12 Layers Of Complexity v3.0

Here is an updated version of the proposed ’12 Layers of Complexity’, which executive teams must contend with. Since the last version in 2022, many trends have hardened while themes have crystallized.

1. Living without a macroeconomic cycle

• Do not rely on macroeconomic forecasts since nobody can read macro trends behaving to the tune of ‘Bohemian Rhapsody; instead, develop plausible scenarios; in any event, nowadays, micro trumps macro; establish the locus of control internally with reliance on strategic and operational self-help to drive performance

1. Incorporating geopolitics and related industrial policies as a material risk factor

• Assess the impact of trade restrictions, including growing export restrictions, on revenues and sourcing; closely monitor China risks vs. opportunities; tighten supply chains without creating supplier over-dependencies

1. Rethinking an organization’s organization

• Challenge existing organizational structures, an underappreciated factor driving or impeding value creation; dry the power-sucking ‘corporate swamp’ to implement effective responses to fast-changing operating conditions; bring people back to the office

1. Implementing fair pricing strategies

• Develop pricing strategies that account for lasting and more volatile inflation driven by increasingly scarce natural resources and capex cycles; foster loyalty along the value chain through fair pricing 

1. Calibrating investments in artificial intelligence

• Use generative AI to fight the hurdles to innovation; assess generative AI opportunities for both own operations and customers to build a competitive edge; be mindful of the risk of overinvestment (and management distraction) given the hype

1. Turning non-financial disclosure into a competitive weapon

• Resist viewing corporate disclosure as a plumbing exercise; contextualize non-financial data (including at the product/service level) and integrate it into a tightly controlled equity story; adopt an educational approach to ESG in IR and PR

1. Quantifying sustainability initiatives

• Anticipate the corporate finance evolution to 2030 by developing the tools to establish a link between ESG initiatives and cash flows (value creation) - apolitically; apply to ESG initiatives the same decision-making model as to R&D projects

1. Responding to the political shift to neopopulism

• Avoid betting on short-term politics since unlikely to yield lasting benefits; Build the capacity to withstand political interference thanks to a robust stakeholder engagement model to maintain support from key constituencies

1. Making the best of intellectual capital

• Continuously enhance employer desirability to attract scarce talent; treat employees as adults  (not kids); facilitate engaging debates and Beth Dutton-style dissent; develop a rallying corporate purpose to minimize the risk of (geo)political tension among global employees

1. Paying attention to nature

• Acknowledge the role of clean water across a company’s activities and its value chain and plan accordingly; proactively disclose biodiversity-related data if material based on a corporate self-analysis

1. Building a portfolio of new technologies

• Be patient before investing in new tech assets since they are typically immature, subject to global competition, unprofitable, and capex-hungry; be prepared to pay a premium for fast-growing, profitable companies with a demonstrated track record

1. Making ESG an integral part of a winning business system

• Act as corporate stewards and make sustainability part of the company’s business/operating system; beware of bad ESG and listen to ESG critics; watch the ESG cycle but keep an eye on long-term trends