UK CEOs are divided between pursuing ‘revolutionary’ and ‘evolutionary’ growth strategies, our research shows. KPMG partner Warren Middleton explains why he believes more CEOs need to revolutionise their thinking to achieve growth.
Business confidence is back. Are business leaders ready to turn their attention from managing costs to investing in customer-focused innovation?
Yes. After years of containment and control, clients are asking us to work on issues such as customer growth and the way they go to market – and that’s partly thanks to increased shareholder appetite.
Our recently published research, Revolution or Evolution? Shows that 51% of UK CEOs believe they’ll be leading a “significantly different entity” in the next three years. So the evidence is there that most UK CEOs are already planning for transformational change.
Why should CEOs plan for transformation?
The main reason is that customer expectations are changing so fast – driven by the pace of technological progress. Customers increasingly want e-commerce orders, for example, to be fulfilled within hours rather than days; and they demand instant answers to queries via digital channels. Businesses need to be responsive to those demands in order to survive.
Another factor is the threat from market entrants. In many sectors, we’ve seen technology-based disruptors take market share from established leaders. But CEOs are also responding. In retail banking, for example, we’ve seen four or five building societies seeing what challenger banks are doing – and reacting with a positive, customer-based and innovative approach.
What do CEOs need to do to transform their businesses?
There are two key points here. The first is that CEOs need to be personally involved in transformational efforts, to make sure their business continues to compete.
That’s because transforming your business is not just about “operational improvement” – it’s bigger than that. It’s end-to-end transformation: starting at the front end and working backwards through sales, middle office and back office operations, to integrate your business with customer needs, in an agile and innovative way. That requires a clear mandate from the CEO.
Businesses, and in particular smaller companies, can’t face this challenge on their own; they need to work with a varied network of suppliers. For example, we’re working with a telecommunications company who not only work with a varied supplier base to improve their customer proposition but even their competitors; sharing processes and back office systems is leading to increased customer responsiveness and new offerings.
Market disruption can happen in any sector. How do you ensure you’re the one being disruptive, and not a competitor?
As I say in the report, I think CEOs should be more worried about disruption. I find it surprising that 48% of UK CEOs are “not at all concerned” by disruption from new entrants, with the same number unconcerned by their products becoming irrelevant.
To head off the threat from disruption, one idea is to keep challenging your business by bringing revolutionary ideas into the organisation. Some businesses set up an “innovation hub”: a small team away from the corporate centre who can challenge things, and pilot ideas through a sub-brand or smaller part of the business.
At board level, you need to be brave enough to back these disruptive efforts, because there will inevitably be failures along the way.
What else can businesses do to build innovation into their business?
Apart from supplier alliances and innovation hubs, another route is to acquire, partner with or take a holding in a challenger organisation.
One tactic is to acquire a business, play it in a different market to see if it works, and then take it to the wider group at a later stage. For example, there’s a challenger bank coming to the UK soon. Their business model has worked in Eastern Europe; they plan to reuse the model elsewhere in the world if it is proven to work in the UK.