The future is a state of mind: What it takes to build a future-ready company

In the depths of the global pandemic, Satya Nadella, Microsoft’s CEO, remained upbeat, even as arch-rival Apple took the crown as the world’s most valuable company. He mobilized the company to help corporate customers “adapt and stay open for business in a world of remote everything,” enthusing that “we’ve seen two years’ worth of digital transformation in two months.”

At the same time as focusing on the here-and-now, Nadella kept one eye on the future, quietly increasing Microsoft’s investment in OpenAI, which was a little-known artificial intelligence company at the time. This strategic investment was all about pursuing a vision of hope. As he said when first committing to OpenAI: “Whether it’s our pursuit of quantum computing or it’s a pursuit of artificial general intelligence, I think you need these high-ambition North Stars.”

Now, Nadella’s investment in the future is paying off—big time. As the world emerged from COVID, OpenAI launched its blockbuster chatbot, ChatGPT, giving Microsoft the kind of technological advantage over its rivals that it had not enjoyed for decades. And earlier this year, Microsoft regained its crown as the world’s most valuable public company.

So why have Satya Nadella and others like him been successful when we are enduring what some observers call a poly-crisis or even permacrisis? In our view, they have several important traits in common. They retain a sense of optimism; they develop a vision of what their company will look like in five or even ten years’ time; and they draw up a roadmap for continuous and rapid change to guide them toward their vision of the future.

Investigating this further, we spoke to dozens of business leaders. As we will now explain, the best CEOs understand that the future is a state of mind: It hasn’t happened yet—it is waiting for us to shape it. And to be able to shape it, they display a diverse set of five core leadership traits which come to the fore in different situations, depending on whether they are reviewing their corporate portfolio, pushing for breakthrough innovation, rethinking their global supply chains, improving sustainability, embedding their AI systems and other technology, providing their company’s capital and liquidity requirements, or building their teams and managing their talent.

The five critical leadership traits of future-ready CEOs

In the fast-paced day-to-day of running a business, the short-term and urgent often trump the long-term and important. But the best CEOs manage to break free of the constraints of today and focus on tomorrow because they possess some distinctive leadership traits that are critical for building a successful future-ready company. Here’s an enumeration of those traits, and examples of where they prove particularly useful. 

1. Decisive and unsentimental
Best for managing: The corporate portfolio
The best CEOs, focusing on tomorrow rather than yesterday, are dispassionately analytical when assessing their corporate portfolio and deciding which businesses are creating value, which ones aren’t, and which ones may even be destroying value. But many leaders make the mistake of keeping businesses for historical or sentimental reasons. “This is where it all started, we can’t give it up,” was the response of one company when we laid out their huge losses over many years in consumer electronics and suggested closing down the unit. It took executives another three years to exit the business after they finally accepted that they could not stop the bleeding.

2. Experimental and ambitious
Best for managing: Innovation, supply chains, sustainability, technology
When it comes to their R&D and innovation strategy, their procurement and supply chain operation, their pursuit of sustainability goals, and their efforts to create a technology-focused culture, the best CEOs are experimental and ambitious.

R&D or innovation
According to BCG’s latest list of the world’s most innovative companies, four of the top five are technology-led (Apple, Amazon, Alphabet and Microsoft). But what really distinguishes them is not so much their technology as their ambitious approach to innovation. They know that they need innovative products and services to have a viable future, and so they think experimentally and expansively about the opportunities to create value for their customers. They understand that innovation comes in all shapes and sizes: better, faster services; lower-cost products with less waste; higher quality materials with more durability; more personalized services; new business models; and so on. They also understand that innovative ideas can come from many different sources—not just from the wizardry of an AI algorithm or from the people working in the central R&D department, but also from subsidiaries, customers, suppliers, and adjacent businesses.

Supply chains
In a fracturing world, the best CEOs are seeking to safeguard their future by rapidly reorganizing their supply chains—experimenting with new suppliers who can help them fulfil their ambition to seize what BCG calls “the fractal advantage”: the growing opportunities emerging at the edge of a business. Although they are not deglobalizing (since they are retaining footprints that span the world), they are becoming more multiregional or even multilocal by focusing on local customers and by limiting their dependence on the supply of raw materials, parts, and components from other regions. For instance, many U.S. companies have reduced their reliance on China as a manufacturing hub and switched to suppliers at or closer to home. As a consequence of this, Mexico last year overtook China as the biggest source of goods to the U.S. for the first time in 20 years.

The best CEOs know that their sustainability strategy is about ensuring a sustainable future for the company as well as the planet. Accordingly, they are pursing ambitious sustainability goals in an experimental way. They are driving bottom-line efficiency by reducing carbon emissions, cutting the consumption of all resources, and limiting waste and leakage. Also, they are seeking top-line growth by positioning their companies as regenerative businesses which replace the “take, make, waste” approach of the linear economy with the “reuse, recycle, reduce” approach of the circular economy. If they get it right, the opportunities for future growth are huge: The circular economy is projected to be worth nearly $700 billion by 2026 (up from $339 billion in 2022); while the green economy is forecast to be worth $10.3 trillion by 2050, as new industries are born.

Technology—especially AI—is rightly seen as a potential silver bullet for solving many current and future business problems. But delivering on its potential is hard. A study by BCG and MIT Sloan Management Review found that only one out of ten companies enjoy significant benefits from AI because most failed to embed the technology in the everyday operation of the company. To solve this problem, the best CEOs are taking an experimental approach, often following what BCG calls the 10–20–70 rule: devoting approximately 10% of their effort to designing the algorithms, 20% to developing the underlying technology and data, and 70% to supporting people and changing the organizational processes and culture.

3. Prudent
Best for managing: Capital and liquidity
Maintaining a solid capital base with sufficient liquidity is a prerequisite for surviving far into the future. But it requires a prudent approach—and judging by the recent spate of corporate failures, prudence is a rare leadership skill. When inflation started to rise and then accelerate with the energy crisis that followed Russia’s invasion of Ukraine, central banks reacted by increasing interest rates and many CEOs were shown to have been—in Warren Buffet’s inimitable phrase— “swimming naked.” To avoid this, the best CEOs take care to review their capital and liquidity requirements: they evaluate their company’s real funding needs and they run risk models (even those with extreme scenarios) on a continuous basis so that they can provide a financial cushion for the worst of times.

4. Patient
Best for managing: Talent
Amid the so-called Great Resignation, with large numbers of people leaving the labor force or poised to retire, the best CEOs have exercised great patience when implementing their talent strategy. They know there can be no quick fix, since they face tough competition for the best talent. So they are taking the time to think deeply about what their company should look like in the future (and therefore what kind of people they need to recruit and retain) and, in some case, they are operating a kind of “People P&L” because they recognize that a steady flow of good people is just as important as a steady flow of cash and critical components.

5. Persistent
Best for managing: All business domains
There is one more leadership skill that the best CEOs exhibit: persistence. This they apply across all business domains, because they know they must overcome many obstacles as they follow their roadmap of continuous and rapid change. Faced with challenges, their instinct is to look for solutions. What they don’t do is play the blame game—or give up. They believe in their vision of the future and their ability to chart a course toward it.

The future is yours to shape

In so many ways, the future is an attitude, a state of mind. The world’s most successful CEOs have shown that if you are decisive and unsentimental, experimental and ambitious, prudent, patient, and persistent, you can navigate through choppy waters toward your vision of the future—what Satya Nadella calls his North Stars. To a very large degree, you, and the actions you take as leader, will determine what tomorrow is like. You really do hold your own destiny in your hands—and your company’s as well. 

Hans-Paul Buerkner is managing director and global chair emeritus at BCG, and the former CEO and chairman of BCG.

Arindam Bhattacharya is a senior advisor at BCG and a BCG Henderson Institute Alumni Fellow.

François Candelon is managing director and senior partner at BCG and the Global Director of the BCG Henderson Institute.

Some of the companies featured in this column are past or current clients of BCG.

Source link

About The Author

Scroll to Top