How do you reshape today to reinvent your tomorrow?

Organizations are facing volatility. As the window to take action narrows, the need to adapt and reshape results fast is critical.

We are no longer in the usual economic cycle. Social, political, economic and technological changes are converging to produce a business environment whose only constants are volatility and uncertainty.

To operate successfully in this marketplace, businesses need a mindset of adaptive performance and a new framework to respond to volatility and grasp the opportunities that are now emerging. An adaptive performance mindset embraces leadership that is agile, iterative and adapts continually, regardless of where the business may be along the performance curve.

Why is it important to act now? Because we are standing on a burning platform – and because competitors are already seizing the initiative. “There is no reason to wait to make your company more resilient, adaptable and agile, and more ready for what's to come,” says Falco Weidemeyer, EY EMEIA Reshaping Results Leader and Member of the Global Restructuring Leadership Team. “If you wait too long, you will no longer be master of your own destiny.”

The rules-based, multilateral order that has long defined global geopolitics is under pressure. In a business as well as an existential sense, the climate emergency is pressing. There are short-term pressures, too. The prolonged economic upswing appears to be running out of steam.

There is no reason to wait to make your company more resilient, adaptable and agile, and more ready for what's to come.

At the same time, companies have to catch up with digitalization and technological disruption sooner rather than later in order to stay competitive. A wave of transformation has swept across industries, including financial services, retail, media and consumer goods, leaving a trail of corporate failures in its wake. In 1964, the average S&P 500 company spent 33 years in the index, but this is expected to fall to just 12 years by 2027.

Evidence of disruption

12

The number of years the average company is expected to spend on the S&P 500 index by 2027 — compared to 33 years in 1964.

Some sectors are more exposed than others to this kind of disruption. “We are seeing more situations in which companies’ business models are threatened,” says Weidemeyer. “A new downturn would probably not be a general one where volume and utilization fall off a cliff, but one where whole sectors diminish.”

Get ahead of the risks

This perfect storm has prompted a deep sense of unease in the boardroom. EY Global Capital Confidence Barometer – October 2019 reveals that only 55% of businesses are confident about their earnings prospects, down from 80% in 2018, and that just 59% are positive about short-term market stability, down from 68% in 2018.

Falling confidence

59%

Respondents on EY Global Capital Confidence Barometer – October 2019 who are positive about short-term market stability, down from 68% in 2018.

The upside is that pessimism is translating into action. Nearly two-thirds of C-suite leaders in the Confidence Barometer say they are actively planning to respond to ongoing geopolitical, trade and tariff concerns.

What might their responses look like? “The most important thing that corporates need to do today is be decisive – full stop,” says Mona Bitar, EY UK & Ireland Reshaping Results Leader. “Time is gold.”

The timetables to which private equity firms work may be a useful reference point here. When they take on a new business, they form a clear strategy for their first 100 days of ownership, and often plan to restructure or reshape it within six months. That requires decisiveness and an agile plan of execution. That kind of rapid decision-making and action is paying off: investors expect private equity returns to continue to outpace those of public markets.

How to respond to volatility

By adopting a mindset of adaptive performance, business leaders are better positioned to pursue a proactive and fast-paced approach to business transformation. Digital technologies also provide a means to move forward with confidence. However, the key for business leaders lies in understanding how the specific characteristics of their organization can be mapped onto the volatility that surrounds them – and how their business realities are shaped by the difficult operating environment they face.

“As organizations look to manage volatility and build resilience in their operating models, they will need to look at each component of their value chain and assess the extent to which they are optimized to deal with the markets’ future requirements,” says Peter Manchester, EY EMEIA Advisory Leader for Managing Volatility. “The development of new and disruptive technology, analytics and artificial intelligence provide significant opportunities to more rapidly enhance and transform organizations’ capabilities and skillsets.” 

EY value report graphic

The EY value framework provides a model for carrying out this process of self-assessment. It rests on four value pillars that reflect a performance curve. To respond to this period of volatility, leaders should consider where their organizations fall:

1. Value transformation

Visionary organizations driven by purpose with healthy balance sheets, excess cash flows and clear market opportunities must now prepare for the transformation requirements of the future.

2. Value creation

Proactive businesses with solid revenue and profitability, and which are ready for change, may still need to optimize their strategies and must consider how to stay relevant and create value in the years ahead.

3. Value preservation

Resilient and preservative businesses that are losing market share, facing structural operating flaws or adjusting to new levels of demand, must work out how to turn things around while preserving value.

4. Value recovery

Reactive and defensive businesses that are facing liquidity issues are dealing with unfavorable financing structures or are at risk of insolvency and must focus on recovering from crisis.

Importantly, self-assessment is not a one-off exercise. Leaders should position themselves as agile agents of change, who are constantly looking for new ways to move their organizations forward. They:

Assess

Establish planning processes, allow for regular or trigger-event based reassessments to identify areas requiring action, and integrate that work into key performance indicators.

Adapt

Use approaches and tools according to whether their businesses require value transformation, value creation, value preservation or value recovery, tailored to deliver their desired outcomes.

Anchor

Embed a drive for performance in the organization by adapting processes and key performance indicators. Performance becomes an attitude and is no longer just a program.

Each of these steps is crucial, but in this era of accelerated disruption – the paradigm shift to volatility – the challenge is to take them more quickly, more iteratively and with greater agility. Rather than passing through these steps in a linear sequence, business leaders with the right mindset will move to a journey of continual adaptation to operate successfully in the new normal and reinvent their tomorrow.

How do you reshape today to reinvent your tomorrow?

Learn more about the value realization framework.

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To operate successfully in the volatile marketplace, businesses need a mindset of adaptive performance and a new framework to respond to volatility and grasp the opportunities that are now emerging. An adaptive performance mindset embraces leadership that is agile, iterative and adapts continually, regardless of where the business may be along the performance curve. Business leaders with the right mindset will move to a journey of continual adaptation.

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