With the war in Ukraine, post-Covid uncertainty, new regulation, environmental risks, tech innovation, supply chain problems and inflationary fears just a few of the factors currently at play, corporate executives are having to navigate through unprecedentedly choppy waters. Will they manage to steer their corporate portfolios through this turbulence?
Overconfidence?
The responses of companies in Germany, Austria and Switzerland (the DACH countries) recently surveyed on behalf of PwC suggest that many executives are confident of being able to navigate the turmoil successfully: 56% of decisionmakers are moderately optimistic about growth opportunities and market attractiveness. Around 60% of respondents described their strategy as adaptation (as opposed to preservation), and a whole 83% expect their core business to change by up to 40% in the next five years. But are they over-confident of their ability to adapt? The survey reveals that the actions companies are taking in reality are more typical of preservers than adapters: 73.5% cite growth programmes, 69.5% restructuring, and 49% research and development ‒ all of which are organic measures more typical of a preservation strategy. Inorganic measures more characteristic of an adapter approach ‒ such as acquisitions (44%), joint ventures (27.5%) and carve-outs (8.5%) – are mentioned far less frequently.
Lack of urgency?
The gap between portfolio strategy in theory and implementation in practice is concerning. Are companies not fully aware of the urgency? While it’s true that 46 percent of respondents expect VUCA factors to intensify in the future, this figure is fairly low given the huge economic disruption caused by the pandemic and recent geopolitical strains. The fact that only 7% of respondents are implementing defined strategic portfolio measures consistently and promptly is another finding suggesting that the urgency is lacking.
Tobias Huesmann, the director at PwC Germany who headed the study, stresses the importance of following through on an adapter strategy in a VUCA environment: “What’s striking is that in practice, the executives aren’t systematically implementing their favoured strategy, and are still relying heavily on measures geared to preservation. But the more complex and uncertain the market environment, the more important it is to pursue adapter measures.”
The right response?
So two of the most important takeaways of the report are that a) executives might consider whether they have assessed the urgency correctly and b) companies should ask whether their implementation efforts actually match their intentions. Being an adapter is the best approach to the challenge of VUCA, but the practice has to match the theory. Tobias Huesmann sums it up:
“Deliberately creating and utilising windows of opportunity, boldly making use of good-enough conditions instead of waiting for the once-in-a-lifetime moment, planning flexibly ahead in good times instead of reacting under pressure, accepting VUCA and its need for structural investments versus hoping for the return of the old days’ stable market conditions are key criteria to succeed in modern markets and manage corporate portfolios effectively.”
I invite you to visit the website and check out the report. It’s thought-provoking and provides plenty of food for thought. Feel free to reach out if you’d like to continue the conversation.
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PwC Portfolio Management Study 2022
PwC Portfolio Management Study 2022: How executives view the current and future market environment – and how they navigate their corporate portfolio through VUCA markets.
