How constant innovation will shape the future

Entrepreneurs need to go beyond preparing for the most probable outcome if they want to build the most desirable future.

In brief

• With the shift in investment climate towards local and sustainable practices, entrepreneurs can leverage this change as a chance to foster customer loyalty.
• A growing segment of consumers seeks customized and eco-friendly products, and they are willing to pay more for such offerings. However, a larger group of consumers is financially constrained and prioritizes affordability over other factors.
• It is crucial to keep up with emerging technology trends and incorporate them fully into the business model for sustained success.

Entrepreneurs have been hit hard by recent events such as the war in Ukraine, the energy crisis, the economic disparity between the West and China, and the rise of protectionist policies in major economies. However, this doesn't have to spell doom and gloom for businesses. The key is to identify opportunities and respond to them effectively, which requires adopting a new perspective on the future. This article addresses four crucial questions to help entrepreneurs navigate this uncertain landscape:

• How can companies integrate sustainability into their core business practices?
• How should businesses adapt to the "hourglass" model of consumer behavior?
• What benefits can be gained by involving younger generations in company decision-making processes?
• How can businesses plan for the future in a rapidly-changing landscape where even Fortune 500 companies are not immune to upheaval?
   

1. What is driving the acceleration of ESG  implementation?

The focus on sustainability and ESG (Environmental, Social & Governance) took a backseat during the corona crisis, but now implementation is speeding up as regulations become stricter. The US, China, and the EU are adopting protectionist measures combined with subsidy packages for green energy and water conservation. The investment climate is changing from global to local and sustainable.

Rather than viewing these changes as threats, companies should see them as opportunities to engage consumers in a sustainable way. Consumers are increasingly putting sustainability first, and this trend is reflected in the latest EY Future Consumer Index survey, 68 percent of consumers said they consider a company's behavior as important as the products it sells, and 69 percent said companies should exhibit ethical behavior in line with the expectations of their stakeholders. Only 38 percent of participating consumers called the positive actions companies take today good enough.

Meanwhile, sustainability has become deeply ingrained in the business world. Entrepreneurs are prioritizing reputation, image, and quality over growth at any price and aggressive data collection. Companies are now considering not only whether an innovation is desirable for customers and feasible and impactful for the company but also whether it is sustainable and aligns with their purpose. ESG is no longer a nice-to-have but a starting point.

For example, Bel20 companies are working on hydrogen and other climate-friendly initiatives not only to power themselves but also to create a new revenue model. However, the transformation toward sustainability is not an easy task, particularly in a world where geopolitical changes are increasingly disrupting commercial, logistics, and manufacturing chains.

2. How can companies cater to customers who prioritize sustainability while also seeking affordability?

Consumers today are particularly price-sensitive, with many households facing higher energy costs and soaring inflation. Consumer behavior is shifting towards an hourglass model, where a growing segment demands luxury, customization, and sustainability, while a larger group is primarily focused on price. The middle market is disappearing, and companies need to adjust their product and service offerings accordingly.

It is crucial to understand and define target groups accurately. In a recent study conducted by EY VODW for a player in the insurance sector, varying willingness to pay for more sustainable insurance products was observed among different companies. Large enterprises showed more interest in such products than small and medium-sized enterprises. Companies must recognize these differences and respond accordingly.

Companies must therefore thoroughly understand their customers and their environment, define their buyer persona, engage in conversation with their target audience, and not shy away from proposing new value propositions. One approach is to involve younger and influential generations more in companies. These individuals bring their unique perspectives and interests, which can be translated into successful products and services.

3. How is technology transforming the business landscape?

Technology is a crucial factor that companies must take into account to stay relevant. For instance, Artificial Intelligence (AI) is an emerging technology that should be monitored closely. By digitizing processes, human involvement can be minimized, leaving room for human interaction where it really adds value. However, one need not fear doomsday scenarios in which there is no work left because of the new technology. Such predictions were made at the beginning of digitization, but the reality is that unemployment rates are historically low. Successful companies fully integrate technology into their business model, creating hybrid or fully technological services. Nonetheless, digitization puts greater demands on companies. Traditionally, a company had to excel in either operational efficiency, product leadership, or customer intimacy because each goal required significant resources. But with technology, a company can automate much of their customer intimacy and operational efficiency. Consequently, today, companies must excel in all three areas.
 

4. How can you still engage in forward planning in an uncertain world?

As disruptive events, known as black swans, continue to arise every few months, the process of five-year planning has become a challenging undertaking for entrepreneurs. While it is crucial to engage in conscious forward planning, traditional methods are no longer sufficient in today's context. Instead of solely preparing for potential future scenarios, companies must also determine their most desirable outcome and work backward to develop a strategy. This  backcasting, instead of forecasting, requires a shift from reactive to proactive planning and an ongoing commitment to transformation.

For instance, EY partnered with a Scandinavian toy manufacturer to achieve their vision of making a social impact by focusing on playful learning for the younger generation. This involved radical changes to their supply chain and the adoption of toys combined with apps. Companies must embrace constant innovation and revisit their horizons more frequently to remain agile in times of extreme uncertainty. This is reflected at the macro level through the rapid rotation of the Fortune 500, highlighting the importance of embedding transformation in contemporary business operations. Therefore, constant innovation is the reality.