4 ways CEOs can navigate 2022’s heightened inflation
By Zion Rufus
With Central Banks across the globe raising interests to curb inflation, and Nigeria’s inflation rate currently sitting at a worrisome 17.71%(and growing), there is now a pressing requirement for a fundamental shift in the way CEOs lead and manage their organizations.
The first half of 2022 was hit by unexpected incidents that made it evident that the business environment is in need of new strategies to navigate the next six months, and beyond. As it sits, policy-makers are currently facing complex trade- offs in monetary policy to tread the fine line between reining in inflation without tipping economies into recession according to reports from the Chief Economists Outlook; hence the need for new groundbreaking strategies that will help CEOs enhance the curb.
In a research of over hundreds of companies conducted by Global research company, McKinsey&Company, here are 5 major ways CEOs can navigate 2022’s heightened inflation.
Create an inflation program management office
To concentrate on the crucial leadership skills and organizational capabilities required to get ahead of unprecedented inflationary pressures, it is important to set up a team that will test approaches to recovery.
According to McKinsey, CEOs should opt for a more proactive, durable management office for their inflation program. Such a center can benefit the entire enterprise by improving the pace and quality of its decision making and helping it to focus more on strategic action and less on “firefighting”.
Redesign product and service offerings for value and availability
Rapidly redesigning products and services to adjust to new realities, challenging specification orthodoxies, redesigning the way services are provided, and mobilizing cross-functional expertise to quickly identify and implement alternative solutions to product and specification challenges, will be the key for companies that seek to mitigate scarcity and the impact of inflation according to the reports.
“In many cases, only the CEO can break down the barriers to innovation and reward the organization for taking risks counter to typical incentives. Leading their organizations’ reimagined design is an opportunity for CEOs to nimbly implement short-term tactics to cope with inflation and capture the longer-term opportunity to forge stronger relationships with customers,” McKinsey said.
Identify and manage potential supply chain risk
Highlighting the need to identify and manage potential supply chain risks, it has also become imperative for CEOs to make seamless end-to-end planning a priority.
McKinsey said: “Depending on a company’s sector and needs, CEOs must factor in a range of risks, including those involving finance, regulation, reputation, and data security. Operational-risk management is particularly important: examine the vulnerabilities inherent in the concentration of suppliers in the same area, the visibility of operations and processes, labor, manufacturing, and delivery.”
On the other hand, the financial implications of increased transportation, energy, and materials costs on working capital must be understood. The reorder points and stock of critical materials in inventory have to be reviewed. Production programs must be reprioritized in the event of foreseeable shortages.
Transform procurement to create value, not just cut costs
CEOs have been advised to expand their focus to “everything is in play”, base their contracts on the current reality, rethink logistics and geographic sources, and consider vertical integration.
More importantly, there is the need to transform procurement to create value and not just costs.
According to McKinsey, CEOs can empower procurement leaders who are uniquely positioned to integrate a deep understanding of the business with supply market insights. These leaders can play a more central coordinating role across operations, finance, commercial, and other functions and thus help the broader enterprise become more efficient and resilient.
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