- Companies are reacting faster than ever before to unexpected realities, whether war, pandemic or inflation.
- While corporate leaders need to react more quickly, they also can benefit from including worst-case scenario "what ifs" as part of the annual planning process.
The world is moving fast, and unexpected events can spill over into the economy and markets, ultimately hitting consumer and business confidence, and influencing spending and investment decisions on both Main Street and Wall Street.
The current war between Russia and Ukraine is an example. But whether it's another Covid wave, or the Federal Reserve becoming more hawkish to fight inflation, or geopolitics, there are a lot of variables in play.
More C-suites are leaning into a dynamic planning approach, thinking in a cycle that isn't measured in the next year, but over the next three months — creating shorter-term chunks of time that allow management teams to react to new realities rather than become fixated on a multi-year plan. Companies still need to have a vision of where they want to be a decade out, but the cycles within that need to be managed with greater speed.
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But there's another way to look at this — you can plan in advance for what you can't predict and don't necessarily expect. And you should. Take inflation as an example.
The market and investors are asking a lot of questions about inflation, and the C-suite may have to respond in the moment. But Eli Lilly's CFO Anat Ashkenazi says the current inflation overshoot is a reminder of the importance of long-term planning around "what if" scenarios that may not be the base case for a business.
In 2020, Eli Lilly's management team decided to run a "what if" scenario for hyper-inflation. That's not because the company was making a brilliant call on the inflation trajectory to come. "We were not visionary," Ashkenazi says. But every year, Eli Lilly management asks some big questions as part of its formal planning process. As Ashkenazi frames it: "What could cause us to fail to achieve everything we set out to achieve? … What could cause us to have a completely different strategy as an organization?"
Inflation is just one example, and not even the best example for Lilly, since it has a modest impact on its financials. Other "what ifs" that go to the heart of its business include changes in law related to IP protection and drug pricing.
Her point: All companies need to ask these questions at a macro and company-specific level as part of risk management.
"We've done this religiously," Ashkenazi says, who served as chief strategy officer at Lilly before taking on the CFO role.
Completing Six Sigma black belt management training years ago, especially what is known as process failure mode analysis, has been helpful in developing this mindset, Ashkenazi says, and it has led to more efficiency and discipline when collecting data and implementing strategic planning and organizational transformation.
"When you do 'what ifs' you can get the specific risk wrong, but have a broad enough set of risks covered," she says.
Lilly also reaches out to companies beyond its own industry to discuss topics of interest, which Ashkenazi says has been "incredibly helpful" in gaining additional context and expertise. Talking to CFOs and chief strategy officers from other sectors of the economy, hearing from them on learnings and pitfalls as they have grown companies, can help manage one persistent risk within an organization, and circumvents the trickier issue of discussing these ideas with rivals.
CFOs are more externally focused than other leaders because of the constituents that the role requires interaction with, such as shareholders. Nevertheless, Ashkenazi says, "It can be easy to be insular at any company, focused on the day-to-day." As a C-suite, she says companies should lean into "the institutional notion of looking outside."