28 June – Ben Kellard, Director of Business Strategy, CISL, explores the challenges of aligning purpose and strategy with the transition that is required to enable a business to succeed into the future.
The challenge
Having recognised, in my last article, the shifting view of businesses as part of complex, global value chains that are operating in a rapidly changing external environment, this article explores how organisations can respond by aligning purpose and strategy with the transition that is required to enable them to succeed into the future. This strategic alignment is one of the four tasks for business in our Rewiring the Economy report.
While the process will differ, depending on the company’s size, industry, maturity, structure and culture, this article distils 10 questions to ask, grouped around the three typical stages of an effective strategy process. This draws on our experience of enabling leaders to accelerate their transition to a sustainable business thereby positioning them to succeed into the future.
1. Are key internal stakeholders, strategy and business planning teams engaged early on?
To ensure the purpose and strategy is owned by the business, engaging the right stakeholders at the right time will ensure that you get their insights and commitment to the strategy and purpose. This is likely to be an iterative process, delivered through a combination of workshops, one-to-one and virtual meetings. Businesses are also using online platforms to consult and engage a wider range of colleagues.
Stage 1 – analysis
This stage analyses the businesses position in the market, to identify risks and opportunities.
2. How are you defining the boundaries of the business?
Significant risks and opportunities can often sit ‘upstream’ or ‘downstream’ from the business, for example the chemicals and water used to grow cotton for an apparel brand or how food brands can deliver nutritional benefits and not ‘empty calories’. That’s why leaders consider the whole value chain, through to the consumer use and disposal of the product or service. The boundaries of the value chain will reflect the business’ categories and geographies.
3. Who are the stakeholders across the value chain?
Understanding who plays what role and has what power helps the business to locate its own influence in the value chain and start to anticipate where disruption and new business models might come from.
4. What evidence are you using to understanding the changing context?
There are a number of sources ranging from the IPCC report, the UN report on Biodiversity and of course the Sustainable Development Goals that can all be used to identify where the business currently has positive or negative impacts and where potential opportunities lie. Our report explores the business imperative to deliver the SDGs.
Trends can also be used to identify potential sources of disruption, threats and opportunities.
5. How will you identify current and future risks, disruption, impacts and opportunities?
Leaders are taking an ‘outside-in’ approach by using the latest science to map the potential implications, impacts, interdependencies and constraints for their business model. For example Mars worked with a number of external experts, including CISL and the Stockholm Resilience Centre to understand the constraints to their business model that relies heavily on agricultural inputs.
Scenarios can also be used to ‘wind tunnel’ the business model to highlight vulnerabilities and opportunities, drawing on the analogy of a car (the business model) tested in a wind tunnel (the scenarios) for aerodynamic drag.
Consulting informed external stakeholders can also be a source of identifying potential future trends, their interdependencies with the value chain and potential sources of disruption and opportunities, including what progressive peers or disruptors are doing.
The risks, impacts and opportunities that emerge from this question, combined with the identified stakeholders, provides a rich picture of the value chain that surfaces their interdependencies with the current business model and its changing context.
Stage 2 – identify strategic priorities
The stage involves deciding where to focus to ensure long-term value creation and commercial success into the future.
6. Is the company’s purpose and business model compatible with the rapidly changing context?
The analysis stage is likely to highlight some significant changes required to the business’ core processes, products, structure and even its fundamental business model. This may require a revision of the business’ values and purpose to adapt to the disruptions to business as usual and to seize new opportunities to create commercial value by meeting society’s needs. Before moving onto strategic priorities, it’s important to align key stakeholders on the fundamental purpose and future business model.
Taking this holistic view of how the business can create long-term value by meeting society’s needs, presents an opportunity to sharpen or revise the company’s purpose. As Keith Weed, Unilever’s CMO points out, drawing on the company’s historic values can be a source of inspiration, as can consulting colleagues. A purpose can provide a meaningful, enduring reason for the organisation to exist that positively contributes to a sustainable future. In doing so it can attract, focus and galvanise a range of stakeholders within and beyond the business, from customers to business partners.
The purpose can build on the company’s current, or possible future adjacent, core capabilities in a way that minimises the risks and maximises the opportunities to the business. A useful prompt question is ‘what would the business look like if it were thriving in the future?’
7. What are the strategic priority areas?
The strategic priorities reflect the areas of significant transition to move to the new purpose and evolve the business model. This includes what is required to access the opportunities, improve positive impacts and remove negative ones, such as decarbonisation of energy sources or innovating new product or service categories.
These priorities have most impact where they connect innovation within the business with their influence beyond the business. For example, DSM are both innovating new products to tackle Climate and Energy challenges and seeking to work with peers to positively influence government policy for a low carbon future through our Corporate Leaders Group.
Stage 3 – implementation
Finally the purpose and strategy needs to be integrated into the business.
8. Are you setting evidence-based targets?
Leaders are setting evidence-based targets that are consistent with the extent of change that scientific research suggests. For example, Hammerson set Net Positive in four material areas.
Setting longer term goals allows a business to ‘nest’ its shorter term strategy planning cycles within this longer term ambition, allowing agility and learning along the way.
9. Do you have the right governance in place?
Existing methods of cascading departmental and individual objectives will need to be aligned to the purpose and strategy, ensuring appropriate metrics, indicators and decision-making tools.
Boards, are ultimately accountability for the business’ performance, impact, risks and disclosure. Many Boards need to be equipped to lead and scrutinise the business’ ambitions and plans.
Many leaders have set up an advisory board, with external expertise, to provide expertise, scrutiny and guidance.
10. Are you adapting your culture and capacity?
Current working practices, such as new product development, may need to be prioritised and adapted, to reflect the purpose and strategy. Doing so reduces friction, optimises decision-making and realises opportunities.
The purpose and strategy are likely to require new skills and capabilities from colleagues. Staff groups will need to be identified, prioritised and plans put in place to build their capacity, such as best-practice sharing forums.
Internal and external communications will need to reflect the purpose and strategy. A transparent, two-way, honest and humble tone is an effective way to build credibility and rapport with stakeholders.
