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Fit for the future: A CEO guide to succeeding in a changing world
Fit for
the future
A CEO guide to succeeding
in a changing world
www.kpmg.com/eu/en/succeeding
Fit for the future: A CEO guide to succeeding in a changing world Fit for the future: A CEO guide to succeeding in a changing world
Summary: Are you fit or
fragile?
Introduction
Understanding what business
leaders are concerned about in this
Growth needs to be pursued in a
disciplined, rigorous and realistic
1. It is useful to know how you are performing in your sector, but it is
more critical to understand how peers’ business models put them at
an advantage or a disadvantage. CEOs should not, however, become
so preoccupied with competitors that they overlook the potential for
disruptive influences from beyond their peer group.
changing world, was one of the key way, and beyond that, changes to
prompts for carrying out the first governance and operated models,
Succeeding in a Changing World many formulated in response to
2.
(SiCW) Business Leaders Agenda the financial crisis, need to be Many organisations have used the downturn to refocus on their core
survey. institutionalised. Many businesses value-creating competencies. CEOs need to treat streamlining as more
have deferred costs or made than just cost-cutting. It can help organisations focus more of their
With responses from over 1,000 sweeping cuts across the board to energies upon those areas that create most value. The benefits can
senior business leaders from 10 improve short-term performance. be felt in improved margins and also in better decisions and business
countries in Europe and across 12 Neither of these approaches is likely performance.
industry sectors the results provide to deliver sustainable improvement
a comprehensive overview of the in a higher risk environment.
3.
issues they are facing. The results
of this are available on: This CEO guide covers the issues
Business resilience is back on the agenda. The CEO needs to consider
http://www.kpmg.com/EU/en/succeeding identified in the SiCW Business
whether cost-cutting or layoffs have left their organisation vulnerable or
Leaders Agenda survey. The
more efficient and how well they can respond to unexpected events,
The survey confirmed that the successors in this changing world
both positive and negative.
business environment remains will be those who ask more
challenging all over Europe, though substantial questions of their
4.
levels of confidence are starting business model and truly embrace
to return to the marketplace. the dynamics of the new market.
Organisations in the UK, Belgium, The successful CEOs will be those The CEO needs to be clear who is scanning the landscape for new
the Netherlands and Greece say who excel at managing uncertainty taxes and regulatory changes, whether industry-specific, such as
developing strategies for future and are committed to delivering capital adequacy, or more widely drawn, such as carbon emissions. It
growth is the priority, while in long-term value by not only focusing is important to understand the externalities in the business model, how
Germany, Austria, Spain and Iceland on growth but also on implementing these are changing and how these may be affected by new policies,
there is comparatively greater focus robust operating and financial such as tax regimes. Specifically, the sustainability agenda is creating
on solving short-term business models. both uncertainty and new growth opportunities in many sectors.
needs.
5.
Jeremy Anderson
Altogether businesses are still Head of ELLP Markets
cautious – and are placing strong Now, more than ever, the CEO needs to lead by example. We have seen
emphasis on the fundamentals of that charismatic leaders are not beyond reproach. Leaders also need to
greater cost efficiency, managing ensure that senior management are suitably incentivised and that their
cash flow and supply chains, and conduct is sending the right message to peers, stakeholders and the rest
embedding risk into strategic of the organisation.
planning.
© 2011 KPMG Europe LLP, a UK limited liability partnership, is the legal entity which effectively controls a number of the independent KPMG member firms © 2011 KPMG Europe LLP, a UK limited liability partnership, is the legal entity which effectively controls a number of the independent KPMG member firms
affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. KPMG Europe LLP and KPMG International provide no client services. affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. KPMG Europe LLP and KPMG International provide no client services.
Fit for the future: A CEO guide to succeeding in a changing world Fit for the future: A CEO guide to succeeding in a changing world
Tracking the
competition: What
business leaders
are focusing on
In the words of Charles Darwin, “the fittest win out
at the expense of their rivals because they succeed
in adapting themselves best to their environment.”
The words seem as relevant today as when he wrote
them nearly 150 years ago, but does long-term success
always rest on being a market leader?
This question preoccupies many times influencing its situation,
CEOs and organisations often is more important than striving
expend considerable time and effort to lead the pack. Without this
on gauging how they compare with understanding, competitor analysis
key competitors. However, the can be a fruitless, backward-looking
most successful companies, like task that yields little strategic insight.
CEO checklist successful athletes, often focus less It becomes a self-affirming exercise.
on beating the opposition than on
• Do you have genuine insight into improving their own performance Competitor analysis is only worth
your competitor’s strengths and and service to their customers. doing if it yields real insight into
weaknesses? strategy. It should seek to truly
A preoccupation with one’s position understand how rivals’ business
• Beyond branding and product against competitors can breed hubris models differ in terms of cost
differentiation, how do your competitors and complacency when one is structures, funding, supply chain and
leading, and unnecessary panic when risk and control culture, to assess
gain an edge through supply
one is not. It can lead the CEO to what advantages or disadvantages
chain efficiency, client relationship underestimate emerging players and result from what differences. In
management, responsiveness to new, disruptive influences. There are addition, it should look beyond the
market needs/developments, decision- risks that come with being leading organisation’s traditional peer group
edge, not least that one ends up at for new ideas about efficiency and
making processes and structure?
the “bleeding edge”, spending too strategy.
much on R&D, developing innovative
• Are you scanning your whole
new approaches that are effortlessly To understand the issues within your
environment, looking beyond your mimicked by peers, and committing sector visit the SiCW website at
peer group for disruptive competitive too quickly to new products and www.kpmg.com/eu/en/succeeding
influences? Who in your organisation is markets. and view the results from the
specifically tasked with doing this? Business Leaders Agenda survey.
How effectively an organisation
understands and adapts to a
changing environment, while at
© 2011 KPMG Europe LLP, a UK limited liability partnership, is the legal entity which effectively controls a number of the independent KPMG member firms © 2011 KPMG Europe LLP, a UK limited liability partnership, is the legal entity which effectively controls a number of the independent KPMG member firms
affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. KPMG Europe LLP and KPMG International provide no client services. affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. KPMG Europe LLP and KPMG International provide no client services.
Fit for the future: A CEO guide to succeeding in a changing world Fit for the future: A CEO guide to succeeding in a changing world
Sustainable Cost
Efficiencies: Why every
euro needs to count
After years of growth fuelled by easy credit and
increasing consumption, the economic crisis has caused
many organisations to reassess their business models
and refocus on real drivers of value. In the past year,
some organisations have moved beyond initial cost
CEO checklist cutting and scaling back investment to implement long-
• Has your response to the downturn term strategic change programmes. In contrast, some
moved beyond cost cutting to have not moved beyond these short-sighted steps and
institutionalising real and widespread have only deferred costs or made one-off sweeping
transformation? cuts to improve short-term performance.
• Have you streamlined business
Real operational streamlining should For many sectors, transforming the lead by example in taking more time
processes and have you checked mean there is no going back to supply chain and other supporting to delegate, and using this additional
if these are delivering benefits to old habits and the operating and functions can not only reduce cost time to spend with key customers
the bottom line? Is streamlining of governance model is transformed. but improve the quality of service and people throughout the business.
However, balancing streamlining to customers. The CEO needs to Leadership means sharing face
processes starting at the point of
and business demands give consider how technology can be to face what is happening, and
customer engagement and co-design CEOs a formidable mandate – to harnessed to transform and connect engaging and empowering people to
and extending right through your simultaneously increase revenues different processes while pursuing be part of the organisation’s future
company’s value chain? and cut costs. To do this in a other enhancements including tax- success.
lasting way may require substantial efficient supply chain models, and
• What performance metrics have investment, in new systems and leaner manufacturing, sourcing and
strategies. For example, by re- procurement strategies. As the CEO
you introduced to measure the
empowering the finance function, considers outsourcing or shared
effectiveness of your change the CEO can give the CFO more services strategies, he or she needs
programme? capacity to guide the business and to choose between make or buy
deliver high-value information that models and between the flexibility of
• Do you monitor overhead expenditure informs strategy. multiple vendors or the reliability of a
and has it recently started to increase single source.
again? In practice, streamlining can
permeate every part of the business. How can the CEO be sure that
• How much time have you spent with It can occur through standardisation business transformation efforts
or elimination of processes or by are working, without imposing
customers in the last year? simplifying steps within a process. yet another layer of reporting and
An example is to rationalise the bureaucracy? These changes may
• Have you really succeeded in
approval steps in a decision-making deliver benefits to the bottom
improving discipline around cash and process to find ways to not only line, but the benefits could also
working capital? improve speed and efficiency but be reflected in other performance
also heighten accountability and metrics, such as reduced overtime,
therefore lead to better quality faster decision-making and shorter
results. response times. The CEO needs to
© 2011 KPMG Europe LLP, a UK limited liability partnership, is the legal entity which effectively controls a number of the independent KPMG member firms © 2011 KPMG Europe LLP, a UK limited liability partnership, is the legal entity which effectively controls a number of the independent KPMG member firms
affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. KPMG Europe LLP and KPMG International provide no client services. affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. KPMG Europe LLP and KPMG International provide no client services.
Fit for the future: A CEO guide to succeeding in a changing world Fit for the future: A CEO guide to succeeding in a changing world
Revisiting the
Organisation:
succeeding in a
changing world
There are valuable lessons to be learned from the many
crises that have befallen businesses in the past two
years. In a recession, or in the early phases of economic
recovery, strategic planning should be approached as a
structured process that brings together external market
dynamics with deep insights from key customers and
internal stakeholders, to map the future path of the
organisation and build a resilient business model.
This planning process needs to Heightened counterparty risk has
establish how an organisation should been a hallmark of the recent
respond to a range of scenarios or financial crisis and by no means
business disruptions. The loss of a confined to the financial sector.
key customer can be the biggest It may be something that was
form of disruption that many overlooked in strategic planning.
organisations will ever face. The CEO should consider whether
capital expenditure plans are flexible
Preparedness for all such outcomes and capable of being delayed or
needs to include an assessment postponed without major penalty or
CEO checklist of financial impacts, plans for inconvenience.
communication with internal and
• Is there resilience in your organisation? external stakeholders, and processes It can be harder to build a culture
Have you prepared for a major event for identifying and mobilising backup of business resilience when the
affecting your people, your bottom line and support systems. Are cash concept is associated with outlier
and working capital sufficient to events and continuity planning. In a
or your share price?
withstand another rapid deterioration bull market, entire risk management
in business conditions? Stress functions can be pushed to one side
• Have your business continuity plans
testing can be a means to assess in the pursuit of new opportunities.
been reviewed and refreshed in light of these risks; is not just an exercise
recently-implemented cost cutting and for the banks. Scenario planning rests on good
streamlining measures? business intelligence. With unified
In times of austerity, strategic IT platforms providing consistent
• Is scenario planning alive and well in planning need to be based on data according to predefined key
your business? practical and cost-effective measures performance indicators, the CEO is
while remaining flexible enough in a better position to understand
to handle changes in people and how different types of disruptions
processes. will impact the business at different
levels of scale.
© 2011 KPMG Europe LLP, a UK limited liability partnership, is the legal entity which effectively controls a number of the independent KPMG member firms © 2011 KPMG Europe LLP, a UK limited liability partnership, is the legal entity which effectively controls a number of the independent KPMG member firms
affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. KPMG Europe LLP and KPMG International provide no client services. affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. KPMG Europe LLP and KPMG International provide no client services.
10 Fit for the future: A CEO guide to succeeding in a changing world Fit for the future: A CEO guide to succeeding in a changing world 11
Turning risk to
advantage: The CEO’s
critical role
Increased regulation and oversight are frequently
highlighted as a primary concern for CEOs globally.1
They are harder to influence and can result in increased
capital needs, higher taxes, and unacceptable risk/return
ratios leading to businesses being curtailed or exited.
Since the onset of the financial Another area of public concern If handled properly, adapting to more
crisis, regulation has increased. where governments are being stringent regulations or guidelines
Tax authorities have also become forced to respond relates to can be an opportunity to develop
more aggressive in their collection data privacy and security. Many new processes that bring insight to
of tax revenue and have placed businesses are increasingly reliant on the senior management and better
some organisations under greater electronic or mobile communications visibility over performance. New
scrutiny. Financial sector reforms to market or sell their products, taxes or pricing mechanisms could
and regulations imposed in western make payments and share personal provide competitive advantage to
economies have had repercussions data. Requirements to change how those who are setting the best
for institutions in Asia Pacific, even data is handled or stored can present practice and best able to cut through
for those that had little to do with challenges to an organisation if its an additional layer of complexity.
the financial over-engineering seen IT architecture and key processes These are benefits that can also be
in London or New York. One impact are not well mapped out. In the communicated forcefully to external
CEO checklist these reforms may have on wider most extreme examples it can stakeholders.
business conditions concerns the undermine critical delivery or
• Do you have any means to measure ability of organisations throughout payments systems, or lead to
the costs and benefits of compliance the economy to access capital or significant reputational damage.
activities to your business? Is there extend lines of credit. 1 ”Davos Report: Business Leaders Warn Regulations
a clear link to brand protection and The responses of many global May Crimp Recovery,” Reuters, 27 January 2010
The emerging issue of sustainability organisations to the climate change
reputation? has become another catalyst for agenda or data privacy concerns
new regulations and potentially illustrate how they can be optimised
• Can your systems be used to assess other tariffs including carbon through proactive engagement, with
other externalities, such as carbon or taxes or pricing mechanisms. The the CEO as a key spokesperson.
energy impacts? environmental debate has now The CEO has a responsibility to
moved beyond compliance and risk understand the external impacts
• Have you institutionalised a process and the CEO is uniquely placed to of one’s own business model. He
to monitor regulatory developments in have the right conversations with or she has a role to play in shaping
external stakeholders, including regulatory policy ensuring that it is
each country in which you operate? governments and regulators, and both appropriate, and harnessed to
to demonstrate that his or her support future success.
• Are there areas where you can
organisation is responding.
streamline compliance activities
by applying common systems for
detection, investigation and reporting?
© 2011 KPMG Europe LLP, a UK limited liability partnership, is the legal entity which effectively controls a number of the independent KPMG member firms © 2011 KPMG Europe LLP, a UK limited liability partnership, is the legal entity which effectively controls a number of the independent KPMG member firms
affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. KPMG Europe LLP and KPMG International provide no client services. affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. KPMG Europe LLP and KPMG International provide no client services.
12 Fit for the future: A CEO guide to succeeding in a changing world Fit for the future: A CEO guide to succeeding in a changing world 13
Building lasting
success:
Institutionalising the
right practices
Many organisations instilled a new sense of discipline
in response to the downturn, but it was only when
growth opportunities reemerged that these were put to
the test. Management can slip back into old habits and
costs rise once again. Institutionalising the things done
during a downturn is not as easy as it may seem when
the business is once again looking ahead and short-term
survival is less of a concern.
Consistency is key. As the business of the past two years, many
environment changes, people may investors are looking for companies
view stricter rules or guidelines that can demonstrate sound
CEO checklist as temporary and thereby dismiss management and generate more
them, particularly if their peers and stable earnings. Recent events are
• Is your leadership team setting the
managers are doing the same. At a reminder that even the largest
right tone at the top and taking this point, policies and procedures and most reputable of companies
the lead in implementing company should be reinforced and reviewed to can come unstuck if they set overly
policies and procedures? ensure their ongoing relevance. ambitious quarter-by-quarter earnings
targets and get blinded to the
• What steps are in place to monitor, The CEO needs to demonstrate accompanying risks.
ensure appropriate adherence, and and make clear to everyone
that the disciplines and rigours In any company, the CEO needs
impose disciplinary actions on non- imposed during the downturn were to understand what incentives will
compliance? not endured for nothing. More work. He or she should reconsider
importantly, it must be stressed that what earnings are paid back to
• Are the policies and procedures those impositions were and continue investors as dividends and where
built for adherence over a sustained to be part of a strategy to build a bonuses are paid. The CEO must
period? stronger business for the long term. ask themselves whether these are
In doing this, management needs to aligning the management’s interests
• Do communications with stakeholders set the right tone at the top and lead with the long-term benefit of the
by example; no senior executive can organisation. In the current climate
demonstrate a focus on long-term be beyond reproach. and with public demands for greater
success as well as short-term regulation, the CEO should lead in
expediencies? This strategy can have external this regard, long before regulatory
dividends as well. After the volatility pressures force his or her hand to
do so.
© 2011 KPMG Europe LLP, a UK limited liability partnership, is the legal entity which effectively controls a number of the independent KPMG member firms © 2011 KPMG Europe LLP, a UK limited liability partnership, is the legal entity which effectively controls a number of the independent KPMG member firms
affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. KPMG Europe LLP and KPMG International provide no client services. affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. KPMG Europe LLP and KPMG International provide no client services.
14 Fit for the future: A CEO guide to succeeding in a changing world Fit for the future: A CEO guide to succeeding in a changing world 15
For more information, or to discuss the issues raised in this report,
contact one of our SiCW experts.
Fit for today Poised for growth Focus on the future
How do I embed Exploiting growth Future markets
About Succeeding in
cash best practice? opportunities through – East & West
Andrew Ashby successful transactions Thorsten Amann
T: +44 20 76943231 John Kelly T: +49 30 2068-1144
T: +44 20 76943528
a Changing World
Achieving sustainable Changing customer
improvements in cost Informed insights & stakeholder behaviour
efficiency in a changing world Hans Winterhoff
Jeremy Kay Herman Heyns T: +49 511 8509-5227
T: +44 20 76944540 T: +44 20 73114478
Technology
Turning risk Revisiting the & the digital age
into advantage organisation Bryan Cruickshank
Ian Forbes Martin Scott T: +44 131 5276640
T: +44 20 7311 6465 T: +44 20 76943516
The uncertainty of the economic climate Energy, sustainability
Growing public sector / & the green agenda
combined with the complexity of business private sector interaction Barend van Bergen
today, leaves the Board facing a number of Mike Harlow T: +31 20 656 4506
T: +44 20 7311 4227
issues. KPMG’s Succeeding in a Changing
World programme is helping define and
refine the business agenda away from
traditional and emotional issues to facilitate
the Board’s success against the backdrop
of change. Whether it is ensuring the
business is fit for purpose, poised for
growth or focusing on the future, we are
working with clients to ensure they can
succeed in a changing world.
The KPMG’s ‘Business Leaders Agenda’
online survey has the views from over
1,000 European business leaders of what
is on their radar over the next six months.
To view the results go to:
www.kpmg.com/eu/en/succeeding
© 2011 KPMG Europe LLP, a UK limited liability partnership, is the legal entity which effectively controls a number of the independent KPMG member firms © 2011 KPMG Europe LLP, a UK limited liability partnership, is the legal entity which effectively controls a number of the independent KPMG member firms
affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. KPMG Europe LLP and KPMG International provide no client services. affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. KPMG Europe LLP and KPMG International provide no client services.The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation. © 2011 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved. Printed in the United Kingdom. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International. KPMG LLP (U.K.)’s Design Services | RRD-246060 | February 2011
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