LEADERSHIP INSIGHTS

Happy New Year and welcome to the first Criticaleye Community Update of 2011. If you’re an Englishman, it’s been a great opener – well done to our new cricketing legends!
 

As we officially enter the new decade, it’s a good opportunity to reflect on the macro-economic situation and how your own organisation fits into the big picture. If last year was all about survival, I think 2011 will be more about opportunity.
 

Here are some of the major trends that I see shaping the thoughts of business leaders in the coming 12 months:
 

Businesses have had to adapt to a turbulent trading environment over the last two years. In the face of the fallout of public sector cuts, rising debt repayments and financial sector reform, this uncertainty looks likely to continue. The emergence of WikiLeaks, too, presents new transparency challenges and the renewed relevance and glare of the media lens.
 

Criticaleye’s own lens is constantly focused by our Associates and Advisory Board members so, in order to share their insight, we asked them what they think 2011 holds for businesses and business leaders. Here are some of their comments:

ON GROWTH

“1st January, 2011 is the real ‘Day One’ of a new decade - if you can count properly - so it represents a good time to reflect on the big picture,” says David Pearson, Chairman of innovITS Ltd and Criticaleye Associate. “After the worst economic crisis in living memory, there are some signs of recovery with the BRIC countries leading the way and a new force of emerging markets developing well behind them. Meanwhile, the Western developed world still looks sluggish with a crisis in government everywhere you look. And, in the UK, recovery is under way but from a position well below the peak in 2007. All the growth needs to come from the private sector, which has happened in the past, albeit at a time of much less regulation and state interference.” 
 

Martin Balaam, MD - BT Engage IT, BT Group, says: “I see another year of hard business and not necessarily a year of huge growth. Having said that, demand will not fall off a cliff like it did two years ago. The chief uncertainty is around the ramifications of the public sector spending review and how this will manifest itself in the commercial sector of UK plc. But, speaking with IT directors, this year is all about strategy. Two years ago the focus was on cost reductions and last year it was all about applying a decent service within the framework of those reductions. The pendulum of confidence is now swinging back into business plans and most leaders are looking towards the future with growth in mind.
 

“Many more businesses are being put forward to be sold in 2011. I see more Information Memoranda passing my desk and everything points to increased IPOs and PE activity. In the past, it was very much a buyers’ market, with the perception being; if you’re selling now, you must have an issue. There’s now less of a stigma attached to the idea of selling a business. The return of PE is certainly just over the horizon.”

Sir John Egan, Chairman, Severn Trent and Criticaleye Associate, says: “I would suggest that 2011 will be very similar to 2010 and will be very tough. If you have learnt to survive 2010 do the same for 2011. I think the government is doing all the right things but their withdrawal of some money from the economy will dampen some of the growth prospects.”
 

Sir Brian Bender, former Permanent Secretary of BERR and Criticaleye Associate, says: “The global economy in 2011 will be driven by the emerging markets, especially in Asia. In the UK, despite some gloom-mongers, a ‘double dip’ seems increasingly unlikely.  After a period of cost cutting, businesses will be looking for opportunities.  Key areas will be: exports, taking advantage of the value of sterling; and, as a result of the Coalition Government’s policies, opportunities for public service provision, such as outsourcing, new services like education and welfare, support for decentralisation, and end-to-end services for local authorities.”
 

Peter Waine, Partner at Hanson Green and Criticaleye Associate, says: “It will become increasingly clear that the economic centre of the world has already passed to China and, to a lesser extent, to India and Brazil. The famous US resilience will be shown to be increasingly hollow and meaningless. In the UK, the government’s gamble with the economy is likely to succeed as long as other economies, particularly the US and the Eurozone, don’t stumble too much. However, when the austerity measures bite, there’s a genuine threat of social unrest.”
 

Siva Shankar, Corporate Finance Director at SEGRO plc, says: “In a lacklustre economic environment, the prospects for organic growth are inevitably limited. However, organisations with strategic clarity and strong balance sheets are likely to pursue acquisitions supported by further equity issuance. This may partly be driven by a growing realisation among organisations which are over-dependent on low growth mature European markets that developing long-term competitive shareholder returns may require bold beach-head moves into emerging markets with strong long-term fundamentals. This environment is also likely to highlight under-performing business units within organisations and drive greater capital recycling as organisations sell businesses that are a drag on earnings, while refocusing on higher growth businesses.”

ON TALENT MANAGEMENT

Employment will be a dominant theme over the next few business cycles, with management concerned with costs and employees concerned with continuity. Gary Kildare, Vice President, Human Resources, Americas, Europe and Asia Pacific, IBM, suggests: “There is opportunity for leaders and organisations in 2011. However, I believe that we will all have to keep a high focus on talent management from various aspects to ensure we can take advantage of the opportunities which will arise as we continue to come out of the economic downturn.”
 

Employee engagement continues to be one of the key drivers for success in the talent arena, as Gary explains: “Talent shortages loom in UK and the rest of Europe. Many companies are already tapping into places like India where the talent pool is expected to triple in the next 5-8 years. To attract and retain talent, companies have to offer potential and current employees a value proposition that aligns closely with the needs of these groups and the employer brand.”

There are other issues too, in terms of managing the ageing workforce in Europe. Gary continues: “Companies are faced with the loss of capacity and knowledge as workers retire; the impact around this is potential reduction in productivity, different motivators needed, increased illness related absence and labour costs, not to mention the development of a 'strategy' for the business on how to use, transfer, and leverage the skills of employees who are in the 65+ age group. Each of these issues will affect the dynamics of organisations and the culture: as a company’s employee mix changes and they enter new markets, managing corporate and cultural change will become a critical capability.”
 

Siva adds: "The focus on performance will impact key positions within organisations as they strengthen their ranks with specialist knowledge, skills and experience needed to maintain strategic and operational flexibility, resilience and morale in a hazardous economic environment. Organisations will need intelligently and proactively to retain their most talented as the competition for talent heats up, not just from rivals within the UK, but also increasingly from emerging economic powers, notably China.”

ON TRANSPARENCY

Geraldine Sharpe-Newton, Associate, Criticaleye, says: “With banks on for another bad run, in light of the HSBC/Madoff revelation, the issue around transparency will continue apace. The impact of print media will be constrained by fewer pages and even fewer outlets. But the power of the web cannot be underestimated. Corporations will be looking at the purveyance of WikiLeaks and asking nervously, how will that impact our ability to communicate internally? Silence from the top never helps with morale, so leaders will have to look at how they keep their own teams on board and informed with the right messages, strategies and vision.”

ON DIVERSITY

Gary says: “There is wide press coverage and speculation that there will be the introduction of a code of practice of hard targets on the appointment of women executives to the board of FTSE companies. It remains surprising to many high quality business people and leaders that, even in 2011, we have organisations which still don't recognise the value women have in the board room.
 

Peter adds: “On the immediate horizon I see greater diversity in the composition of UK boards, specifically with more women as NEDs. However, in remunerative terms, I also see continued senior salary drift in the name of global rates rather than real performance.”

ON PUBLIC SECTOR CUTS

“For the public sector, 2011 will be the beginning of the UK government’s Comprehensive Spending Review: Year One of a four-year period of real-term cuts,” says Jane Furniss, CEO of the Independent Police Complaints Commission. “Our response needs to be one of absolute commitment to the quality of our services and our core values, transparency in how we explain our plans to staff and customers, protection of frontline services and a ruthless approach to driving down non-staff and back-office costs. It will be a tough challenge, because very few public sector leaders have experience of leading real-term budget cuts. Getting the absolute best from our people, listening to the communities we serve and learning from colleagues in public and private sector will be essential to my success as CEO.”

ON CLOUD

Martin says: “Having returned from San Francisco just before Christmas, passing through Terminal 5 [Heathrow], I wasn’t that surprised to be engulfed by advertising boards that were all about Cloud Computing. There has been a rapid change in the views of business on how we will consume IT, and how IT can be applied. The notion of ‘rapid access’ will become increasingly pervasive in 2011.”

ON LEADERSHIP

David says: “I see banks continuing to struggle to reconcile two conflicting objectives of rebuilding their balance sheets to a more secure level while increasing their lending to business to stimulate the recovery. From a leader’s perspective, CEOs need to ensure that their balance sheets are strong, their strategic positioning clear, their management aligned and focused, and their service to customers best in class.”

Siva adds: "The UK economy was injected over the last 18 months with unprecedented doses of adrenaline, ‘quantitative easing’, to prevent cardiac arrest, and now faces 1930s-style austerity. This untested policy combination will generate stresses that weed out the weak and slow organisations, and generate opportunities for the strong and the agile. Investors and boards are acutely aware that strategic and operational actions or inactions over the next 12 to 18 months will have amplified impacts on their businesses over the next decade. This will increase the intensity of spotlights on CEO performance resulting in more leadership churn as investors and boards assertively ensure high calibre CEO leadership in their organisations."

Of course, “nobody knows for sure what 2011 will look like,” says Leslie Van de Walle, Non-executive Director of Aviva plc and Criticaleye Associate. “Personally, I believe that growth will be anaemic and the economic and financial environment will remain very difficult and volatile. The winning CEOs will be the ones running their day-to-day business very cautiously while, balance sheet permitting, acquiring targeted strategic assets cheaply, as many companies will remain undervalued or facing funding issues. So the trick will be in traversing this balancing act between day-to-day caution and strategic courage.”

Please get in touch if you have any comments about the issues raised here.

I hope to see you soon

Matthew

www.twitter.com/criticaleyeuk