flooding likely to become more so as temperatures rise? One of the insights of a McKinsey climate analysis published in January is that climate risks are unevenly distributed, with some areas already close to physical and biological tipping points. Where that is the case, companies may need to think about how to mitigate the possible harm or perhaps going elsewhere. The principle to remember is that it is less expensive to prepare than to repair or retrofit. In January 2018, the National Institute for Building Sciences estimated spending $1 to build resilient infrastructure saved $6 in future costs. 6 To cope with the COVID-19 pandemic, companies have shortened their supply chains, switched to more videoconferencing, and introduced new production processes. Consider how these and other practices might be continued; they can help make companies more environmentally sustainable, as well as more efficient.

Second, it makes sense to start thinking about the possible similarities between the coronavirus crisis and long-term climate change. The pandemic has created simultaneous shocks to supply chains, consumer demand, and the energy sector; it has hit the poor harder; and it has created serious knock-on effects. The same is likely to be true for climate change. Moreover, rising temperatures could also increase the toll of contagious diseases. It could be argued, then, that mitigating climate change is as much a global public-health issue as dealing with COVID-19 is.

The coronavirus crisis has been a sudden shock that essentially hit the world all at once—what we call “contagion risk.” Climate change is on a different time frame; the dangers are building (“accumulation risk”). In each case, however, resilience and collaboration are essential.

Accelerate investment in innovation, partnerships, and reporting

As usual, information is the foundation for action. A data-driven approach can illuminate the relative costs of maintaining an asset, adapting it—for example, by building perimeter walls or adding a backup power supply—or investing in a new one. It is as true for the environment as any part of the value chain that what gets measured gets managed. This entails creating sound, sophisticated climate-risk assessments; there is no generally accepted standard at the moment, but there are several works in progress, such as the Sustainability Accounting Standards Board.

The principle at work is to make climate management a core corporate capability, using all the management tools, such as analytics and agile teams, that are applied to other critical tasks. The benefits can be substantial. One study found that companies that reduced their climate-change-related emissions delivered better returns on equity—not because their emissions were lower, but because they became generally more efficient. The correlation between going green and high-quality operations is strong, with numerous examples of companies (including Hilton, PepsiCo, and Procter & Gamble), setting targets to reduce use of natural resources and ending up saving significant sums of money.

It’s true that, given the scale of the climate challenge, no single company is going to make the difference. That is a reason for effort, not inaction. Partnerships directed at cracking high-cost-energy alternatives, such as hydrogen and carbon capture, are one example. Voluntary efforts to raise the corporate game as a whole, such as the Task Force on Climate-related Financial Disclosures, are another.

6. From online commerce to a contact-free economy

Stop thinking of the contactless economy as something that will happen down the line

The switch to contactless operations can happen fast. Healthcare is the outstanding example here. For as long as there has been modern healthcare, the norm has been for patients to travel to an office to see a doctor or nurse. We recognize the value of having personal relationships with healthcare professionals. But it is possible to have the best of both worlds—staff with more time to deal with urgent needs and patients getting high-quality care.

In Britain, less than 1 percent of initial medical consultations took place via video link in 2019; under lockdown, 100 percent are occurring remotely. In another example, a leading US retailer in 2019 wanted to launch a curbside-delivery business; its plan envisioned taking 18 months. During the lockdown, it went live in less than a week—allowing it to serve its customers while maintaining the livelihoods of its workforce. Online banking interactions have risen to 90 percent during the crisis, from 10 percent, with no drop-off in quality and an increase in compliance while providing a customer experience that isn’t just about online banking. In our own work, we have replaced on-site ethnographic field study with digital diaries and video walk-throughs. This is also true for B2B applications—and not just in tech. In construction, people can monitor automated earth-moving equipment from miles away.

Start planning how to lock in and scale the crisis-era changes

It is hard to believe that Britain would go back to its previous doctor–patient model. The same is likely true for education. With even the world’s most elite universities turning to remote learning, the previously common disdain for such practices has diminished sharply. There will always be a place for the lecture hall and the tutorial, but there is a huge opportunity here to evaluate what works, identify what doesn’t, and bring more high-quality education to more people more affordably and more easily. Manufacturers also have had to institute new practices to keep their workers at work but apart—for example, by organizing workers into self-contained pods, with shift handovers done virtually; staggering production schedules to ensure that physically close lines run at different times; and by training specialists to do quality-assurance work virtually. These have all been emergency measures. Using digital-twin simulation—a virtual way to test operations—can help define which should be continued, for safety and productivity reasons, as the crisis lessens.

Accelerate the transition of digitization and automation

“Digital transformation” was a buzz phrase prior to the coronavirus crisis. Since then, it has become a reality in many cases—and a necessity for all. The consumer sector has, in many cases, moved fast. When the coronavirus hit China, Starbucks shut down 80 percent of its stores. But it introduced the “Contactless Starbucks Experience” in those that stayed open and is now rolling it out more widely. Car manufacturers in Asia have developed virtual show rooms where consumers can browse the latest models; these are now becoming part of what they see as a new beginning-to-end digital journey. Airlines and car-rental companies are also developing contactless consumer journeys.

The bigger opportunity, however, may be in B2B applications, particularly in regard to manufacturing, where physical distancing can be challenging. In the recent past, there was some skepticism about applying the Internet of Things (IoT) to industry. Now, many industrial companies have embraced IoT to devise safety strategies, improve collaboration with suppliers, manage inventory, optimize procurement, and maintain equipment. Such solutions, all of which can be done remotely, can help industrial companies adjust to the next normal by reducing costs, enabling physical distancing, and creating more flexible operations. The application of advanced analytics can help companies get a sense of their customers’ needs without having to walk the factory floor; it can also enable contactless delivery.

7. From simply returning to returning and reimagining

Stop seeing the return as a destination

The return after the pandemic will be a gradual process rather than one determined by government publicizing a date and declaring “open for business.” The stages will vary, depending on the sector, but only rarely will companies be able to flip a switch and reopen. There are four areas to focus on: recovering revenue, rebuilding operations, rethinking the organization, and accelerating the adoption of digital solutions. In each case, speed will be important. Getting there means creating a step-by-step, deliberate process.

Start imagining the business as it should be in the next normal

For retail and entertainment venues, physical distancing may become a fact of life, requiring the redesign of space and new business models. For offices, the planning will be about retaining the positives associated with remote working. For manufacturing, it will be about reconfiguring production lines and processes. For many services, it will be about reaching consumers unused to online interaction or unable to access it. For transport, it will be about reassuring travelers that they won’t get sick getting from point A to point B. In all cases, the once-routine person-to-person dynamics will change.

Accelerate digitization

Call it “Industry 4.0” or the “Fourth Industrial Revolution.” Whatever the term, the fact is that there is a new and fast-improving set of digital and analytic tools that can reduce the costs of operations while fostering flexibility. Digitization was, of course, already occurring before the COVID-19 crisis but not universally. A survey in October 2018 found that 85 percent of respondents wanted their operations to be mostly or entirely digital but only 18 percent actually were. Companies that accelerate these efforts fast and intelligently, will see benefits in productivity, quality, and end-customer connectivity. And the rewards could be huge—as much as $3.7 trillion in value worldwide by 2025.

McKinsey and the World Economic Forum have identified 44 digital leaders, or “lighthouses,” in advanced manufacturing. These companies created whole new operating systems around their digital capabilities. They developed new use cases for these technologies, and they applied them across business processes and management systems while reskilling their workforce through virtual reality, digital learning, and games. The lighthouse companies are more apt to create partnerships with suppliers, customers, and businesses in related industries. Their emphasis is on learning, connectivity, and problem solving—capabilities that are always in demand and that have far-reaching effects.

Not every company can be a lighthouse. But all companies can create a plan that illuminates what needs to be done (and by whom) to reach a stated goal, guarantee the resources to get there, train employees in digital tools and cybersecurity, and bring leadership to bear. To get out of “pilot purgatory”—the common fate of most digital-transformation efforts prior to the COVID-19 crisis—means not doing the same thing the same way but instead focusing on outcomes (not favored technologies), learning through experience, and building an ecosystem of tech providers.

Businesses around the world have rapidly adapted to the pandemic. There has been little hand-wringing and much more leaning in to the task at hand. For those who think and hope things will basically go back to the way they were: stop. They won’t. It is better to accept the reality that the future isn’t what it used to be and start to think about how to make it work.

Hope and optimism can take a hammering when times are hard. To accelerate the road to recovery, leaders need to instill a spirit both of purpose and of optimism and to make the case that even an uncertain future can, with effort, be a better one.

Source: McKinsey.com, May 15, 2020
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Authors: Kevin Sneader, the global managing partner of McKinsey, is based in McKinsey’s Hong Kong office; Shubham Singhal, the global leader of the Healthcare Systems & Services Practice, is a senior partner in the Detroit office.

Boards in the time of coronavirus

Posted in Aktuellt, Board work / Styrelsearbete on April 21st, 2020 by admin

Boards need to step up their game and guide their organizations toward the next normal.

Never before have CEOs and their teams been more in need of the foresight and seasoned judgment that a well-functioning board of directors can provide. Likewise, never before have boards needed more carefully to balance providing support to management teams operating in highly stressful conditions with challenging them to ensure that they make the best decisions throughout a crisis for which no playbook exists. This may well turn out to be the moment when your board proves its value—or shows its flaws.

In a recent article, our colleagues have called on management to act across five stages—Resolve, Resilience, Return, Reimagination, and Reform—both to address the immediate crisis and to prepare for the next normal after the battle against coronavirus has been won. At the same time, many board chairs and CEOs are looking for guidance on what role boards should play in these challenging times (for highlights, see “Boards of directors in the tunnel of the coronavirus crisis”).

Just as every organization faces different challenges during this crisis—some are reaching new levels of growth, while others are struggling to survive—there is no one-size-fits-all answer for what a board should do. While management teams focus on making rapid decisions to protect employees, address customers’ needs, and communicate with stakeholders, boards need to balance oversight of the crisis response with thinking beyond the immediate challenges. Time is a scarce asset for most board directors, requiring them to make deliberate choices about where they focus their attention.

In hindsight, the early 21st century may be seen as divided into two periods: the time before the coronavirus outbreak and the postpandemic era. That era could be characterized by different consumer behaviors, new ways of working, altered industry structures, and value pools redistributed across existing and new ecosystems. What does that imply for your organization and for your board?

Resolve and Resilience: Support through the crisis

Everyone is looking to an organization’s leaders to serve as role models in protecting people’s health and safety while acting decisively and with purpose amid chaos. The board’s priority should be to support the management team’s crisis response without encroaching on its operating role while also safeguarding longer-term shareholder and stakeholder interests. Management needs board directors to act as both sparring partners and empathetic counselors at a time when many leaders are seeking candid advice and personal support.

Ensure that management adopts a scalable crisis operating model

Your organization likely already has a crisis-response team in place. The team takes care of employee safety, shores up the balance sheet, and interacts with suppliers and customers to ensure business continuity. But that is not enough. The scale of the economic crisis that is unfolding is unprecedented in living memory. Organizations need a crisis operating model that can scale as issues escalate, with a plan-ahead team that develops strategic responses to multiple scenarios across all time horizons. Boards should frequently review and discuss the strategic crisis-action plans that plan-ahead teams develop to stay ahead of the evolving crisis.

 

Augment leadership capacity

A board can ease the pressure on the management team by reviewing communication plans and reputation-management strategies and engaging with select external stakeholders. Importantly, directors should help manage investor expectations in light of financial decisions, such as dividend cuts and changes to share-buyback programs, that may draw negative reactions. And since COVID-19 may affect board directors or managers personally, establishing clear succession and leadership contingency plans is more critical than ever.

Strengthen decision making by sharing crisis-management experience

Board directors with experience in managing external shocks, such as the aftermath of the 9/11 attacks and the 2008–09 financial crisis, will be particularly valuable sounding boards for a management team as it crafts response plans amid high uncertainty. Board directors’ insights from earlier crisis situations can help them constructively challenge business-continuity plans, for example, or supply-chain strategies. That said, the current crisis is uncharted terrain for all executives, making intuition and experience unreliable guides and cognitive biases particularly dangerous. As such, boards should urge management to use techniques such as red and blue teams or premortems to ensure that their decisions weigh all relevant factors.

Balance short-term and long-term priorities

While a board needs to protect all shareholders’ and stakeholders’ interests by weighing key operational risks and ensuring effective cash management and financial stability, it cannot lose sight of the organization’s long-term priorities, even as it focuses on short-term crisis response. Preserving the foundation of the organization’s competitive advantage, such as maintaining investments in a digital transformation or customer-experience improvements, should be a key point of board attention.

Return: Lead into the reconstruction phase

As business conditions start to stabilize, a board should strive to lift management’s ambitions and position the organization to ride the waves of uncertainty rather than be overpowered by them. The severity of the disruption of this crisis suggests that the path out will feel more like a reconstruction than a recovery. Boards can add value by pushing early for scenarios and robust plans to be prepared for the reconstruction phase.

Engage on major decisions

As employees start coming back to work, a board should confirm that effective health and safety protocols are in place and continue to oversee management’s integrated action plans. Some decisions are more complicated than they at first seem—for example, a government stimulus package may seem like a boon, but it can dilute shareholders’ equity and come with unexpected strings attached. The board should also closely monitor the management team’s evolving plans (such as slowing down new-product introductions and capacity expansions or accelerating resource reallocation) to ensure, for example, that these decisions do not overly weaken the balance sheet amid challenging capital-market conditions.

Catalyze a strategy review

Many organizations will have to rethink their product-market focus, customer engagement, or pace of technological innovation. During this period, a board should encourage management to undertake a broad strategic reevaluation that could entail embracing some bold moves. It can foster this process by requesting regular, joint strategy sessions with management to discuss various alternatives and scenarios.

Review the operating model

A new strategy may require a broad review of an organization’s operations. The board should trigger the discussion, share external perspectives on the operating models of comparable organizations, and provide constructive challenges. It should also encourage management to match critical talent to key strategic initiatives, especially new leadership talent that may emerge during the current crisis.

Help manage shareholder and broader stakeholder commitments

Maintaining an ongoing, open dialogue with key shareholders and other stakeholders should be a key board responsibility as business conditions change. Managing interactions with governments and regulators may be particularly vital at this time, especially if an organization receives a stimulus package or other public assistance that entails commitments. Major investors, including activists, may also offer ideas for repositioning the organization for the postpandemic era that the board and management should consider.

Reimagination and Reform: Stay ahead of the next normal

As businesses will shift focus on preparing themselves for the next normal, some changes adopted during the current crisis may become permanent. This might well have implications for the purpose and overall positioning of the organization that a board should closely monitor.

Reassess the organization’s purpose and value proposition

Our world will almost certainly look different after the coronavirus crisis. Industries and supply chains will be reshaped, value pools will have shifted (some irreversibly), and new behaviors may become the norm. Getting ahead of such trends by developing privileged insights can make the difference between leading or lagging in an industry for the subsequent decade. These changes may be profound enough to require a reassessment of an organization’s value proposition—and even its fundamental purpose. The board should also closely monitor how competitors are evolving and where they are investing (for example, in vertically integrated supply chains to fill gaps left by bankrupt suppliers) and make sure these realignments are factored into management’s long-term plans. By connecting management teams with the larger ecosystem of innovative players (including ones outside the organization’s traditional business), the board can widen leaders’ understanding of shifting business conditions.

Plan for the next crisis

It is never too early to plan a response to future shocks. A board’s role makes it well positioned to ensure that key lessons from the current crisis are captured and synthesized. The importance of remote-working technology and enterprise-wide action plans, for example, can guide new governance measures that make organizations more resilient during future disruptions (including potential later waves of the COVID-19 outbreak). Importantly, a board should challenge the management team to address a critical question: Is the risk-management approach sufficiently robust to respond to another “black swan” event?

Operating the board during the crisis

The current crisis sheds light on the vital importance of a diverse board. A group with a breadth of experience, relevant industry and functional expertise, and a range of ages, genders, and backgrounds enables an organization to assess challenges from a variety of perspectives. Here is how a board can effectively play its role (see sidebar, “Long-term implications for a board’s operating model”).

Reconfirm the board’s role and accountabilities

clear division of roles and mandates between a board and management is paramount to make collaboration seamless and avoid the distraction of unnecessary conflicts. While the level of stress and pressure every individual is facing during the current crisis can be draining, a board needs to remain calm and focused. Some decisions that take years of alignment in normal times may have to be passed in a matter of hours. All this will be difficult unless boards and management teams embrace seamless teamwork, trust, and mutual support. During this time, boards should make explicit that they are fully behind the management teams as they make some of the most difficult decisions of their careers.

Adapt the board’s operating model to the crisis

During a crisis, a board has no choice but to adapt its working mode to the speed of events, requiring directors to invest significantly more time than normal and relax the annual agenda. Ongoing communication between boards and management teams is necessary for quick action on contingency planning, public announcements, strategy development, and other urgent matters. An ad hoc board-level crisis committee can help directors engage regularly with the crisis leader who reports to the CEO. While some of the board’s heightened responsibilities—such as more frequent risk or policy reviews, financial-stability assessments, and governance-structure changes—can be absorbed by standing committees (including those for audit, risk, nomination and governance, and compensation), assessing the crisis’s strategic implications and the organization’s future direction needs to be handled jointly by the entire board, with collective accountability and frequent interaction.


The coronavirus pandemic is, first and foremost, an urgent health crisis affecting countless people around the globe. The scale of change—social, political, economic, and cultural—it may bring is immense. To manage a crisis of this magnitude successfully, boards need to help management balance short-term priorities with long-term goals, actively engage with shareholders and other stakeholders, and support a fundamental rethinking of long-term strategies. Management teams may need boards to extend them a greater-than-normal level of trust so that leaders can rapidly respond to unprecedented conditions.

While oversight and control remain vital, board directors’ wisdom, insights, and experience have never been more important. Boards should seize this moment to step up their game and provide critically needed guidance to their organizations.

Source: McKinsey.com, April 2020
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Authors: Martin Hirt is a senior partner in McKinsey’s Greater China office, Celia Huber is a senior partner in the Silicon Valley office, Frithjof Lund is a senior partner in the Oslo office, and Nina Spielmann is a senior expert in the Zurich office.