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Leading in Turbulent Times
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Navigating tomorrow: The essence of future-ready companies
How do companies like Nike weather storms and thrive in an era of rapid change and uncertainty? Enter future-readiness — the ability to balance exploiting existing strengths and embracing fresh opportunities....
In an era of growing complexity and unpredictability, the adage “adapt or perish” resonates stronger than ever. As markets fluctuate, technology advances, and consumer behaviors evolve, the ability of companies to not only perform but also transform becomes paramount for survival and success.
Enter future-readiness — a company’s preparedness for deep, long-term secular trends. This was a subject I discussed in a recent IMD Leading in Turbulent Times (LiTT) webinar.
Future-ready companies not only perform but also transform simultaneously. They strategically reposition their core business to enhance resilience and exploit the strongest competitive advantages feasible within changing markets. Some executives think performing is about cutting costs, but it’s more than this. It’s about asking introspective questions: What sets us apart from competitors? What aspects must we relinquish? Why do customers choose us?
Moreover, future-ready enterprises actively engage in transformation, generating new growth engines and embracing the possibilities of a new market to conceive fresh competitive advantages and solve unmet customer needs.
To illustrate why future-readiness is so important, consider the fashion industry during the pandemic, when the fortunes of brands diverged. Some fashion companies’ share prices took off, such as lululemon and Nike, while others, such as Zara parent Inditex and Under Armour, came under pressure. Worse still, some firms filed for bankruptcy during the pandemic, including J Crew, Brooks Brothers and JC Penny.
“Future-ready companies not only perform but also transform simultaneously.”
After COVID-19, inflation rose sharply, and consumers reined in spending. Even then, lululemon and Nike performed better than other fashion brands on the stock market. This highlights how future-ready companies win more when times are good and lose less when times are bad.
The main source of this resilience was the ability to pivot almost overnight to digital sales channels when the coronavirus pandemic hit. Nike had already invested in building its e-commerce operations, well before the pandemic struck. In contrast, fashion brands that relied more on in-store sales suffered more in lockdown because they did not have a well-developed digital supply chain.
Building such resilience is a gradual process. Nike’s digital commerce sales have increased by nearly $4bn since 2016. By using digital tools to manage its supply chain, Nike can quickly adapt and respond to changes. This means the company can make custom sneakers and apparel and get them to customers all over the world faster.
Accordingly, Nike’s annual direct-to-consumer (D2C) revenue has grown from 16% of total revenue in 2011, to 44% in 2023. This direct relationship with customers enables Nike to gather more data to understand consumer behavior, which helps the company improve its products and predict future market trends.
But importantly, selling directly to the consumer has not cannibalized Nike’s core business, selling to stores — a sales channel that grew from $15bn in 2011 to $26bn in 2021. This compares with $2.9bn of direct sales to consumers in 2011, rising to $16.4bn in 2021. The fact that Nike’s sales to wholesale customers have continued to grow, underscores how this new capability, a best-in-class digital supply chain, has served both Nike’s core business and new growth engine. In a nutshell, Nike is a future-ready company.
Nevertheless, even companies that are prepared for the future have problems to solve, such as internal tensions. Embarking on a dual transformation — growing the legacy business alongside new ventures — inevitably leads to trade-offs. In many cases, the core business will be more profitable than the new venture, at least initially.
This can create conflict between executives. Some may fear cannibalization of the legacy business. New ventures may divert resources away from the core, hurting overall performance in the short-term. However, as the Nike case illustrates, future-ready firms develop capabilities, such as a digital supply chain, that ensure their near-term performance excels while positioning the firm for future growth.
For future-ready companies, the important thing to keep in mind is that executive teams must have shared priorities. It’s often tough to get everyone on the same page; surveys suggest that many executive teams struggle with this. To make it work, there needs to be a strong sense of trust among the team, even when they don’t see eye to eye. This trust is what helps them work through disagreements and stick to their shared goals.
When it comes to building new capabilities, this means figuring out what the company needs to do to both perform and transform, and then learning how to do those things better. This involves looking at what the organization is good at and where it needs to improve. Executives must set clear goals and make sure employees are given the training they need to learn new skills. Working with outside partners can also help.
By doing so, companies will position themselves not only to thrive in the present but also to navigate the uncertainties of tomorrow with resilience and agility.
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