A framework to help leaders approach the topic more holistically and effectively.

The discussion around remote work — which has dominated news headlines, Slack conversations and water-cooler chats since countries relaxed their Covid-19 guidelines — is only getting more contentious. Many workers wish to continue working remotely in some capacity, while insisting that leaders’ productivity concerns are unfounded.

However, some high-profile executives have been vocal about their opposition. Morgan Stanley CEO James Gorman declared that working remotely “is not an employee choice”. And Elon Musk denounced remote work as “morally wrong”. He further suggested that those working from home are merely “phoning it in” and mandated a return-to-office (RTO) at Tesla, SpaceX and X (formerly Twitter).

One consistent aspect of the arguments for and against remote work is how strong and entrenched these stances are. And although conflicting perspectives on the topic are nothing new, tensions seem to be escalating.

Amazon workers conducted a walkout to protest their company’s RTO policies, Google recently began tracking employees’ in-office attendance and Farmers Insurance workers have threatened to unionise or quit over the CEO’s reversal of the company’s remote work policy. What’s more, stories of employees being terminated for failing to comply with RTO mandates continue to proliferate.

Amid increasing polarisation, it becomes even more difficult for employers and employees to reach a consensus on the best way forward. As I wrote in a recent article for Harvard Business Review, leaders and employees should actively collaborate to devise a balanced approach to the issue and arrive at a mutually beneficial solution — one that recognises and validates the needs and concerns of both sides.        

Bridging the gap

Why are we having such difficulty agreeing on how to approach remote work? Based on my research and consulting over the past 20-plus years, I believe a major reason is that we are assessing cost-benefit trade-offs without agreeing on the 5 W’s: who, what, where, when and why.

Why do we need the 5 W’s? It’s not new, but this classic tool — which was developed by journalists to make sure all the relevant information is included — works really well here to allow for a more complete perspective. This can help employers foster dialogue with their employees that is balanced (understands the needs of both sides), respectful (validates those needs) and ongoing (adjusted over time as needs change). Employers and employees should approach these conversations with the objective of finding the most mutually optimal solution — not winning.

The starting point for any productive discussion is aligning on “why”flexible work is (or is not) a topic of discussion in the first place. For some, it may be about increasing or preserving productivity. For others, it could be about attracting and retaining talent, fostering relationships or strengthening social ties.

It’s then important to establish clarity on “what” by defining these driving factors. For example, performance is widely heralded as both the benefit and cost of remote work. That’s because we rarely agree on its definition in the first place — whether that’s efficiency, quality or the amount of work generated.

Next, consider the “where” — as in where in the organisation are you evaluating remote work. All organisations are different, meaning that there are myriad paths to achieving various kinds of work. Those packing products into boxes are relatively constrained in terms of where they can work from, while those answering customer service enquiries are not. Considering the types of work being done sets the boundaries for discussions around policies.

Leaders and employees often struggle to think effectively across time — the “when”. Certain benefits provided to employees may produce short-term benefits but have long-term costs. For instance, giving workers an additional day of flexibility may reap the short-term benefit of eliminating a commute but lead to the long-term consequence of a loss of mentorship when schedules no longer align.

The root of most of these disagreements, in my experience, is the “who”. Work policies affect people differently, and it is important to account for both individual and collective effects. A policy that allows staff to work from home (WFH) at-will can benefit individuals’ work-life schedule coordination but come at the expense of a collective sense of culture.

Establishing clarity on the 5 W’s can help leaders better think about whose interests or outcomes they are prioritising when devising remote work policies. However, keep in mind that the 5 W’s are a tool to help ensure organisations get all the information on the table for a fruitful discussion — they are not entirely independent elements. Take decisions around what work is suited for increased flexibility. Although this is a conversation about “where” and is contingent on “what” leaders define as key outcomes, it also has a major impact on who receives the benefits, with consequences for employees’ sense of fairness and equity.

Creating constructive dialogue

To design effective work policies and practices, everyone’s voices must be heard. Leaders who institute policies without involving their employees are often seen as out of touch, while employees who make demands about how they work are frequently perceived as entitled. Only by engaging both sides can we start making progress.

Rather than being treated as a one-off, this needs to be an ongoing conversation. Preferences, needs, technologies and market demands are constantly evolving, as are individuals’ perceptions of how best to operate within that changing context.

So, how should leaders facilitate this ongoing dialogue? After comprehensively considering the 5 W’s, the critical step is to maintain that clarity by ensuring you and your employees evaluate them via a structured, objective process by using the following framework.

1. Own the issue

Leaders and employees have a vested interest in getting work policies right, and everyone has experiences and opinions that provide valuable data. It’s important that all this information is brought forward, and all perspectives included.

The current exchange in which both sides are trying to “win” makes collaborative dialogue extremely unlikely to occur. Dialogue cannot be successful unless both sides accept joint ownership of the issue, including taking responsibility for any missteps that may have happened along the way. The purpose of the conversation is to learn and attain a better outcome, which may require clearing the air.

Leaders must also recognise that the playing field isn’t exactly even. The power of collective action (strikes, walkouts, etc.) notwithstanding, managers possess greater agency and control over the policies in question. In my work with companies, I stress to leaders that this is not the time to be proud. Showing your own vulnerability by acknowledging that everyone is doing their best to chart a course through unfamiliar territory is a powerful first step.

2. Establish expectations and ground rules

Psychology offers two powerful tools that can dramatically improve the results of your discussions and account for the needs of all involved: psychological safety and a growth mindset. Employees need to know they won’t be met with reprisal for voicing their needs and constraints. Similarly, leaders need to be able to speak honestly about the pressures they face on an organisation level. This allows everyone involved to work together towards a more optimal solution. Both sides will hold back if they don’t feel safe doing so.

It’s also key to recognise that companies operate in a constantly evolving environment. As employees’ and organisations’ requirements change, policies should be revisited to ensure they remain relevant. Policy changes should not be seen as failures, but as important steps in a learning process — the fundamental core of a growth mindset.

Make sure everyone involved agrees to this collaborative process as ongoing, adaptive and governed by these central principles, and obtain that commitment at the start. Doing so can lead to far better outcomes for all involved.

3. Eliminate black-and-white language

Overly simplistic, black-and-white language can impede productive conversations about work arrangements. While the 5 W’s show that this is an incredibly complex, multidimensional topic, reductive blanket statements abound.

I encourage leaders to be explicit and call out the risk of blanket declarations like “WFH is unavoidable” or “remote work kills creativity”. There may be some truth in both sentiments, but these statements further entrench positions and don’t advance dialogue.

As an example, in one executive committee I worked with, members could throw yellow and red cards when they witnessed blanket statements being made. By levelling the playing field and injecting a dose of levity, the group was empowered to have more healthy and nuanced discussions. While you don’t need to introduce a card system, consider how to ensure that everyone (leadership included) is held accountable for counterproductive language.

4. Talk

Space and time are necessary to have meaningful discussions. But as simple as it is (and as silly as it may seem to mention it), setting aside time may be the hardest step in the process. Formalising these discussions to give them legitimacy and carving out time in individuals’ schedules to conduct them is crucial. While you don’t need to allocate hours each week to this, ensure that the time you do set aside is regular, as predictability builds trust.

Opinions remain fiercely divided on the WFH/RTO debate. To make matters worse, these divergent positions align with the divide between leaders and employees, who both have strong vested interests in the outcome.

Despite plentiful and increasing data on the subject, there is no simple fix. The only productive way forward is for leaders to engage employees and work together to develop the most mutually beneficial solution possible for their organisation.

This content was originally published here.

The post Solving the Problem of Remote Work appeared first on Matt Dallisson Global Executive Search | Leadership Consulting.

Moderate stress boosts performance. But can companies determine “optimal” stress levels for their employees?

In our time-starved, hyper-connected world, few things remain constant. One of them is stress. From presenting in an important meeting to catching the rush-hour train, or simply worrying about what others think of us, we experience varying levels of stress in everyday life. Studies have shown that too much stress can harm our mental and physical health. Entire industries have sprung up to help people combat stress. Stress, in short, is bad. Or is it?

As with most things, the reality is more nuanced than the hype. After all, our reaction to stress is adaptive. The stress response underpins the fight-or-flight instinct, without which homo sapiens would never have survived. In the modern workplace, too, it stands to reason that a certain amount of stress can lead to better performance.

Research we conducted with Maximilian Burkhardt and Stefan Spinler shows that while high stress harms performance, medium levels of stress can in fact provide a boost.

Notably, compared to previous work on stress, our study takes the novel approach of linking individuals’ stress response to the quality of their work decisions. It also models concrete steps organisations could take to determine optimal stress levels for individual employees, and in turn, improve organisational performance.

Some stress is better than no stress

Although workplace stress is common, some people are under more strain than others due to the nature of their work. We focused on humanitarian aid workers, who are frequently pressed for time and exposed to emotional trauma. Their work will only become increasingly vital and demanding as climate change leads to more natural and man-made disasters.

We recruited 154 students from the WHU—Otto Beisheim School of Management to participate in our experiment, set up as a role-playing game. Participants assumed the role of the procurement manager of a humanitarian organisation, responsible for ordering a perishable relief item that beneficiaries need. The goal of the game is to minimise the overall cost (and potentially win lottery tickets).

We randomly assigned participants to one of five conditions: no stressors, low time pressure, high time pressure, physical stressor (noise) + emotional stressor (emotive pictures), physical stressor + neutral distraction (non-emotive pictures). We also measured participants’ psychological and physiological stress levels. For the former, participants indicated their arousal and emotional state on a scale of 1 to 9. The higher the score, the more aroused and upset or anxious participants felt. Using sensors worn on the wrist, we measured participants’ baseline and in-experiment heart rates to gauge their physical stress levels.

The results show that on average, participants subjected to lower time pressure and emotive pictures displayed medium levels of arousal and physiological stress. They also placed orders closest to the optimal value, outperforming those who were not exposed to any stressor. By contrast, participants exposed to high time pressure experienced high arousal and physiological stress. Expectedly, they also performed the worst, placing orders furthest from the optimal value.

Presumably, a moderate level of stress marshals more cognitive resources to the task at hand and improves performance, not unlike the fight-or-flight response in our ancestors. But when stress overwhelms our ability to cope, our performance suffers.

Assess, measure, train

Whereas prior research on stress focused on how it affects individual performance and health, our study focuses on the connection with organisational performance. In the case of our pretend procurement managers, any less-than-optimal performance on their part would have a downstream effect on the effectiveness and viability of their organisation’s humanitarian work.

No doubt people can, and do, use many methods to cope with stress. Just look at the popularity of mindfulness meditation apps, gym classes, spas and stress-busting products. But employers are better placed to tackle – and harness – workplace stress. Based on our findings, we suggest a three-pronged approach: assess, measure and train.

First, assess what causes stress at the organisational level. Is it extreme time pressure, razor-thin margin of error, or an exacting clientele? Interventions should target structural stressors that evoke the highest levels of stress. On the other hand, stressors such as moderate time pressure may have negligible or even positive effects on decision-making.

Next, within the bounds of ethics and privacy, measure stress levels in individual employees. Since individuals respond to stressors differently, what is stressful for one manager may be a walk in the park for the next. As our study demonstrates, organisations could gauge stress responses via a simple questionnaire and a heart rate tracking device.

The first two steps can help organisations uncover what triggers high and moderate stress in individual managers, and how it affects their performance. The third step is to train managers to cope with what stresses them out. In our study, participants made better decisions as the experiment progressed, regardless of which stressful condition they were assigned to. This effect was most obvious for the high-stress group, even though all participants were thoroughly briefed and practised playing the game prior to the experiment.

Safe to deduce then that adequate, realistic training – within ethical limits – may help reduce stress and mitigate its impact more than other prep work. We suggest that companies use hands-on training or immersive and virtual reality simulations, which are relatively inexpensive, to habituate managers to stressful situations. Human beings are incredibly adaptable. As far as stress is concerned, the trick to powering through is to know where to draw the line.

This content was originally published here.

The post Making Stress Work for Organisations appeared first on Matt Dallisson Global Executive Search | Leadership Consulting.

Look online at any of the thousands of articles available on the challenges of networking for a job, and you’ll find that 100% of them give advice on how relatively junior professionals can network “up.”

But surprisingly little advice is available for senior executives, who experience a different but equally challenging set of networking hurdles. That’s a problem, because knowing how to reap networking’s full benefits is crucial for people at the top of the pyramid, especially a time when CEO turnover is at a record high.

We have decades of experience working with and studying senior executives who are making career changes. In this article, we’ll identify six common hurdles that that they often struggle with when it comes to career networking, and we’ll provide some guidance on how to get over them.

1) Reluctance to ask for help

Networking for a next role means asking for help. Research in social psychology shows that people with high status are more apt to feel pressure to maintain an image of strength and competence and to value self-reliance, all of which can make them reluctant to seek assistance. They fear rejection and worry that asking for help might expose perceived weaknesses, potentially undermining their status, position, or reputation. This is ego-driven reluctance, and we see it frequently. As one of Herminia’s students put it, “I give help — I don’t ask for it.”

One way around this tendency, which is a natural one, is to start your networking process by reaching out to lower-risk (and lower-yield) contacts — ideally, executives who you know well, who have done their own networking, and who can share not only how they approached others for help but also what they got out of asking for it.

You can probably do this with more people than you realize: As the Stanford social psychologist Xuan Zhao has found, people regularly underestimate others’ willingness to help, because they don’t realize how happy it makes those others to do so. Low-risk warm-ups and rehearsal practice — what Spish calls “hearing the dreaded words come out of your mouth” — will help you fine-tune your message, defuse your emotions, and experience success. And having a few positive experiences under your belt will make your later, more-challenging calls and emails easier.

2)  Prioritizing secrecy

The more senior an executive, the more likely they are to want secrecy, especially if they’ve been laid off. One of Spish’s clients, for example, asked: “How do I go out into the market without letting the market know that I’m looking? I’d like to reach out to people, but I don’t want them to know that I’m interested in looking.”

Such worries limit your exposure to others, which is a problem in its own right. But they also force you to be secretive as you work on networking and career change — a process, according to Herminia’s research, that often takes far longer than people expect. That burden of secrecy, carried for a long time, can exact a significant psychological toll.

Limiting your exposure to others can be especially pernicious when it keeps you from stepping back and exploring broadly what you would really like to do next. And try as you might, you won’t fool people by obfuscating. At senior levels, it’s a small world: The people you talk to can figure out what you’re up to, perhaps by making a call to a source in their own network, or perhaps just by doing a search online. If you do succeed in concealing your story, it’s likely to tax your nerves and cost you a lot of energy to get the same result that just speaking honestly and directly would have gotten you. With rare exceptions, honesty is the best policy.

3)  Unrealistic expectations

Because they’re reluctant to ask for help and don’t want word to get out that they are in the market for a new role, senior executives typically want to get their networking done fast. Or they simply assume that because they’re senior, the process won’t take very long. Unfortunately, the more senior you are, the more time you’re likely to need to find and align on the right fit. In Spish’s experience, the shortest possible search is about three months, and the longer ones can take as much as 18 months.

Not only does effective networking take a long time, it also involves a great deal of work, stamina, efficiency, and patience. There are three primary reasons for this.

First, as both of us have found, only a small percentage of people looking for their next role know exactly which handful of companies they’d like to work for. Because they don’t know enough about the market or what they really want to be able to come up with a targeted search, they have to start with research and very general exploratory networking. That all takes time.

Second, what you want and are best suited for may not actually be available to you. Both of us have seen highly qualified and experienced people take an excruciatingly long time to find their next role. One executive that Herminia recently observed thought, given his past experience, that he’d be an ideal candidate for the audit committee of a big corporate board, but as the selection criteria shifted to include a greater diversity of professional profiles, he found himself waiting to get a nod.

Third, most companies today have elaborate, time-consuming, and unpredictable vetting processes, which can often add months at the tail end of the hiring process.

In the senior-executive job market, it helps to recognize that in the messy meeting of supply and demand you have surprisingly little control. A great proactive tactic that can help you compensate for that as you do your networking is to fill your calendar with stimulating, parallel activities (community work, pro-bono consulting, short-term advising, adjunct teaching) in which you can have a more immediate impact and receive a more gratifying response. This compensates for the tedium, if not burden, of asking and waiting for help. It also provides battered egos with positive, if provisional, identities.

4) Not wanting to put in the work

Executives who are used to having things done for them often balk at devoting time to tedious work that they can’t delegate. But to network successfully, you need to treat the task as fully worth your time and energy — and you need to be methodical and organized about it.

To help with that, Spish has developed a networking process that consists of identifying and then contacting three kinds of contacts: information givers, door openers, and decision makers. Information givers are people who can tell you about the market, companies, and hiring trends; they can help you get smart and get over your fear of networking. Door openers are typically people you’ve worked with in the past. They’re responsive, and because they know you and your work style, they’re willing to vouch for you and can introduce you to the decision makers.

If you’d like to use this process, the best way to start is by first making a list of all your employers, clients, and customers, and then by writing down the names of the people you met in those roles. You might find you easily come up with 100 names.

No matter what approach you use to organizing, targeting, and segmenting your search, you’ll always need to start by generating a long list of people you’ve worked with and then methodically following a system for reaching out to them. Because it’s a learning process, you can’t plan it all out in advance; you’re better off adopting a “snowball” approach” in which you ask each contact who else you should meet. This is especially true if you’re looking in markets that are unfamiliar to you. In that case, you’ll need to network in what Spish calls “the valleys below the clouds.” There are lots of opportunities in these valleys, but they unfamiliar and require exploration. If you don’t explore them, you limit your options and can hurt your career growth.

It’s a high-cost, high-yield game, but it pays off. Spish has found that once you’ve reached out to 50 or more contacts on your list, the network will start to reach out to you, at which point you can let the process carry you forward.

5) Overly focusing on “the narrative”

Once you’ve made a contact, there is the important matter of what to say. All too often, executives spend the bulk of a networking conversation in small talk about shared contacts or experiences without getting to the point (that they need a new job) until the very end of the conversation. This is especially common when they feel they need to conceal the reality of what’s going on — that they don’t get along with their boss, say, or that they’ve been fired. When that happens, they often enter into the conversation already on the defensive, they speak evasively, and they devote their energy to protecting their public image instead of learning all they can. The end result is that they waste a lot of their — and their contacts’ — time.

Another unproductive tack is to spend 80% of your time trying to explain why you’re unhappy, or leaving, or got fired — a negative approach that anchors your conversation in the past when it should be positive and focused on the future. You’re much better off spending 20% of your allotted time explaining your situation and focusing the remaining 80% on what you’re looking for instead.

The best practice in networking conversations is to be direct, succinct, and positive. People want to know why you’re calling them and what you want from them, and the more senior they are, the more likely they’ll be to expect a brief, executive summary of this sort: “This is why I’m calling you. This is what I want from you. I hope that there’s enough in these two points for us to have a 10-minute conversation.”

6)  Failing to tailor your story

Executives looking to make a transition often spend inordinate amounts of time perfecting a single script — the fabled “elevator pitch” about their “core skills and abilities.” They do this assuming that this script will make them universally relevant, but almost invariably what they end up with just isn’t satisfactorily tailored to the needs of the receiver.

We’ve seen a lot of executives try to approach networking the way they would work with head-hunters: They write a generic email, just changing the name and one or two sentences, attach their resume, and send it out to a bunch of people. Likewise, many walk into a meeting and robotically state their one-minute pitch even if it doesn’t fit the unique circumstances and requirements of the person who’s listening.

That just doesn’t work. Yes, figuring out your core storyline (Who am I, and why am I here?) is important. But you can’t assume that you’re going to be saying the same thing about yourself to every person you meet. Nor can you assume that every listener is capable of translating your pitch into their own business context.

In the end, here’s what you need to remember: It’s not about you. If you hope to clinch a role for which you’re truly well suited, you need to figure out how to make the switch from talking about yourself to talking knowledgeably about the company and its problems — and then to articulating how well equipped you are to solve those problems. As Spish has found, that’s how you create opportunities for yourself: A large percentage of the most senior executives he’s coached have ended up moving into roles that didn’t even exist before they had their conversation.

When you’re a senior executive, networking is a delicate, complex, and time-consuming task. Ego and impatience, left unchecked, will sabotage your success. The best approach is to think of networking as an opportunity not just to scout out your next role but also to strengthen or deepen relationships you already have — and, even better, to add new relationships that will help you be a better professional in your new job and the others that come after it.

This content was originally published here.

The post The Challenges of Networking as an Executive appeared first on Matt Dallisson Global Executive Search | Leadership Consulting.

Employee resource groups, more commonly known as staff networks in the UK, have served as important vehicles for promoting inclusion and advocating for traditionally underestimated segments of workers with shared identities and interests. Unfortunately, many ERGs aren’t given the resources, budget, and attention they need to fulfill that promise. Here are some concerns I’ve seen in my work coaching individuals and delivering talks to ERGs:

Given cost cutting, lack of cultural awareness, and increasing pressure to slash DEI budgets, the challenges many identity groups or social causes face can slip through the cracks. In such challenging circumstances, how can ERG members galvanize and get the attention their networks need to influence and have impact? Here are a few strategies based on how I’ve supported people with similar challenges.

Know Your Why

First, get clarity on what exactly you want to achieve and what the added support would mean for you and your fellow ERG members. For example, Nadia* sought my advice on how to request a dedicated Wudu area for Muslim colleagues, while Hamza wanted to host an annual Iftar party during Ramadan. Despite the existence of faith networks at their companies, both faced obstacles due to their organizations’ reluctance to make “special religious arrangements.” Meanwhile, Akua, who was member of a women’s network at her company, wanted to organize a conference for women of color that would focus solely on the challenges faced by women from Black, Asian, and multiethnic backgrounds. However, she was told that the organization would only fund the women’s network initiatives that championed “all women.”

As disappointing as this was and despite the resistance from their respective organizations, I encouraged all three to take time to reflect on why these initiatives were essential to them. My goal was to help them solidify their ask and improve their chances of achieving their outcomes.

To get others on board with your ideas, start affirming your outcomes based on what you want to happen, not what you want to avoid. Additionally, take the time to consider the resources required, potential obstacles, and how your desired outcome will impact the system as a whole. By staying focused on your purpose, you can increase your sense of ownership and strengthen your conviction when presenting your idea to others. Here are some of the questions I asked Nadia, Hamza, and Akua to answer:

Once these questions have been answered, it’s time to move on to preparing the business case. It may be helpful to keep revisiting the above as priorities evolve.

Prepare Your Business Case

Now that you’ve identified your why, it’s time to get ready to make your case to leadership.

Most organizations operate on a “what’s in it for me?” basis. Cherron Inko Tariah MBE, author of The Incredible Power of Staff Networks, encourages asking yourself the following questions:

It’s important to ensure that any new initiative aligns with the company’s overall goals and strategies. This is exactly what Nadia did when she presented her case for a Wudu sink. She was able to clearly show how this provision would support the company’s goal of becoming one of the top inclusive employers within three years. By linking her proposal to that larger goal, she was able to gain the support needed to move forward and make it a reality.

Measuring and regularly tracking progress can significantly impact how an ERG and its activities are seen and valued. To make a compelling business case, ERG leaders must gauge their work’s effectiveness and calculate the return on investment for their efforts. Metrics such as membership numbers and participation, satisfaction, and retention rates are excellent tools to leverage. To help you substantiate the need for and interest in your initiative, use pulse surveys to capture sentiment and solicit feedback from your members. Equally important is making adjustments as necessary to ensure that your ERG is meeting its goals and adding value to your organization.

Finally, you can also help build your case by evaluating the global and intercultural benefits of your ERG’s activity. Help leaders consider a macro perspective: How will the initiative affect individuals, work groups, customers, and the global organization? For example, Salman, a member of the Black Asian multiethnic network at his company’s London office, wanted to initiate a campaign to collect funds for victims of floods in Pakistan during South Asian Heritage Month last year. However, he received little support from colleagues and managers, as they had recently donated to refugees of the war in Ukraine. Additionally, people tend to support those they can relate to or champion causes that get more international attention.

Salman reached out to his colleagues in the company’s South Asia location and used their help and experience to garner interest at the London office through storytelling. After learning how the floods had affected families of employees working in the Pakistan region, the London office was more inclined to take action.

It’s also valuable to collect information and share examples of how best-in-class companies (including competitors) are addressing your cause and encouraging others to join the alliance. To help get support at his company, Hamza gathered information on similar organizations that had successfully led Ramadan campaigns at their respective organizations.

At this stage, it’s understandable that you’re keen to press forward, but making your case tactfully is crucial; engaging in the conversation with humility while avoiding comparisons and “whataboutism” is more likely to yield a successful result. Attempts to minimize other groups or initiate a competing narrative when fighting for your right to be heard or seen will backfire and make you lose support from different identity groups. When we draw comparisons, we neither heal nor drive positive change. It shouldn’t be a case of “this or that” but rather “this and that.”

Consider starting your conversation with leadership like this: “I appreciate the organization’s focus on inclusion. I have thoroughly enjoyed being part of XYZ network and can see the positive impact it has created. Encouraged by the influence, I propose an initiative for XYX.” Then you can elaborate on why what you’re asking for is essential, including the data you’ve gathered.

Gather Support

The company will only consider your case if there’s sufficient interest, so once your “why” is clear and you’ve prepared a business case, it’s time to rally support. When I asked Nadia if there were other employees she could rely on, she affirmed there were quite a few. She then created an internal Google form survey and gathered responses from colleagues who shared the benefits of a separate a Wudu sink for their Muslim and non-Muslim colleagues.

Next, it was necessary to get senior leaders involved. McKinsey research found that ERG leaders who have strong ties to executives are better able to obtain resources and funding than those with weak ties. Speaking to allies and sponsors you can count on for support is vital. Hamza did exactly this and was able to bring many on board for his Iftar celebration — in fact, some were even eager to participate in a Ramadan Challenge before partaking in the Iftar celebration. Taking advantage of solid connections and visible supporters higher up within the ranks can be a significant bolster for the initiative to be taken seriously.

Even if you don’t have sufficient numbers from your identity group to advocate for your initiative, you can look to other ERGs to support you. Here’s one possible way to approach the conversation with ERG leaders:

I loved being part of your network’s initiative; my participation has helped me recognize why your network is important and why it’s essential to have our needs seen and acknowledged. Inspired by you, I’ve asked management to allocate resources to XYZ. Can I count on the support of your network as I prepare to approach them?

The advantage of this is twofold: Not only will you have their backing, but because it’s not uncommon for ERGs to combine resources and jointly advocate for social impact initiatives, they may even organize or run programs for you if you’re unsuccessful securing what you need. But remember that such mutually beneficial associations rely on reciprocity — if you expect them to help, you must also be a visible ally for them.

Be Specific and Prepare to Pivot

In the earlier example, when Salman wanted to organize a charity drive for flood victims in Pakistan, he took charge of the initiative. He asked for specific things he needed: using the office’s hall to hold a bake sale, mentioning the campaign in the company newsletter and a company-wide email, and using the office kitchen to store goods.

Be prepared to pivot when you don’t get what you ask for. Prepare a sliding scale of asks and try to secure minimum commitment to start the conversation. If the company doesn’t grant the budget for an event, perhaps ask them to at least send a company-wide email showing support and solidarity. Also, see if you can tie in with other networks and share resources or budgets. Remember, a “no” doesn’t mean a “no” forever — revisit the ask in a few weeks or months as circumstances change.

ERGs are essential in fostering belonging and advancing potential, and they need support to be able to continue to do that. Organizations need to include all identity groups and champion all social causes equally, but it’s naïve to expect that to happen without a substantial push. Systemic inequities and organizational bias permeate most organizations, and leaders will remain complacent if they aren’t actively challenged. Navigating a system where some voices are often trivialized or go unheard altogether requires ERG leaders and members to be resourceful and project their asks more strategically. Waiting for organizations to take that initiative may translate into a very long wait — better to push and be heard than not be heard at all.

* Names have been changed throughout to protect privacy.

This content was originally published here.

The post How to Secure Support for Your ERG’s Initiatives appeared first on Matt Dallisson Global Executive Search | Leadership Consulting.

For most executives, even those at the most senior level, a presentation to the board of directors is the most demanding test of leadership communications. Very few succeed.

Conversations with more than 100 public and private boards directors over the last decade reveal that dissatisfaction with presentations is nearly universal. PowerPoint decks are too long, too granular, or simply uninformative, they report.

Yet the feedback most senior executives receive — “Make it crisper,” “Fewer slides,” “Don’t get caught up in operational details,” or even “More details, fewer headlines” — is often generic and unhelpful. Operators are told they are insufficiently strategic; strategic leaders are criticized for having insufficient operational depth. Both directors and presenter leave frustrated.

Unfortunately, the advice offered by professional speaking coaches is just as likely to lead senior executives astray. “Enhance vocal delivery,” “Use fewer bullet points,” “Tell a story,” or similar well-worn coaching points are rooted in the belief that a board presentation is simply a matter of stagecraft — a variation of a keynote presentation to a customer audience.

This counsel reveals a misunderstanding about the purpose and value of board meetings. The boardroom is a distinct forum that requires a different type of presentation and preparation. It demands elevated exchanges that leverage both the knowledge of senior leaders and the objectivity of seasoned directors.

Having coached executives preparing board-level presentations for more than 15 years — including senior leaders auditioning to become the next CEO — I have concluded that the executive’s most important task is to share their thinking about the business they lead. The goal is not just to report the results of the last quarter. (Directors can read that on their own.) Instead, the senior leader should engage the board by discussing the most pressing challenges they face and how they intend to respond.

While each board has unique needs shaped by the company’s operating environment, below I suggest three practices every business leader should embrace to enhance their board presentations — and their own value within the upper levels of the company.

1. Bring a compelling message. 

The senior executive who arrives in the board room has typically submitted a set of slides well in advance that has been carefully vetted by the CEO and the legal team. In most cases, directors will have already studied the material, or at least flipped through the main points. What, then, is the purpose of the 10 to 30-minute slot that has been allotted to the nervous presenter?

Rushing through a slide review might be useful as a quick refresher, but it neither deepens the board’s understanding of the topic nor showcases the leadership skills of the executive. Instead, every presentation should start with a governing thesis: a big idea or perspective that captures the main point of the discussion. Presentations that start this way leave the audience with a compelling message.

Anne Mulcahy, who has served on multiple boards, including J&J, Target, LPL Financial, and Williams-Sonoma, has felt frustrated by the executives who want to convey too much data and information with a series of dense slides. “It almost seems like the objective is to demonstrate how much they know about their business, she says. “It has the opposite outcome. Directors don’t know what the point of the presentation is supposed to be.”

By contrast, a “thesis mindset” forces the presenter to confront the future rather than just reciting the facts of the past. The thesis-driven board presentation doesn’t need to be an audacious proposal or a request for more funding. But it ought to frame an issue that requires board attention. At a minimum, the governing thesis tells directors: This is where I see my part of the company going. That idea can’t be slipped into slide 19. It has to be stated unambiguously and boldly at the outset. At the very least, it provides insurance against off-topic interruptions or mid-presentation dozing.

2. Understand that the CEO is not the target audience. 

By the time they are asked to present to the board, a member of a senior leadership team has had plenty of practice leading discussions with the CEO. They may even be very comfortable updating their boss, in an informal way, with little preparation. Unfortunately, bringing the same mindset and habits to the boardroom is a crucial mistake.

“I am always struck by how often business unit leaders come to the boardroom and direct their talk to their boss, rather than the directors assembled around the table,” said Scott Miller, who has been serving on public and private company boards for more than two decades. Miller’s point is not merely a criticism of presentation style, but a recognition that senior officers rarely consider the needs of directors.

The board of directors is a unique audience with no comparison to the groups most executives regularly engage. They are not customers who need to be sold. And they are not true business colleagues, where strategy alignment and deep familiarity with the operational details of the business can be assumed.

A public company board may be compromised of business leaders, academics, former CEOs, current financial officers, and executives who bring expertise from entirely different industries. As a rule, their range of knowledge about the company and any given topic will vary greatly. Some have been serving on the board for well over a decade; others may be attending their third or fourth meeting. There is also an unspoken (and sometimes unknowable) hierarchy on the board, with its own unstated group of alliances and range of authority.

Ron Sugar, the Chair of the Uber board who also serves on the boards of Apple, Chevron, and Amgen, advises that the job of the presenter “is to fly at the right altitude” in the boardroom: “Dumb it down too much, and you risk insulting the directors. On the other hand, no board wants to be a working group. They want to understand what issues need to be on their radar screen.” He suggests planning to use half the allotted time so that the main point is reached quickly and discussion can follow.

Sugar’s advice is sound. A board presentation has to provide some quick refreshers on the operating environment and — more importantly — identify the biggest problems that need fixing.

These problems will be familiar to the CEO (who should never be taken by surprise in the boardroom). The directors, however, need both a reminder of the core issues in an executive’s portfolio (talent, operations, regulation, or a particular geography) along with looming challenges. Too many executives miss the opportunity to frame problems in the right way — and make their presentations far less engaging than they should be.

The purpose of presenting challenges is not to frighten the board but to enlighten them and engage them in the operational and strategic questions that preoccupy the person presenting the material.

3. Steer the presentation toward getting valuable feedback. 

In a 2022 study, EY’s Center for Board Matters found that public company directors felt confident they added value to discussions of capital allocation and succession. But very few felt the top value they delivered came in areas such as revenue growth, innovation, or disruption. Ironically, these latter topics are most frequently what executives are asked to address when they invited into the boardroom.

Effective leaders can help rebalance the value that directors ought to derive from a board meeting by setting up genuine discussions that invite reaction and input. Alas, too many board presentations come to an abrupt conclusion followed by a quick call for “any questions?”

Following a presentation, many business unit leaders complain they find themselves falling down a rabbit hole of technical details triggered by an unexpected and mostly irrelevant question from a persistent director. In most instances, the blame is entirely on the presenter. They are ones who failed to set up the right conversation and missed the opportunity to steer the presentation toward getting valuable feedback from the board.

Randy Foutch, the former CEO of Laredo Petroleum, who has sat on many small and large company boards, believes that many executives “miss the opportunity to solicit feedback from the directors with relevant experience.” He has seen so many executives wary of raising questions with directors that they leave directors silent.

Yet driving a sophisticated conversation that promotes “good questions” is the unspoken mandate of robust board presentations. Instead of concluding remarks that restate key business results, a confident executive should share two or three important ideas that will drive future success and concerns that could benefit from director input. In other words, the presenter must sincerely seek out the board’s point of view by posing questions that remain unresolved or business risks that will persist. The goal: Get the board’s validation or critiques of a proposed course of action. The result, invariably, is a mix of candid feedback and intelligent, probing questions that create thoughtful board engagement.

During an interview, Frank Blake, the former CEO of The Home Depot, described the typical tone of a meeting between an on-the-ground store team and chief executive who has stopped by for a visit. “What the CEO will always hear is some version of: ‘You’re doing great. We’re doing great. Now leave.’”

The same tone of forced cordiality — and unproductive feedback — has become the all-too-common standard for board presentations delivered by senior executives. They represent missed opportunities to elevate a company’s board discussions and ensure that both the top team and the directors are getting the greatest intellectual value and leadership insight from every conversation.

This content was originally published here.

The post 3 Ways to Make a Winning Board Presentation appeared first on Matt Dallisson Global Executive Search | Leadership Consulting.

The layoffs and hiring freezes sweeping the tech industry and beyond have hurt diversity, equity, and inclusion (DEI) teams, putting carefully wrought efforts to build more inclusive workplaces at risk. Time will tell if the commitments companies made in 2020 and 2021 were inauthentic or a flash in the pan, a fear for many DEI practitioners and employees from marginalized groups.

In the meantime, an urgent question remains: What can organizations do today in the face of a strained macro environment and limited resources? The imperative for change isn’t going away simply because budgets have shrunk.

Recession-proofing DEI comes down to making DEI practices foundational to an organization’s workflow. The current scarcity presents an opportunity for organizations to make sure DEI is embedded into core business processes and practices. These three strategies can help.

1. Embed DEI into your annual-goal setting.

At Upwork, we’ve passed the baton of DEI accountability and empowerment from HR to departmental leaders. To operationalize this, we’ve created templates for an annual diversity, inclusion, and belonging plan that each vice president is required to submit as part of their annual goal-setting process. The templates, which are grounded in our corporate DEI goals, enable VPs to set department-specific metrics and a cadence of strategic reviews. Leaders are invited to share their observations, generate hypotheses on root causes and commit to no more than a handful of annual DEI actions.

2. Complement your DEI team with external partners to meet your evolving needs.

Effective DEI teams thrive on agility as they meet ever-changing business needs, priorities, and economics. For example, over the last three years, our needs at Upwork have evolved in the following ways:

We have a small but highly flexible hybrid DEI team (made up of 60% freelancers) to ensure we have the organizational capacity to meet these evolving needs. Our corporate positions are for evergreen workstreams where we will need long-term leadership and change management. Our contract roles are for time-bound strategic programs or evolutions, and we partner with external organizations to expedite time to delivery, protect team time and capacity and/or supplement our internal subject matter expertise.

3. Make DEI a core part of your corporate operating and communications agenda.

Like any innovative corporate strategy, your DEI efforts will face natural pivots, setbacks, and adjustments. Most employees can accept a shift in strategy as long as communication is frequent and transparent.

To avoid DEI becoming a nice-to-have rainy-day activity — especially during a time when worker wariness of companies’ commitments is heightened — make sure you’re continuously shining a light on your efforts. Develop a cadence of publicly reporting progress against your goals, and bake visibility into your existing company meetings and rituals.

For instance, at Upwork, along with my peers in HR, I report monthly to our executive leadership team on our topline DIB objectives and key results. Our senior director of DIB meets bimonthly with vice presidents to review progress against their annual DIBs plans. Our weekly all-company ConnectUp forum often includes timely DIB and culture updates for all team members, who play an active role in fostering a psychologically safe, fair and inclusive environment.

Consistent communication in these formal channels — along with more casual updates and nudges via Slack — legitimizes DEI as core to organizational health and reinforces mutual accountability for DEI outcomes.

You don’t need a seven-figure budget to enable team members to drive systemic change. In fact, I dream of a day when companies don’t need dedicated DEI teams. There’s extra value in having a specialized function with deep expertise, but real progress will be realized when DEI impact can happen without one. In the face of economic uncertainty and scarcity, there’s no time like now for organizations to test their readiness for a truly mature organization, where DEI is integral to how work is done.

This content was originally published here.

The post Protecting DEI Progress When Budgets Are Tight appeared first on Matt Dallisson Global Executive Search | Leadership Consulting.

In 2022, European grocery was characterized by unprecedented inflation and increasing consumer price sensitivity. Consumers traded down, and grocers experienced substantial cost pressure. The impact of the COVID-19 pandemic on the sector had largely concluded by the end of the year.

In the second half of 2023, we expect European grocery to start recovering. Key trends that will shape the sector this year include a gradual normalization of price and volume, a search for cheaper food, continued margin and cost pressure, a race for economies of scale, profitable online growth, retail media expansion, accelerated technology deployment, and intensified collaboration of grocers with their suppliers to drive sustainability.

Did anyone say inflation?

Inflation was the leading topic on the minds of consumers, grocery retailers, and suppliers throughout 2022. General inflation in the European Union increased from 2.9 percent in 2021 to 9.2 percent in 2022, reaching a peak of 11.5 percent in October. Food inflation was even higher—in some countries, as much as twice as high as general inflation. Household economy experienced a significant pressure as expenses increased much faster than disposable income.¹Disposable income based on Oxford Economics data. In response, many consumers traded down.

Overall grocery sales in Europe²Includes Belgium, Czech Republic, France, Germany, Italy, Netherlands, Poland, Portugal, Spain, Sweden, and the United Kingdom. grew by 2.9 percent in 2022 compared with 2021. This growth was the result of 10.7 percent higher prices, a decrease of 3.6 percent in volume sold, and a downtrading effect of 3.6 percent (Exhibit 1). This implies total grocery volume at 2.3 percent above 2019 levels, with significant variations among countries (see “Food and grocery market KPIs”).

Across Europe, consumer downtrading has led to substantial growth for private labels. Compared with 2021, the value share of private labels increased by 1.9 percentage points. However, only 0.8 percentage points of this increase can be explained by same-store downtrading. The remaining part is caused by faster-than-average price increases for private-label goods (0.8 percentage points) and above-average growth of the discount channel, which has a higher private-label share (0.3 percentage points).³Based on Europanel data.

Discounters gained 1.4 percent in market share in Europe relative to 2021. This was largely driven by a combination of aggressive footprint growth in recent years, recovery from the pandemic-related sales dip, price inflation faster than market average and an increase in price sensitivity in the market. Discounters grew at the expense of all other channels: traditional trade declined by 0.8 percentage points, hypermarkets by 0.2, online by 0.3, and supermarkets by 0.1. Online penetration mostly stagnated in 2022, except for the United Kingdom and Sweden, where it declined by about one percentage point.⁴See Food and grocery market KPIs.

About this research

The State of Grocery report is an annual global publication covering three continents, with dedicated reports for Asia, Europe, and North America. This year’s report, Living with and responding to uncertainty: The State of Grocery Retail 2023: Europe, is a continuation of a partnership between McKinsey & Company and EuroCommerce, designed to provide executives with a comprehensive view of the market and future trends. In preparing the report, we surveyed more than 12,000 consumers and around 50 grocery executives across Europe. We interviewed three industry thought leaders and pioneers. We combined EuroCommerce’s policy and sector knowledge with McKinsey’s global expertise and analytical rigor. We hope this report will offer new insights and perspectives that will help grocers living with and respond to uncertainty.

Because of cost inflation, lower volumes, and more price-sensitive customers, the margins of many European grocery retailers came under substantial pressure. Between 2019 and 2022, the average margin of European grocers decreased by three percentage points, our analysis shows. The EBITDA margin decreased by one percentage point, while the EBIT margin stagnated.

2023: Are we out of the woods?

Consumer confidence is returning as inflation eases, although it is still below prepandemic levels. According to most forecasts, inflation in Europe will continue to abate over the course of 2023. Consumer confidence in the EU has been rising for five consecutive months; the level measured in February 2023 (–20.6, compared with –29.8 in September 2022) was the highest since the beginning of the war in Ukraine. That said, consumer confidence is still lower than it was in January 2022, before the war in Ukraine (–10.9) and much lower than it was in January 2019, before the pandemic (–5.9).

Grocery CEOs also remain cautious. According to our survey of 47 European grocery CEOs, 44 percent expect 2023 to be worse than 2022, and 33 percent think it will be as challenging as 2022. Only 23 percent believe 2023 will bring an improvement in market conditions. Respondents agree that the key themes for 2023 are rising costs and margin pressure, downtrading, and an increased focus on private labels.

Drawing on our consumer research, CEO survey, and market analysis, we identified eight trends that we believe will shape the grocery landscape in 2023 and beyond. Some of these themes represent an acceleration of trends we outlined in last year’s report, while others are new and will likely prompt grocery executives to reassess and adapt their existing strategies.

1. Gradual normalization of price and volume

We expect the first quarter of 2023 to be the turning point after which volume stays relatively stable and inflation gradually normalizes.

In 2022, we saw retail volumes decline across Europe by 3.6 percent compared with 2021. However, most of this drop in volume happened in the second quarter of 2022 because of fading effects associated with the COVID-19 pandemic. In the second half of 2022, volume stayed mostly stable compared with the previous quarters.⁵See Food and grocery market KPIs.

We therefore expect that volume will remain stable or slightly decline through 2023 versus the fourth quarter of 2022 run-rate levels, with lower volumes in the first quarter of 2023 than in the first quarter of 2022. Starting in the second quarter of 2023, we expect volume development to be flat or only slightly negative relative to 2022. This would result in a volume decline of 1 to 2 percent for the full year compared with the previous year.

While general inflation declined at the beginning of 2023, food inflation was still rising. However, food commodity prices have passed their peak and decreased significantly in the first quarter of 2023.⁶“Agriculture price index,” updated March 31, 2023. At the time of writing, the global agriculture price index was 12.8 percent below its April 2022 peak. Also, the household energy price index decreased by 8.3 percent in February 2023 compared with January 2023, taking the index 23.9 percent below its October 2022 peak. According to our analysis of historic data, food retail prices adjust to changes in commodity prices with a time lag of about six to twelve months. We therefore expect food inflation to slow down significantly in the second half of 2023.

2. A focus on cheaper food through private labels and discounters

Saving money on food remains a top priority for both high- and low-income consumers in 2023.

All income groups were trading down in 2022, and the difference between income groups diminished. At the beginning of 2022, respondents to our consumer survey who said they wanted to save money on food represented predominantly low-income households. Now, this intent can be observed across income brackets. The share of private labels increased across Europe by 1.9 percentage points on average, and the market share of discounters increased by 1.4 percentage points (see “Food and grocery market KPIs”).

In 2023, consumers plan to trade down further. According to our survey, 53 percent of consumers say they want to save more money on food, and 36 percent want to buy more private labels than they did in 2022. Consumers also plan to spend less on premium, healthy, and sustainable products to make ends meet. That said, healthy eating remains a key concern for consumers. Depending on the income group, 24 to 37 percent of consumers intend to focus on healthy eating in 2023.

Even if market conditions improve, consumers might continue buying private labels and shopping with discounters. Consumers are highly satisfied with private-label products, with 84 percent of respondents saying the quality of private labels is similar to or better than the quality of branded products. The average consumer is also quite satisfied with discounters. Our survey shows that the weighted average customer satisfaction score in Europe was 14 points higher for discounters than for other formats in early 2023. As a result, we expect that some consumers will not switch back from discounters to supermarkets. As the pressure on household budgets eases, supermarket operators may want to sharpen or upgrade their value propositions to lure target customers back into their stores. In 2022, we saw a strong correlation between market share development and the attractiveness of a grocery retailer’s private labels as perceived by consumers. We expect this to stay true in 2023.

3. Continued margin and cost pressure

The profitability of grocers was hit hard in 2022, and the pressure on margins, cash flows, and the cost of capital is likely to stay high in 2023.

Margins decreased for both grocery retailers and food processors (consumer-packaged-goods companies) between 2019 and 2022. The EBITDA margins of grocery retailers decreased by 1.0 percentage point, while the EBITDA margins of food processors decreased by 0.8 points (Exhibit 8).

We expect cost and margin pressure for grocery retailers to remain high at least in the first half of 2023 because salaries are likely to grow and many cost increases have not yet reached grocery retailers. According to our CEO survey, dealing with cost and margin pressure is a top 2023 priority for 88 percent of grocery leaders. While energy and many food producer prices peaked in the third quarter of 2022, it will take time for these increases to affect food processor prices and ultimately reach consumer prices set by grocery retailers. In addition, if governments were to introduce new regulation to limit retail prices, this would put further pressure on the margins of grocery retailers.

At the same time, the level of required investments for grocery retailers is increasing, putting additional pressure on the industry. Between now and 2030, the industry needs cumulative additional investments of €70 billion to €125 billion to drive sustainability, digitalization, IT improvements, and automation—an increase of 25 to 50 percent relative to current levels.⁷Transforming the EU retail & wholesale sector, a joint report from McKinsey and EuroCommerce, October 2022. Margin pressure and the increasing cost of capital will make it harder for grocery retailers to finance these investments. The weighted average cost of capital has increased from 2.6 percent in 2021 to 6.7 percent in 2022 because of higher interest rates. This makes it more expensive for grocers to borrow money or raise new capital.⁸“Cost of equity and capital (Europe),” Damodaran Online, January 5, 2023; “Cost of equity and capital (Europe),” Damodaran Online, January 5, 2022.

4. A race for economies of scale

Structural measures to achieve synergies and economies of scale are likely to intensify as smaller grocery retailers are disproportionately affected by current market developments.

The current environment has placed significant demands on grocery retailers to manage cost. Scale has long been a benefit in the market. For example, bringing large volumes to the table in negotiations with leading brands can lower the cost burden substantially. Similarly, investments in technology and sustainability are easier to absorb if they can be spread and leveraged across a large network of stores. In a situation characterized by increasing price sensitivity, margin pressure, and substantial investment needs, the value of scale will further increase.

In 2023, we foresee an accelerating race for economies of scale. Larger players may pursue more intense M&A strategies or seek to form broader partnerships—strategies that have often proved valuable in times of turmoil. In contrast, smaller players are likely to explore alternative ways of achieving scale, such as through bundle purchasing, joining franchising networks, and forming partnerships for joint investments. Some indications of this trend were already apparent in the second half of 2022. For example, Rewe has announced that it will invest €5 billion by 2025 to expand its footprint in Europe through targeted investments and smaller acquisitions. Ahold Delhaize took on the Jan Linders chain as an Albert Hejin franchisee. Aldi North announced that it will exit the Danish market, while Coop Denmark is merging formats to capture synergies. The Scandinavian purchasing group Coop is teaming up with the French retailer Carrefour to make French, Italian, and Spanish private-label products available in the Nordics.

5. The quest for profitable online growth

After a period of postpandemic stagnation, we expect that e-grocery will return to moderate growth and that players will maintain a strong focus on profitability. Incumbents will face increasing pressure from pure players. Meal delivery will likely overtake e-grocery in terms of market size.

E-grocery penetration stagnated in 2022, but we expect it to return to a long-term growth trajectory going forward. Most EU countries have retained the growth they have seen during the COVID-19 pandemic.

Increasingly, consumers consider online and offline as independent channels with different value propositions. In the United Kingdom, for example, according to our Consumer survey, around 75% of customers shop online sometimes or always with a different banner than offline. Consumers choose the best offline offer and best online offer for respective journeys, and this requires retailers to ensure a strong offer per channel.

Some pure players, such as Rohlik, have already reached profitability and raised additional capital despite the challenging investor environment . In contrast, quick-commerce players (instant grocery) might face another difficult year as economics and investor sentiment remain challenging. In the long run, we still see a market for instant grocery in Europe, but with higher price points than mainstream online supermarkets.

I believe online can be more profitable than offline, as long as you don’t try to be all things to all people.

The market for meal delivery looks more promising. Meal delivery continues to grow more quickly than e-grocery. If the growth trajectory continues, meal delivery will overtake e-grocery in terms of market size in the next two to three years. Given the higher margins of meal delivery, the potential profitability of this market is also attractive.

Reaching profitability in e-grocery is a challenge, but we see an increasing number of players either reaching a break-even point or on a clear path to achieve it in the next year or two.

6. Retail media as a core profit center

Across Europe, top players are either launching or expanding their retail media businesses, which are likely to become a substantial EBIT driver for the grocery industry.

The emergence of retail media (RM) as the third wave of digital advertising puts grocery players in a favorable position to provide targeted advertising opportunities and helps boost their profitability. RM is highly attractive to advertisers because it allows for much more granular targeting than other forms of advertising. In addition, it allows advertisers to measure the return on ad spending (ROAS) much more accurately at the product level by using the retailer’s sales and website data. In the United States, RM sales make up to 10 percent of online food sales and yield EBIT margins exceeding 50 percent.

While RM is not a new phenomenon, there is a lot of growth potential yet to be captured in Europe. In 2022, the European RM market was worth about €10 billion, less than one-quarter of the value of the US market.⁹In 2022, the US retail media market reached $41 billion and about 12 percent of total media spending, while Europe reached €10 billion and about 7 percent, respectively. Total media spend based on Statista data. The European market is expected to grow to about €21 billion in 2025.¹⁰Daniel Knapp, “Retail media – megatrend for the next digital decade?,” IAB Europe, May 25, 2022. According to a McKinsey survey, 90 percent of CPG advertisers plan to increase their spending on RM in the next 12 months, compared with a cross-industry average of about 60 percent. This spending will mostly add to existing CPG spend allocated to grocers. To take advantage of this trend, 18 of the 30 largest European grocers have already launched or started to develop their RM businesses.

Looking forward, RM is likely to become a must-have for European grocers. Leaders are already scaling up their ecosystems beyond the core offering. For example, Carrefour has entered a partnership with Publicis and Citrus Ads to monetize joint capabilities and provide an RM platform for smaller grocery retailers (“RM as a service”). Ahold Delhaize has declared that it will buy stakes in the adtech platform Adhese. Tesco and Sainsbury’s have announced TV network deals to leverage their data for tailored TV advertising.

7. Systematic scaling of automation and technology

Technology remains an important driver of value creation for the industry, but it will require €40 billion in additional investments by 2030. Generative AI is emerging as a potential next frontier.

The automation of warehouses and stores continues to accelerate. In 2023, the EU-27 automation market for retail was worth €2.5 billion. It is expected to grow at an annual rate of 13 percent in the coming years, reaching about €6 billion in 2030. Grocery retailers increasingly automate their warehouses fully, including through automated picking and depalletizing. Automation is expected to be one of the largest investment categories required to enable the digital transformation of grocery in Europe. Cumulatively, the investment need will total about €18 billion by 2030 across the European grocery retail industry.

At the same time, IT modernization is becoming a key enabler of the technological transformation of grocery retail, and it puts a strain on investment budgets. IT modernization includes the migration of older legacy systems that are no longer supported to new systems, the acceleration of IT development to keep up with pure players, cloud computing, omnichannel implementation, and the adoption of new analytical tools. These efforts will cost grocery retailers up to €19 billion cumulatively by 2030.¹¹Transforming the EU retail & wholesale sector, McKinsey, October 2022. However, IT modernization also offers a massive opportunity for value creation if it is set up and conducted as a true business transformation.

Advanced analytics is becoming more mature, and it is increasingly part of the DNA of grocery retailers. We see more grocers moving beyond exploring and testing to building core capabilities for executing high-impact use cases. The EBIT margins of grocers can be improved by about one percentage point with analytics applications that were ready to deploy at the time of writing. About 80 percent of this potential is linked to ten use cases, including pricing, store-specific SKU selection, and supply chain planning.

Looking ahead, generative AI (GenAI) has the potential to unlock new value pools. The most promising examples of GenAI applications are expected to be in marketing (for example, creating personalized creative content and messages) and customer interaction (for instance, enhancing conversational chatbots and virtual assistants).

8. Supplier collaboration to solve for sustainability

The importance of sustainability continues to increase for grocers, despite the current dip in consumer demand. While the investments required to reduce Scope 1 and 2 emissions are substantial, the necessary actions are clear. In contrast, Scope 3 requires further understanding.

Defining scope emissions

Scope 1—direct emissions generated by an organization

Scope 2—emissions generated by production of purchased energy

Scope 3—indirect emissions from up and down the value chain

Regardless of the current dip in consumer demand for sustainable products, the decarbonization of grocery is picking up speed, driven by the European Green Deal, the expectations of investors, and a shift to green debt financing. The number of retailers with operations in Europe that have set science-based targets for decarbonization increased from 56 in 2021 to 110 in 2022. Among grocery retailers, this number increased from 22 in 2021 to 36 in 2022.¹²“Companies taking action,” Science Based Targets, accessed April 5, 2023.

Retailers have a clear understanding of the initiatives that are required to address Scope 1 and 2 emissions. More than 60 percent of greenhouse-gas emissions in Scope 1 and 2 can be abated in a way that saves cost and yields a positive net present value (NPV)—for example, investing in more energy-efficient freezers. However, these initiatives require substantial capital expenditures that could total €25 billion to €65 billion by 2030 across the European grocery retail industry.¹³Transforming the EU retail & wholesale sector, McKinsey, October 2022.

Since Scope 1 and 2 emissions represent only 7 percent of all emissions associated with retail (Exhibit 12), engaging suppliers and consumers to reduce Scope 3 emissions will be crucial to reach net zero. Meat and dairy production should take priority, as these categories represent half of all Scope 3 grocery emissions.¹⁴Bartosz Jesse, Alessa Perotti, and Daniel Roos, “Decarbonizing grocery,” McKinsey, July 22, 2022.

To move the needle on Scope 3, retailers are starting to establish joint initiatives with their suppliers. For example, Carrefour has engaged suppliers to commit to reducing their CO₂ emissions by 20 megatons by 2030. Tesco has partnered with a bank to offer preferential borrowing rates to suppliers that disclose carbon data. Programs for consumer engagement are also emerging. For example, Kesko has launched an app through which consumers can set and monitor climate targets for their shopping baskets.

Implications for grocers

The current environment is challenging, but it offers opportunities to grocers that act boldly. According to our research, companies that took decisive action during the global financial crisis of 2007–08 performed better throughout the crisis and experienced higher growth once the crisis was over than those that did not. On average, these outperformers reduced their costs more aggressively than competitors during the crisis, which gave them the capacity to invest in growth opportunities. They also divested nonperforming parts of their business (for example, certain formats) more systematically than their peers. Once the crisis was winding down, these companies were among the first and the most determined to make investments and acquisitions in attractive growth segments. Looking ahead, we see three strategic priorities for grocery retailers that will help them emerge stronger from the current period of disruption and uncertainty.

Strengthening private-label assortments and capabilities

A stronger private-label capability will help retailers remain attractive while consumers are trading down and during the subsequent recovery period. Our experience shows that a broader and more attractive private-label offering in the lower-priced part of the assortment shows the highest correlation with market share gains in the current market environment. To succeed, grocery retailers might want to take inspiration from the mindset and practices of leading CPG companies in the way they manage their private-label offerings. Additionally, they should consider building a design-to-win approach that revolves around key consumer needs and global trends such as value, health, and sustainability. To claim their fair share of growth during a potential recovery period in the second half of the year, retailers should also start thinking about innovations in the premium part of their assortment.

A strong private-label design capability will also help to differentiate the assortment offering.

Creating room for investments by acting boldly on profitability

To tackle cost and margin pressure effectively, grocers need to manage operational expenditure tightly. To create the necessary fact base for data-driven supplier negotiations and price setting, grocery retailers will want to examine how the prices for ingredients and other supplier costs (such as energy) are changing and seek to understand how this should be reflected in the purchase price of each product. Taking a cross-functional view of supply chain costs and looking at them end to end from supplier to store can unlock further opportunities to increase efficiency. In parallel, grocery retailers should seek to boost the productivity of capital expenditure—for example, by challenging infrastructure investments and reviewing store footprints. Another important lever to free up funds for investments in future growth is to identify and divest parts of the business (for instance, store formats, channels, or categories) that do not yield enough profit and do not support the company’s strategic objectives. Moreover, grocery retailers will want to accelerate their online ventures’ path to breakeven. For example, they could tailor the online value proposition more to online customer needs, invest in supply chain automatization, and tap into high-margin adjacent opportunities such as retail media and meal delivery.

Investing in future growth

While the two strategic priorities above represent areas of immediate focus for most grocery retailers, it is equally important to look further ahead and invest in future growth drivers such as analytics, sustainability, and e-grocery.

This content was originally published here.

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A volatile economic, political, and environmental climate has affected the entire dairy supply chain in recent years. Executives of dairy companies have had to navigate inflation, supply chain challenges, labor shortages, and climate change, not to mention changing regulations and political conflict. At the same time, the dairy industry has been a site of innovation, with the entrance of new products to the market, shifting consumer awareness, and increasing competition.

Amid these challenges, dairy executives have had to prioritize where to direct their companies’ resources and attention. The choice hasn’t been easy: a number of pressing concerns have required strategic decisions and thoughtful responses.

About the research

In the third quarter of 2022, the International Dairy Foods Association (IDFA) and McKinsey jointly surveyed more than 100 executives and leaders of companies in the dairy industry.¹Results came from IDFA Member Survey 2022 and McKinsey’s Annual Executive Survey, both of which covered sustainability and environmental, social, and governance (ESG) topics. After the survey, we augmented our research with about 50 interviews of industry leaders in the fourth quarter of 2022.²For other examples of McKinsey interviews of dairy executives, see Christina Adams, Melanie Lieberman, Ludovic Meilhac, and Roberto Uchoa, “What US dairy executives learned from the pandemic,” McKinsey, May 11, 2021; and Christina Adams, Melanie Lieberman, Ludovic Meilhac, and Roberto Uchoa, “How dairy executives are navigating recovery in 2022,” McKinsey, March 11, 2022. Participating companies come from around the world and represent a range of organization types and sizes, including public and private companies; cooperatives, dairy processors, producers, packagers, and retailers; and companies with last-year revenues ranging from $100 million to more than $30 billion.

To gain insights into the strategic priorities of dairy industry leaders in today’s world, McKinsey conducted its fifth annual survey of dairy executives as well as almost 50 interviews with industry leaders (see sidebar, “About the research”). In this article, we examine the results, exploring dairy executives’ top strategic priorities of growth, resilience, and sustainability. Despite current geopolitical and economic volatility, we heard great excitement and optimism for the future of dairy in North America.

Three priorities for executives

Among a range of options, a few areas stood out as key priorities for leaders in dairy: growth, resilience, and sustainability (exhibit). In terms of growth, leaders are considering expanding into new categories, markets, and geographies and thinking about the roles that company purpose and critical stakeholders play. In terms of resilience, supply chain and cost-related challenges are top of mind. Last, sustainability concerns are gaining ground.

Three of the four most cited strategic priorities relate to supporting company growth, highlighting executives’ focus on the topic.

Leading with purpose and collaborating more effectively

Of the executives we surveyed, 53 percent cited “setting and strengthening a corporate purpose for stakeholders” as a top three strategic priority for their company. A high level of interest in corporate purpose makes sense: purpose provides value for consumers and employees and could lead to better company performance. Research has linked companies that have a clear purpose with greater success in company growth, global expansion, number of product launches, and transformations, compared with companies lacking a clear purpose.¹Tracy Bower, “The power of purpose and why it matters now,” Forbes, August 22, 2021. Beyond benefits at the corporate level, company purpose also benefits employee stakeholders. When employees can live their purpose at work, they are not only more productive, healthy, and resilient but also more likely to stay at the company and contribute to its success.²Naina Dhingra, Andrew Samo, Bill Schaninger, and Matt Schrimper, “Help your employees find purpose—or watch them leave,” McKinsey, April 5, 2021.

In addition to perceiving the value of company purpose, dairy executives have also been prioritizing stakeholder relationships in the broadest sense. The COVID-19 pandemic has changed the way dairy stakeholders interact across the value chain, requiring executives to step up. Some executives are taking new actions to care for their employees, from making sure employees’ voices are heard to providing employee housing and transportation. Also, almost 70 percent of respondents are now collaborating in some way with other stakeholders, from farmers and suppliers to research institutions. Companies that do not typically work together are also collaborating. For example, dairy exporters, a trade association, ports, and shipping lines came together in 2022 to discuss shipping challenges facing the industry, breaking down historical barriers to address pressing supply chain issues.

With an ‘all in it together’ mentality, industry stakeholders broke down historical barriers to reach a solution to our supply chain challenges. This would never have happened before the pandemic.

Finding new ways for dairy to grow

Of the executives we surveyed, 45 percent cited “entering new categories, markets, and geographies” as a top three strategic priority for their company. Despite current challenges, including declining fluid-milk consumption, 45 percent of executives are prioritizing new growth opportunities, and most executives we spoke to expressed optimism about the future of dairy. Executives are most excited about opportunities for the US dairy industry, given possible supply constraints in the European Union and Oceania and expectations that dairy consumption in Asia–Pacific will grow about 7 percent annually over the next five years.³“New Zealand angers its farmers by proposing taxing cow burps,” NPR, October 11, 2022; Katy Askew, “Farm to fork environmental regulation ‘stagnating’ EU milk production, says USDA,” Dairy Reporter, June 28, 2022; Euromonitor retail dairy CAGR from 2022 to 2027. Amid these conditions, US dairy is well positioned to increase supply and help satisfy demand for dairy abroad.

This strategic focus on growth has been felt in dairy markets at home and around the world. From 2021 to 2022, the market for US dairy grew 3 percent overall (based on retail value), with yogurt and sour-milk products growing by 6 percent and drinking-milk products growing by 1 percent. Globally, growth was 4 percent overall, 2 percent for yogurt and sour-milk products, and 5 percent for drinking-milk products.⁴Euromonitor North American dairy market sizes, 2008 to 2021; dairy overall includes butter and spreads, cheese, drinking-milk products, yogurt and sour-milk products, and other dairy; calculations based on 2021 actuals and 2022 estimates. Accordingly, executives are investing in expanding capacity to meet this market demand: more than 20 industry stakeholders recently announced capital investments in the United States and Europe.

Despite the slowdown in the economy, dairy consumption has not gone down. We still have consumer loyalty. We are a staple; and on top of that, there are a lot of different, exciting forms of dairy products coming down the pipeline.

Elevating the industry in a tough labor market

Of the executives we surveyed, 44 percent cited “talent and capability development” as a top three strategic priority for their company. Companies have found hiring and retaining talent difficult, with about 70 percent of executives in our 2022 survey noting concerns with labor.

This trend is not new: in our 2021 survey, a similar percentage of executives noted that labor shortages were a top three concern during the prior 12 months.⁵2021 IDFA Member Survey.

Executives shared that these challenges are pushing them to rethink the workplace, consider what is most important to employees, and invest in people. Companies have been expanding the benefits they offer, including flexible scheduling, shorter workdays, additional pay and vacation, and even company-provided apartments and transportation. It will be critical for companies to work with employees to improve hiring and retention and reduce the employer–employee mismatch in what they consider to be important. Clear alignment between employee needs and employer offerings may help the dairy industry tackle these labor challenges.⁶Aaron De Smet, Bonnie Dowling, Marino Mugayar-Baldocchi, and Bill Schaninger, “‘Great Attrition’ or ‘Great Attraction’? The choice is yours,” McKinsey Quarterly, September 8, 2021.

We have great customers and a great product but not enough people to make it.

In addition to growth, a complex geopolitical climate and a volatile economic situation have made dairy executives prioritize resilience-building measures.

Adapting to unprecedented inflation

Half of the executives we surveyed cited “cost reduction and efficiency initiatives” as a top three strategic priority for their company. Input costs for dairy processors have risen remarkably over the past year. In September 2022, all milk prices were 33 percent higher than the year prior, compared with just a 2 percent increase from 2020 to 2021.⁷USDA Economic Research Service (ERS) Dairy Data, 2020–21 increase based on annual prices. This is in part due to dramatic increases in energy costs as well as costlier labor, with total compensation costs for civilian workers rising 5 percent from September 2021 to September 2022.⁸“Employment cost index—December 2022,” US Department of Labor and Bureau of Labor Statistics, January 31, 2023. Given the increasing cost of inputs, dairy processors are trying to balance three actions: reducing costs, increasing their prices, and, ultimately, squeezing their margins. About 75 percent of interviewed executives are concerned about the effects of inflation and have already taken actions to address supply-side challenges and a consumer side that has been hit hard by inflation.

It’s been hard to keep up with inflation; almost every quarter we need to revisit it because things are just moving so quickly. It remains an ongoing challenge.

Prioritizing supply chain resilience

Of the executives we surveyed, 39 percent cited “increasing supply chain resilience” as a top three strategic priority for their company. It is no surprise that supply chain concerns are top of mind for executives, a result that was consistent across both our survey and our supplementary interviews: about 65 percent of interviewees noted the supply chain as a challenge for their company. Supply chain problems have ranged from difficulty accessing materials to problems with shipping—resulting in delayed capital expenditure projects—inability to get certain ingredients, and overall inconsistency and unpredictability, among other consequences. In light of these challenges, executives have prioritized building supply chains that are more resilient.

It feels like we have been playing ‘whack-a-mole.’ From ingredients to supplies to distribution, there has been a new challenge each week.

In addition to growth and resilience, executives highlighted sustainability as their third most important strategic priority, which aligns with the dairy industry’s commitment to net-zero emissions by 2050.

Committing to environmental sustainability

Of the executives we surveyed, 37 percent cited “transforming the business to become more environmentally sustainable” as a top three strategic priority for their company. The sizable minority of executives who rated sustainability transformations as a top priority exist in a broader pool of support for environmental, social, and governance (ESG) values. Out of our survey sample, 75 percent of executives have a sustainability strategy or an ESG strategy (or both). Seventy-two percent have a board or leadership that actively oversees their sustainability programs, and 67 percent have allocated funds to these programs. These are important steps in promoting follow-through and impact. They also show progress: only 57 percent of companies in last year’s dairy executive survey said they were investing resources to align their business with their sustainability goals.

We don’t have time to see where the customer is going to be; we need to jump in together and solve it.

Executives have reported that a number of stakeholder groups have also being driving recent improvements in sustainability efforts. Customers are one of the biggest drivers of sustainable practices among dairy processors: 70 percent of processors with sustainability or ESG strategies cited customer requirements as a top three motivator. These companies have also highlighted working closely with customers to meet their requirements.

Our sustainability and ESG strategy largely integrates the goals of customers.

Investor pressures and regulatory requirements are less important than customer demand, but they still drive sustainability for processors, with 28 percent and 23 percent of companies citing these as top three motivators, respectively. Both investor pressures and regulatory requirements have the potential to change the competitive landscape when it comes to sustainability. For example, if new regulation makes certain environmental changes mandatory for all companies, leaders in sustainability may need to find novel approaches to stand out from the crowd. This can simultaneously lead to collaborative sustainability improvements across the dairy industry and new opportunities for companies to compete on ESG, ultimately ensuring lasting environmental change.

Even if regulations don’t apply to us directly, they may impact our financial partners. Banking and insurance partners are asking about our sustainability programs: these questions can quickly shift to requirements.

Looking ahead

Dairy processors stand to benefit from strategic priorities now and in the long term. Committing to growth, resilience, and sustainability priorities can help protect dairy processors as they face today’s challenges—including inflation, supply chains disruptions, labor shortages, and climate change—while positioning them to take advantage of future tailwinds related to growth, innovation, and new market opportunities.

I love this industry, and I love this product; milk is full of nutrients, and we’re just starting to scratch the surface…. Dairy has a lot more to do and grow.

Despite the many challenges facing the industry, executives are excited about the future. Based on the insights gained from our interviews and our survey of dairy industry leaders, we have identified several actions companies can take to support the dairy industry’s growth:

These actions can help individual companies stand out while making the industry more robust, resilient, and sustainable.

The dairy industry has an opportunity to leverage the industry’s existing momentum to shift toward collective action. Together, industry stakeholders can address economic, social, and environmental challenges and proactively engage consumers and customers with a unified story that highlights the unique nutritional and environmental benefits of dairy.

This content was originally published here.

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Today’s corporate boards are under a lot of scrutiny. They must respond to activist shareholders, concerned employees, community members, and others in a hyper-sensitive political environment. They’re also tasked with ensuring diversity in their organizations, as well as their own ranks. Board leadership is more important — and urgent — than ever.

Unfortunately, our collective experience — the four of us have interacted with well over a fifth of the governing boards of the Fortune 1000 — indicates that many boards don’t have a thoughtful and disciplined process for selecting, evaluating, compensating, or removing a board leader. Nor do they have enough clarity on which responsibilities belong to the chief executive versus the non-executive board chair or lead director.

Without such a process, boards suffer from fractious oversight or even misdirection as their leaders fail to sufficiently align and focus them on the firm’s strategies and opportunities.

To understand where improvements to board-leader selection most need to be made, we interviewed more than two dozen directors and executives who are leading or have led some of America’s best boards. (Most of their companies are global in operations.) They helped us identify eight questions board members should be asking before embarking on the search for a new leader.

1. Are we aligned on the qualities we’re looking for?

“The board should begin with a discussion of the job description,” and directors should then “agree on what the role requires,” said Irvine Hockaday, the former CEO of Hallmark and a former lead director at Dow Jones, Ford Motor, Estée Lauder, and Sprint. “It should be a thoughtful and fulsome discussion” that brings all directors into the dialogue and considers all directors as prospects for that calling.

In looking for a non-executive chair or lead director, boards should be searching for:

“There’s no doubt you want a lead director who can push back on the CEO,” said DuPont CEO Edward Breen, who is also the board leader at Comcast. But he also warned that “they better have a very open, honest, and collegial relationship with each other.”

2. How active should the CEO be in the selection process?

A new board leader is someone whom the chief executive will be working with on a regular basis, so it’s essential that the CEO be involved in identifying and interviewing candidates and vetting and picking the finalists. The board leader and the chief executive will be making many of the key decisions on strategy and talent together, so they should have a voice in selecting one another.

3. Are the CEO and board leader clear on their respective roles?

If the role of the board leader is not defined clearly, a host of operational problems could arise, including a wedge between the board and the CEO or even the board second guessing the CEO. We know of several companies where activist investors have texted the non-executive chair in hope of opening a separate channel to the top.

To ensure role clarity, boards would do well to follow Breen’s example. When serving as the CEO of Tyco International, he was considering Jack Krol, the former chair and CEO of DuPont, for the conglomerate’s board leader. Breen asked Krol to write down what he thought his duties should be as lead director at Tyco, and, in turn, Breen listed what he believed were his own CEO duties. The two then compared notes and found that they largely complemented one another. Breen wanted Krol to be involved in finding top talent for the board. At the time Tyco was in life-threatening crisis, and Breen decided to replace the entire board. “We had to hire 11 board members and I just didn’t have the time to tackle that,” Breen said, “so I asked Jack to do it, and he took a big burden off my back.”

Maggie Wilderotter, former chief executive of two publicly traded companies and a director of many more, applies a “decision rights matrix” that identifies the key responsibilities for the board and CEO and then specifies which are discharged by the directors or the top executive. “For each of these decisions, there is clarity of ownership,” she explained. Who is accountable for the decision, who is consulted, and who is informed?”

Once the candidate and the CEO agree on their roles, the two lists should be discussed with the full board. Through our conversations with many board members, we’ve learned that this process is rarely followed — but many said they ought to embrace it next time around.

4. Has the board agreed on the right capabilities for a board leader?

As boards become increasingly diverse, a board leader needs to have the emotional intelligence and persuasive skills to collect and interpret multiple points of view from the directors and then deliver them to the CEO in a cohesive and comprehensive manner.

Glenn Tilton, the former CEO of Texaco and United Airlines and a lead director at Phillips 66 and AbbVie, put it this way: “Most of the authority a board leader has is quite implicit and very subtle. It’s really the power of personal persuasion.”

A big question that boards will need to answer is whether their leader should have CEO experience. Over the past five years, the number of active or former CEOs chosen for board seats has dropped by nearly a third.

We believe CEO experience is an asset for a board chair and the following example illustrates why: When a global media giant contemplated making a sizeable acquisition, older members of the founding family, who controlled a significant percentage of the voting shares of the target company, said they would not sell at any price because they wanted to protect their legacy. The acquirer’s lead director, who had deep experience working with directors from when he was a CEO, suggested that younger members of the family, who he anticipated would be more willing to sell, talk with the older generation on their board, persuading them to sell the business at a handsome premium.

5. What will we do if multiple directors are interested in the board leadership role?

Having two or more directors competing for the lead job can be awkward. One step boards can put into place in advance of selecting a new leader is to ask directors to complete a survey in which they identify the three or four directors that the board could not live without. If those raising their own hands haven’t been mentioned, they are unlikely to be board-leader material.

6. How much should we pay the board leader?

The work of a board leader is difficult and time consuming, often imposing at least twice the time burden faced by other directors. For that reason, boards might be tempted to pay the board leader significantly more than other directors and even the heads of the board’s primary committees.

While every company has its own history and pay practices, the directors we interviewed advised against this, because it could create the appearance of a two-tiered board. Explained one Fortune 50 CEO: “If you’re going to be a lead director of a decent-sized public company, you’re not doing it for the money. So why create the optics that one director is more senior than others?”

That said, the board might want to establish a process for a special equity grant for when a lead director performs extremely well — for example, helping the CEO through a crisis, successfully leading a succession, or guiding a major acquisition.

7. Should we set term limits?

There’s been an ongoing debate over whether lead directors should have term limits. Among the S&P 500 in 2022, lead directors had on average served 4.4 years. Our conversations suggest that term limits are not necessary. Why force a relatively new board leader to step aside if they’re still performing well?

Hallmark’s Hockaday adds a face-saving twist:

Why not set a term that can be renewed? When the term is ending, it forces a discussion of how the board is functioning and how well the lead director is engaging. That way, when you have somebody who is good in the job, you don’t have to automatically make them step down. On the other hand, if someone is not performing well, this triggers a discussion of whether you want to renew or not.

8. What is the succession plan for our board leadership?

Just as companies wisely have a plan in case their CEO is incapacitated, they should do the same for the board leader. “I can think of nothing more important than getting the right board leader with the right temperament and skill set at your side,” offered Denise Ramos, director of Bank of America, Phillips 66, and RTX and former CEO of ITT Inc. And for that purpose, she said, “companies should put in place a board leader succession plan much like for the CEO.”

To ensure that the company has a rich pool from which to select a leader, governing boards ought to recruit more CEOs onto them. To that end, the institutional investor community would be wise to revisit the notion that active CEOs be limited to serve on only one outside board. It might well be suitable, for example, to encourage chief executives to sit on more than one board when they are only a year or so from retirement.

Governing boards should perform an annual review to ensure they have the right leadership in place — for now and the future. Boards at companies such as British Petroleum, Hewlett Packard, and Wells Fargo have forced out their board leaders, often because of a crisis at the company. Tilton noted that all board leaders should be selected on the assumption that they will face one or two major crises that could send the company in one direction or another. Their veteran leadership at such junctures may well determine the destiny of the business.

While every company has its own history, culture, and way of doing things, asking these eight questions will help ensure boards are applying the same rigor and analysis in selecting the right board leader as they would for a new chief executive. After all, the success of the CEO and the company have increasingly come to depend on it. “Many boards have begun to realize how much more impactful this role has become,” observed Bonnie Hill, director of Bank of California, former lead director of Home Depot, and former director of Yum! Brands. Added Charles Elson, also a boardroom veteran, “I have worked directly with boards — and am familiar with many more instances — where the failure to have an appropriate board leader created a disaster for the board and the entire company.”

This content was originally published here.

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Suddenly, the metaverse is in the zeitgeist, for better or worse. Investment more than doubled in 2022 powered by big moves (such as Microsoft’s $69 billion acquisition of Activision Blizzard, now under antitrust review) and small ones (about $12 billion to $14 billion of venture capital and private equity investment). Everyone has heard about the successes racked up by some big gaming companies: Roblox reported more than 58 million daily active users in 2022,¹Roblox Corporation, September 30, 2022. while Fortnite had more than 20 million in 2020 and generated more than $9 billion in sales between 2018 and 2019.²“October 2022 – welcome to the metaverse,” Mapleblock, November 25, 2022; Mitchell Clark, “Fortnite made more than $9 billion in revenue in its first two years,” The Verge, May 3, 2021. And others are investing; Meta continues to spend at least $10 billion annually on metaverse development. Yet investors are asking questions of metaverse companies about when they can expect tangible, near-term results from these companies’ investments.³Harriet Agnew and Richard Waters, “Meta shareholders vent anger at Zuckerberg’s spending binge,” Financial Times, October 31, 2022.

How should CEOs view the metaverse? Is it a big opportunity or a big risk? Our answer: the opportunity is enormous—and the risk is not what you think it is. The companies that are building the metaverse see it as the next iteration of the internet (see this McKinsey Explainer for more). And as with any technology so vast and all-encompassing (it’s similar to AI in its scope), the potential is enormous. We estimate that the metaverse could generate $4 trillion to $5 trillion in value by 2030; see our report for all the details.

On the other hand, there are clear risks. Don’t be distracted by the debacles in crypto and nonfungible tokens (NFTs); those are Web3 technologies that are related but not exactly the same as the metaverse. Rather, the biggest risk is missing the wave of change that breakthrough technologies such as the original internet, AI, and the metaverse can unleash. In our April 2022 survey, some 95 percent of business leaders expect the metaverse to have a positive impact on their industry within five to ten years, and 61 percent expect it to change the way their industry operates.

In this article, we’ll briefly summarize the reasons for optimism and the factors that suggest the metaverse is truly a CEO issue. We’ll also look at the significant obstacles that will have to be overcome if the metaverse is to realize its full potential. We’ll conclude with a suggestion of three steps that CEOs in several sectors—both consumer and enterprise—could consider to make sure the metaverse train, if and when it gets going, does not leave the station without them.

The case for optimism

When we estimated the market value of metaverse activity in June 2022, we calculated that it was between $200 billion and $300 billion. It’s larger now, and in eight years or so, it could be $4 trillion to $5 trillion (exhibit), which is roughly the size of Japan’s economy, the third largest in the world. Exponential growth is possible because of an alignment of several forces: the metaverse’s appeal spans genders, geographies, and generations; consumers have already shown they are ready to spend on metaverse assets; they are open to adopting new technologies; companies are investing heavily in the required infrastructure; and brands experimenting in the metaverse are finding that customers are delighted.

The sheer scale compels CEO attention. As the old saying goes, a billion here and a billion there, and pretty soon you’re talking about real money—and $5 trillion is a lot of billions. For context, we estimate that the road to net zero will require $3.5 trillion in annual spending and that the ongoing shift to the cloud holds an opportunity for an additional $3 trillion.

The number we’ve put on the metaverse’s potential is so large because the metaverse is a combinatorial technology: it combines elements of many of the top trends that the McKinsey Technology Council identified this year as most promising, including AI, immersive reality, advanced connectivity, and Web3. That’s the main reason CEOs should be interested; another is that the metaverse touches on many parts of the enterprise. The CEO is the natural integrator who can marshal the company’s resources to put together a coherent, value-driven response. And with the CEO’s support, there’s less chance that the metaverse effort gets stuck in “pilot purgatory.”

Two leading uses

As the exhibit suggests, we built our value-creation estimate by thinking through the emerging uses of the metaverse for both consumers and businesses. Soon, companies will likely offer customers an unprecedented shopping experience in the metaverse; effectively, it will be a 3-D e-commerce channel. For now, to get a sense of the potential, consider two of the largest and more advanced uses, one for consumer businesses and one for B2B companies:

Brand marketing and consumer engagement. Many companies have already added the metaverse to their omnichannel marketing mix, staking out a presence in virtual worlds like Roblox, Fortnite, and the Sandbox. Some are already finding success. Nike has hosted more than 26 million visitors at Nikeland, its space in Roblox, and it has sold over $185 million of NFTs for digital sneakers and suchlike products.⁴Francesca Perry, “Nike will let people design and sell sneakers for the metaverse,” WIRED, November 14, 2022; Nicholas Pongratz, “Nike becomes highest-earning brand from NFT sales,” BeInCrypto, August 22, 2022. And its digital division has tripled revenues to exceed $10 billion, almost a quarter of the company’s total.⁵Abbas Haleem, “Nike’s online sales grow 23% to reach digital’s highest net revenue quarter ever,” Digital Commerce 360, October 4, 2022. Now, companies are moving into the next wave of opportunities, including gamification, virtual reality (VR), and augmented reality (AR).

Starbucks Odyssey, the metaverse upgrade of the company’s already strong loyalty program, is uncovering the potential for gamification. The company already had a big rewards program. Odyssey adds a new layer: members can now take virtual tours of coffee farms, play a trivia game about Starbucks’s heritage, and play another game called Starbucks for Life. Points earned unlock new experiences, such as virtual instruction in making an espresso martini or even a trip “IRL” to Hacienda Alsacia, a coffee farm in Costa Rica. (Ask your teenagers what IRL means, if you dare. For those who don’t have an in-house source of insight and sarcasm, it’s “in real life.”)

Amazon has added AR features to its apps, letting customers see what a product looks like in their own homes. IKEA does something similar, letting customers build a 3-D makeover of their home using AR tools.

More enterprise uses are emerging all the time as companies get creative. Corporate training is fertile ground. Bank of America has launched an immersive training program using VR for every financial center in its network, teaching bankers how to strengthen relationships with clients, navigate difficult conversations, and practice empathy.⁶“Bank of America is first in industry to launch virtual reality training program in nearly 4,300 financial centers,” Bank of America, October 7, 2021. Walmart found an unexpected use: the company says its VR training helped save lives during a difficult situation at one of its stores.⁷Aric Jenkins, “Walmart CEO: VR training helped save lives in El Paso shooting,” Fortune, August 21, 2019.

A long way to go

Skeptics note that other technologies have sometimes taken a surprisingly long time to arrive at their commercial potential. AI is one; even after a decades-long “AI winter,” many analysts believe that AI still has not reached its potential, though the recent advances in generative AI are bringing many skeptics around.⁸Tim Cross, “An understanding of AI’s limitations is starting to sink in,” Economist, June 11, 2020. Autonomous vehicles are another.⁹“The long winding road for driverless cars,” Economist, May 25, 2017. Isn’t there a risk that the metaverse will suffer a similar fate? Put another way, where are we on the hype cycle? Peak of inflated expectations? Or headed into the trough of disillusionment?

In our view, the development of the metaverse is a few years away from a true tipping point. It could easily take longer (though that’s no reason not to prepare). As Brian Solis of Salesforce shared with us recently, generational changes like Web 1.0, social media, and mobile “rarely happen overnight. They take years and are the result of an accumulation of incremental technological advances, evolving consumer demand, and cycles of experimentation.” That seems an apt description of the hurdles that the metaverse must overcome. The technology is not yet ready to support the metaverse at scale: advances in 5G networks, edge computing, hardware, and software must come online (they’re in progress). At the moment, audiences are primarily gamers and the technically savvy; others must be recruited (our surveys suggest they’re very interested). Many metaverse transactions are made in cryptocurrency; we’ve all seen the shortcomings of crypto as a reliable, safe system of exchange. Finally, there is no connection among all the various partial metaverses (Roblox, the Sandbox, and many others). The integrated or true metaverse is a long way off.

What CEOs could do now

Both the optimists and the skeptics have solid evidence to support their views. But the balance of evidence may slightly favor the optimists. Seventy-one percent of the 79 largest consumer firms globally have already put down stakes in the metaverse. The rest are running the risk of being caught without a plan. Companies in other industries are watching carefully and making plans; very few will be untouched by the metaverse. It may seem an odd economic moment to invest even a little bit in the metaverse. But our research strongly suggests that in a downturn, companies that tune up their balance sheet and invest in growth capture dominant positions throughout the next cycle.

The metaverse plan will depend on the company’s sector. As shown in the exhibit, the metaverse has the most potential to upend sectors such as banking, manufacturing, media, professional services, retail, and telecommunications. CEOs in these industries could consider taking more assertive steps than others. But CEOs in any sector can take three steps to ensure they have a reservation on the train and position their companies well for the metaverse’s eventual takeoff.

With the real world beset by problems (such as war, COVID-19, inflation, and inequality), the metaverse offers an escape. That’s probably part of the attraction for the millions of customers who are flocking to early-stage metaverses. CEOs should ensure they are meeting their customers where they live—both virtually and IRL.

This content was originally published here.

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