strategy trends 2016_rapport_engels_pr

The CEO’s agendaJ.J. (Justin) van der Starre | G.J.J.B. (Gerben) van den Berg | D.S. (Douwe) Suesan

STRATEGY TRENDS 2016

STRATEGY TRENDS 2016 THE CEO’S AGENDA

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1 Strategic issues

Progress without too many risks - that is on every CEO’s wish list. Could that be possible in the fast, disruptive reality of today?And more importantly, how do you protect your good reputation at the same time? Those questions are heard in most Dutch boardrooms in 2016. That is what is keeping CEOs up at night.

Strategic issues

Figure 1.1 Which of the following topics are regularly adressed during board meetings?

Corporate Reputation

Innovation & Disruption

Risk Management

Margin Pressure

Digitalisation

Labour Market Flexibilisation

Sustainability/ CSR

Businessmodel

Labour Market

Rules and Regulations

Internationalisation

Alliance Building

Intellectual property

Financing

Developing Countries

Mergers & Acquisitions

74%

74%

59%

59%

58%

57%

57%

56%

52%

48%

48%

40%

38%

38%

25%

21%

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The most frequently discussed topics in boardrooms of Dutch companies in 2016 are strategic issues such as and corpo-rate reputation & image, disruption and digitalisation, risk management, margin pressure and fl exibilisation. Corporate reputation and image have been top 5 issues in our surveys for many years, and have topped the agenda in the past two years. Protecting their corporate reputa-tion remains a priority for three quarters of the organisations, in particular B2B service providers and the fi nancial sector. Innovation and disruption are also hot topics with a high place on the agenda in many sectors.

Strategic issues

Figure 1.2 Which of the following topics are regularly adressed during board meetings? (top 5)

Corporate Reputation

Disruption & Digitalisation

Risk Management

Margin Pressure

Flexibilisation

Risk management has made a remarkable shift up the agenda this year. The fact that 59% of respondents indicates that risk management is high on the agenda says something about the risk awareness within companies. The fi nancial crisis has made companies more careful. No more ‘rash moves’ are allowed to happen. Con-trolled progress without too many risks – that is on every CEO’s wish list. The million dollar question is if this is actually

feasible in the quickly changing disrup-tive reality. As in previous years, margin pressure still plays a large role. Due to the crisis, the prices have further decreased in the past years, and many organisations are having a hard time raising them again.

The fastest climber and new on top of the agenda is the strategic issue of organisa-tional fl exibilisation. This issue is fre-quently to constantly discussed during the board meetings of 57% of the respon-dents. Flexibilisation is closely related with another key social theme: the increasing rate of self-employed in the working population. Remarkably, the business model item has a lower position on the agenda this year. From 2009, this strate-gic issue was always in the top half of the CEOs’ agendas - in second place last year. It seems that after years of investing in the business model, the companies have ‘cleaned up their act’. This is apparent from the fact that 42% of respondents indicate that fi nancing is derived from their internal cash fl ow in 2016. After years of tinkering with the organisation, the CEOs seem ‘tired of change’. Now that the internal organisation is in order, they start looking beyond their own walls again.


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Social topics2Organisations do not give social themes a key place when determining their strategic policy. For example, sustainability is high on the social agenda, but businesses do not see it as a key theme on the strategic agenda. Although many CEOs indicate that they expect mountains of gold abroad, the knowledge of and interest in international business does not seem available at a very high level. Issues such as geopolitical tensions and internationalisation therefore do not have a very high place on the agenda.

Social topics

Figure 2.1 Which of the following social topics are regularly adressed during board meetings?

Sustainability

Digitalisation

Flexibilisation of the Labour Market

Cybersecurity

Cultural Diversity

Climate Change

Geopolitical Tensions

Urbanisation

EU Politics

Terrorism

The Refugee Crisis

60%

59%

34%

34%

26%

20%

19%

17%

17%

10%

9%

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This year, we reviewed the extent to which certain social themes have permeated the Dutch boardrooms. Sustainability and digitalisation are seen as key social themes by 60% of the CEOs, which are frequently to constantly a topic. Sustainability has been a hot item in the boardrooms for many years. It has now become one of the key social themes for CEOs. It is interest-ing that in spite of being accorded such importance, it is not classed as a major strategic issue, apparently organisations do not allow social developments to be leading in preparing their strategic pol-icy. On the other hand, the other social theme considered important, digitalisa-tion , is reflected on the CEOs’ strategic

agendas as well. As digitalisation has an increasing impact on the way in which organisations operate, it is not surprising that cybersecurity is also a major social theme. The interest in cybersecurity also in part coincides with the conclusion that risk management plays an increasing role within organisations. After all, a leak or weakness in the digital infrastructure can have major consequences to the organ-isation’s primary process and even the organisation’s reputation. Although many companies seem to see future mountains of gold abroad, international themes such as geopolitical tensions and European politics have a remarkably low place on the agenda in many companies.


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Future markets & Growth prospects3

Most CEOs see opportunities again in the growing Dutch economy. Both domestic and international growth and opportunities are spotted. Almost half of all companies expect foreign markets to become more important than the Dutch market for future sales. Now that their internal organisation is in order, companies dare to start looking for new markets.

Future markets

Figure 3.1 What will be the biggest growth markets? (2016 and onwards)

> 20%11% - 20%6% - 10%0% - 5%

4%12%13%

8%5%

2%

3%

2%

1%

5%

3%3%3%3%3%3%3%5%

4%

6%30%30%30%30%

47%

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With the Dutch economy showing grad-ual signs of growth, the growth forecasts are adjusted accordingly. 33% of the respondent CEOs indicated they expected stable sales in 2016. No less than 60% is forecasting clear growth. Only 7% of respondents takes a more pessimistic view, expecting to end this year with a decrease in sales. To reduce cost, many CEOs focus on adjusting the primary process of the organisation. In particular process optimi-sation is considered the best way to reduce the organisation’s cost in 2016. Further-more, CEOs also see fl exibilisation of the employee population as a cost-cutting method. This theme is also relatively high on this year’s agenda as a strategic card to play.

Growth expectations The Netherlands

Figure 3.2 Budget for 2016, growth, stable or declining budget (1 possible answer)

Growth60%

Decline7%

Stable33%

For most respondents, the Netherlands and the adjacent countries remain by far the biggest sales markets. In 2015, only 54% of respondents indicated that they saw the Netherlands as their key sales market. This year, the percentage rose to over 80%. However, with their internal affairs in order, companies also start to look for growth opportunities abroad. Almost half of all respondents expect to fi nd the biggest sales markets abroad in the future. Economic recovery in the USA is a basis for many respondents to expect growing sales in North America in the future. Although the sales growth in East-ern Europe was forecast at 10% in 2015, only 3% of respondents indicates short-term sales growth is expected in that region. The outlook for the region, how-ever, still remains positive. Where 2016 forecasts for Asia were slightly tempered due to disappointing economic fi gures for China and some other Asian coun-tries, signifi cantly higher market growth is expected in the future. In particular the energy sector is expecting to achieve a clear foothold in India in the next few years. 21% of respondents in the energy sector indicates seeing India as a key mar-ket in the future.


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Distinctive features4

Dutch companies have mainly distinguished themselves on product quality in the last decade. However, where quality was lonely at the top in the previous years, innovation is popping up as another way of distinguishing yourself for many companies. Distinction based on sustainability, on the other hand, seems an impossibility for many companies. Sustainability seems to have turned into a ‘licence to operate’, a basic requirement you must fulfil to be able to compete.

Distinctive features

Figure 4.1 In which way does your company distinguish itself from competitors?

20142013 2015 2016Quality

Innovation

Customisation

Focus on a specific Segment

Co−design / co−production

Brand (Image)

Sustainability/ CSR

Service

Reliability

Lowest life time costs /total cost of ownership

Product Range

Design

Online Platform

Ease of customer process

Lowest Price

60%

51%

34%

27%

22%

18%

16%

15%

14%

9%

8%

7%

7%

4%

2%

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Dutch companies have mainly distin-guished themselves on the quality of their products and/or the services they provide for many years. This year too, over half of respondents indicate their company aims to distinguish itself mainly on quality. Quality was top priority in the past years. This year however, innovation proves an increasingly important way to distinguish an organisation from its competitors. In 2013, only 28% of respondents indicated they aimed for a leading edge based on innovation. This has shown a year-on-year increase to 50% in 2016. In some sectors, innovation is the new number 1 (finan-cial services, trade & retail, industry).

Although sustainability is number one when it comes to social issues and also is a permanent topic on the CEO’s strategic agenda (although never at the top), it is not an element that companies use to make the difference. Only 16% of respon-dents indicates that they are aiming to distinguish themselves on the basis of sustainability. It seems that sustainability has become a licence to operate. If com-panies do not comply, it will harm their corporate reputation. On the other hand, as compliance is expected from all com-panies, it is hard to find a distinguishing strategy based on sustainability. This is not true for all sectors: in agrifood and construction, sustainability is frequently used as a distinguishing strategy. Price is clearly not a factor that companies aim

to distinguish themselves on. Before and during the 2008 crisis, 14% of respon-dents indicated that price was one of the main ways to distinguish themselves. In 2016, this has dropped to just 2% of all respondents.

Service also dropped places as a possible factor for competative advantage. Up to 2014, service was in second place. Today, only 15% of CEOs indicates that they distinguish themselves on (customer) service. It seems companies are focusing on customer-driven production methods. Providing customisation and co-design are increasingly mentioned as ways to distin-guish yourself from the competitor in the past few years.


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TechnologyTrends5

Technology increasingly has an impact on the primary processes within the organisation. It is therefore far from surprising that themes such as innovation and digitalisation are high on CEOs’ agendas. Big data is the technology that is set to have the highest impact on the business model in 2016. However, this requires due care in processing all these data. Accordingly, companies indicate that they intend to make signifi cant investments in digital safety to cover the risks involved in big data.

Technology Trends

Figure 5.1 Impact matrix, impact of the technology and the readiness to invest in the technology

0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50%

Importance of the Trend

Cybersecurity

Big Data

Smart IndustryE-Commerce

Mobile

Serious Gaming

3D-printing Sharing Economy

Alternative Currency

Crowdsourcing

Rea

din

ess

to In

vest

50%

45%

40%

35%

30%

25%

20%

15%

10%

5%

0%

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Technology has an undiminished major influence on how organisations are man-aged. The trend of ongoing digitalisation has an increasing impact on the primary processes within organisations. Increas-ingly, customers are looking for infor-mation on products or services through online channels. On the other hand, companies increasingly aim to reach their customers through online channels. The front-runner companies are working on digitising their entire business operations and primary processes, including entire factories (for instance using 3D printing).

From the survey, it becomes apparent that CEOs see big data as the development that will have the biggest impact on the organi-sation. In the future, big data is set to play a key role in organisations, but the risks must be carefully managed. This is also clear from the fact that respondents indi-cate they will invest most in the digital safety of the organisation. This coincides with the development that cybersecurity is increasingly discussed as a social theme in the boardrooms. The high expectations of the importance of crowd-funding are (once again) not materialising this year. Only 4% of respondents indicates that crowd-funding as a financing method has a major effect on the organisation, and only 5% of them considers investing in this area in the future. In the financial sector, this percentage is slightly higher at 12%, and 18% of respondents in the construction sector intends to work with crowd-sourcing in the next year.

Just how quickly things are moving in innovations and the introduction of new technology is clear from the investment trends in the respondent companies. This shows that both the large (over 1,000 employees) and the small organisations (1-50 employees) spend a relatively large percentage of their sales in R&D activities. Although the middle segment (51-1,000 employees) is the big driver of the Dutch economy, these companies are investing relatively less in R&D activities. These R&D investments also seem to benefit the smaller organisations most. Over one third of the respondents with fewer than 51 employees indicate that over 10% of sales is made with new products. In large organisations, this percentage is much lower. Larger organisations also invest a high percentage of their sales in R&D activities, but a relatively lower portion of their sales is based on new products.


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Strategic Challenges6

Most C EOs indicate that identifying opportunities and risks is becoming less of a problem. Most organisations know they should do something to keep up. They also have an increasingly clear idea where to fi nd the solutions. Finding the right solutions and actually implementing the solutions found - that will be the key challenge for Dutch CEOs in 2016.

Strategic Challenges

Figure 6.1 Which aspects of the strategy process are most challenging?

Incorporate the strategy ingoals and strategic plans

37%26%

Implementing change34%

32%45%

Future scan24%

36%43%

Involve the right people 18%13%

Making of strategic choices 16%

18%20%

Directing the chosen strategy13%

8%20%

Determining theorganisational goal

11%11%11%

Determining the rightstrategic approach

10%5%

Environmental Analysis9%

17%22%

Organisational Analysis4%

10%13%

201620152014

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CEOs indicate that the challenges in defi ning the strategy are mainly related to actual implementation of the strategy in terms of goals and annual plans. This is related to the fact that the implemen-tation of the required changes proves a major obstacle to CEOs in ensuring the success of the strategic process. The imple-mentation of environmental and organ-isational analyses seems to become less of a problem. Exploration of the future is also not a major issue for organisations. It seems that companies understand they have to do something, and increasingly have a clear idea of the solution paths. However, just how they are going to act on it, and choosing the right approach remains a major challenge to many organisations.

Today, the strategy process is mainly something happening in and around the boardroom. 31% of respondents indi-cates that the management team and executives determine the strategy, and another 23% indicates that the CEO determines the strategy process. However,

there is a clear trend that organisations are involving more people in the strategy process outside the persons frequenting the boardroom. In 2014, only 10% of respondents indicated that the strategy is determined through a dialogue with the entire organisation. Today, this percentage has more than doubled to 21%. In partic-ular in the fi nancial sector this seems a popular trend, where 39% of companies indicates that the strategy is determined in dialogue with the entire organisation. A clear change is also visible in the strate-gic planning period. During the fi nancial crisis, the strategic plan was more focused on surviving the year, looking just one year ahead. In 2016, the new standard has shifted to two to four years. In other words, in turbulent times, the strategy process focuses on a short-term, top-down approach to enable quickly making and implementing decisions. Today, the organ-isation is involved in the strategy process more frequently, and external parties, in particular current and potential custom-ers, are also increasingly involved.

Strategic Process

Figure 6.2 How is your strategy determined?

Board & Management

Team

Top-down Dialoguewith the

organisation

Dialoguewith the middlemanagement

Branchestrategy

Afterwardsdetermined

201620152014

40%35%30%25%20%15%10%5%0%


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Contact

J.J. (Justin) van der Starre(030) 291 [email protected]

G.J.J.B. (Gerben) van den Berg(030) 291 [email protected]

D.S. (Douwe) Suesan(030) 291 [email protected]

Digital Platform:www.strategytrends.nl

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