Is Your Strategy on Pause?May 5th, 2013 | By Scott Nadler | Category: Environmental Management, Health and Safety
Does it feel like your corporate world is on “pause,” waiting for something beyond your control to be resolved? Many companies seem to be waiting for something, unwilling to expand or contract, go forward or backward. Which raises the question — how do you lead your EHS/Sustainability (EHS/S) program if you don’t really know what the company is doing or going to look like?
The macro-economic factors are wreaking havoc on business strategy. If you sit in the C-suite and look at the macro dashboard, all the lights are amber. Maybe even a few flashing red now and then. Certainly no solid green lights.
The United States? The recovery is shaky. Consumers are hesitant and businesses even more so with public policy spanning the range from doing nothing to doing something embarrassing and frustrating. China? Concerns with new leadership, inflation, and slowing growth. Even worse, when China hiccups, every mining economy from Australia to Argentina has angina. Europe? The only question here is how many more crises-du-jour will it take to turn the amber light red. Brazil? Hesitation. India? Not so fast. The “next 11” never quite caught on like the BRICs, and many seem to be caught in geopolitical disputes and uncertainties. Economically, the daily range seems to run from no news to bad news with little cause for optimism.
So what are companies doing in this strategic limbo? Simple: they’re trying to keep flexibility up and costs down. They’re not stopping all investment, because after all, those dashboards are amber, not red. Businesses still need to grow. There are still opportunities, and companies need to be ready. A huge amount of equity remains in the global marketplace. That money is looking for investments that will provide attractive returns, whether flowing through record-setting stock exchange levels or through the private equity markets. The odds are your company is going to grow (or be bought) — you just don’t know what, where, how, and when. Other than that, it’s all clear.
In some companies the limbo is masked by success. As Yves Doz and Mikko Kosonen wrote in their 2008 book Fast Strategy:
Companies naturally become victims of their own success: as they grow and become successful they lose some of their adaptive capacity. The search for efficiency drives flexibility out. Success dulls strategic sensitivity. The legitimate short-term challenges of scaling up, and of managing fast, profitable growth from quarter to quarter, reaping economies of scale in the process, lead to a narrow focus on core growth businesses, a mix of tunnel vision and strategic myopia. [page 6]
In these companies, there’s a high “limbo denial” factor. On the surface, people want to keep everyone focused and hope that the limbo passes. Underneath, the cost cutting continues, and it’s considered disloyal to talk about rethinking or just refreshing the strategy.
Breaking out of Limbo
So how do you manage your EHS/S strategy at a time like this? Do you base your actions solely on those amber signals: be ready to stop, cut costs, and don’t rock the boat? (And hope that you don’t look like a tempting cost to cut?) Do you hold your breath, figuring that this can’t last too long and then everything will be clear?
Or do you use this as an opportunity to take a deep breath and prepare for the future — including a future in which limbo may be a very common state?
EHS/S leaders are realizing that this is an opportunity — maybe the first one since the recession — to take stock and prepare for the future while taking care of the present. They are using this “pause” as an opportunity to refresh their programs and teams. They’re calibrating this carefully, not making too big a deal of it. But without drawing too much attention to themselves, they are quietly following a process that cleans up the recent past and prepares for possible futures.
This “refreshing” has five steps:
- Regroup from your transactions. Look backward: catch up with the changes that came at you too quickly. Coming out of the recession, an extraordinary number of companies bought, sold, spun off, merged, etc. Few took the time to regroup on the EHS/S side — to really look at the best practices and best people from each side and determine how a dramatic change in scale, geographic focus or core business could transform the EHS/S landscape. This is the time for EHS/S leaders to set common expectations, standardize programs, and integrate teams.(Note: regrouping is NOT a euphemism for reorganizing, although that may be one outcome. It has a lot more to do with rethinking what you do and who does what, rather than which box goes where on the org chart!)
- Rethink your scenarios. Look forward: think about what’s coming. None of us have guaranteed insight into the future, but we can all build scenarios of alternative possible futures and see how we might prepare for those. Some of the best strategies have come from looking at alternative scenarios and realizing that one or two are substantially “less unlikely” than the others and are worth preparing for. In this market, post-recession but without a robust recovery, many people find that the possible, unlikely, and less unlikely scenarios look different than they did five or even three years ago.What scenarios are you really preparing for? After years of assuming that all growth is in Asia and Latin America, are you prepared for a world where growth may be in the United States and Africa? Do you have a scenario for “reshoring” or “inshoring” and for developing the EHS/S skills and capacity that you may need back home or in challenging new geographies, for example? This is the chance for EHS/S leaders to develop two or three specific scenarios for internal planning. It’s the time to develop Plans A, B and C: what would you do if your boss came in right now and said, “Give me your plan if we grow 15%”; or “Give me your plan to cut 10%”; or “How would you fit in three new programs without adding costs?”
- Refine your growth support. Look to the bottom line: think about how you help the company make money. Regardless of past transactions or future uncertainties, one thing is certain: your company will have to generate more revenue. To do that, your company will have to launch new products or services, get existing products and services into new markets, or invest capital to create new capacity. These actions all face growing risks that can increase costs, reduce revenue, or just take more time.This is painfully evident in the sectors that are still making major capital investments during this strategic pause. Capital discipline is replacing capital recklessness, and investments are being made with greater caution. To get needed return on capital, companies must make smarter decisions that consider a wider range of risks. Getting permits reactively is no longer good enough for your business. Your company needs to understand “license to operate” requirements (includingpermits) well in advance and prepare for them.Helping your company understand and manage these risks to revenue growth probably wasn’t the basis for building your EHS/S program. It may be time to consider how your program helps your company make smarter investment decisions and get better returns on its investments. EHS/S leaders should review and update their programs for product stewardship and major capital support to ensure they are sufficient to meet their company’s current and future needs.
- Retool your processes. Look inside your program: in light of the past transactions, future scenarios, and bottom-line impacts, what does your program need to do? Does your assurance program drive performance or just document conformance? Does it tell you whether people are complying with legal requirements and corporate commitments, or does it just tell you that they are taking required compliance steps (checking boxes and completing forms)? Does your data management system actually provide the information that you need in the form you require? None of these are strategic or exciting, but they do provide the foundation for all of your future activities. EHS/S leaders should seek to improve the effectiveness of their audit programs and management systems. They should also update information management systems to meet current and future needs. Take a hard look at the EHS/S culture of your company and the supporting management systems and tools; streamline, prune, standardize, and improve these systems where possible.
- Retool your team. Look at your people: all of these actions may give you new insight into what your group needs to do and, therefore, what you need out of your team. You may have a new sense of purpose — but with that in mind, is your team still fit-for-purpose? Limbo makes this even more of an issue. Some of us have tried not to disrupt our teams in the post-recession limbo; you didn’t know if you could replace people or would just lose jobs, and you hated to put people on the street without knowing if that’s the right thing to do. Others have had few options — we lead teams we inherited, not teams we created. With all the uncertainties of limbo, it hardly seemed worth the effort to rock the boat. But at this point, does your current team and its limitations just lock you into limbo more by limiting your options? Now is the time to begin the lengthy process of retooling your team: review and change assignments, change processes, change people if there are no alternatives, enhance skills or collaboration. Act now to create a team that is better able to support your function and company.
And that’s the bottom line. As an EHS/Sustainability leader, you can’t end the limbo. But you can help your company, your function, and yourself by facing the realities of strategic limbo and using it as an opportunity to refresh your program, refresh your career, and prepare for the future.
About the Author
Scott Nadler is a Partner in the Chicago, U.S.A. office of Environmental Resources Management (ERM). He helps companies integrate environmental and sustainability issues with business strategy. Mr. Nadler speaks on a number of EHS, sustainability, and strategy topics, and his writing has appeared in The Wall Street Journal, Sloan Management, and Safety and Health Practitioner, as well as in the EHS Journal and The Palladium Group Executing Strategy sites online. He teaches at Northwestern University in the undergraduate program in Environmental Policy and Culture, and currently serves on the Executive Committee of the U.S. Business Council for Sustainable Development.
Other Articles by Scott Nadler in the EHS Journal
- VP EHS: Endangered Species or Emerging Hybrid?
- Geographic Mismatch: Coping with Dislocation in the Global Economy
- Agility: The New Core Competency for EHS and Sustainability
- Managing Product Risks and Opportunities (with Salvatore Giolando)
Photograph: Chess 2 by Patrick Hajzler, Seine et Marne, France.
[Opinions in this article are solely those of Scott Nadler and do not necessarily represent views of ERM, its partners or clients.]