Written by: Ricardo Rosa (4 min read)
When leaders look at their businesses, they assess their decisioning at four different levels. In this article we'll unpack the four levels at which business leaders assess their business opportunities and challenges and how to use the right horizon or level to reframe the context or thinking to find more innovative solutions or opportunities for their business.
This is such a pertinent observation in today’s business world as, often when we consider an opportunity or challenge, we try to frame it in the same context we saw it. When leaders look at their businesses, they assess their decisioning at four different levels.
“We cannot solve our problems with the same thinking we used when we created them”.
The idea of this article is to unpack the four levels at which business leaders assess their business opportunities and challenges and how to use the right horizon or level to reframe the context or thinking to find more innovative solutions or opportunities for their business.
In the level or horizon of Return on Investment is where the direct cause and effect between the investment you make and the expected return in the short-term is found. However if you consider all your opportunities at this level you will only get a very short-term perspective for your business. And companies typically often make small investments in the hope that the sum of those investments will make a whole. This is a challenge because, although things can work fine as individual parts, they do not always work as a whole.
When company boards look at things from a more mature perspective they start asking what their Return on Equity out of their investment will be. They also ask how these investments can help the company achieve the return on equity. This requires executives to look through the vertical integration of the business, from source to customer, and also allows them to look for horizontal integration across the product and service offering to find maximum ways of achieving the highest return on equity and managing to execute better decisioning.
As organisations mature, they start looking at things from the perspective of Return on Experience and start thinking about the power that the consumer and employees have on their business outcomes, especially in the modern social media world. You have to think carefully about what experiences you are creating for the consumer for them to believe that you are relevant in the market. And you have to align this with your employee engagement. This is important as industries start to converge. Ambitious companies know that you have to be differentiated to succeed in the converged market place. When you create and define the return and implement on experiences you are having with your clients and improve upon your employee engagement, you will gain more market access and growth opportunities.
The companies that become highly differentiated move into the fourth horizon and start measuring their impact on the Return on Social Development. These are organisations that are truly aiming at being sustainable and start becoming conscious of how they are impacting the social environment in which they operate. This fundamental change means you are now starting to look at what impact you are having on each eco-system and what your inclusive growth strategy looks like. Looking at your impact on the social development goals as an organization gives you a much bigger and broader perspective of operating, as well as giving you more meaning.
Organisations looking at opportunities while they understand at which level they are operating have a better ability to maximize on the opportunities in the right context. Looking at opportunities at a return on investment level from a return on equity perspective can improve operations for a company. And when an opportunity appears at the return on equity level, maybe you should consider that the answer could lie in reframing it to the level of return on experience, i.e. if you create new experiences with your customers and engage your employees, you could achieve even better equity and growth.
Furthermore, if you are struggling with creating the right return on experience for clients and staff, you may find that creating relevance within the ecosystems and communities you operate could result in employees being more engaged and customers being more loyal to your organisation, as you are enhancing your social relevance to them.
Already in the last few months we have seen some of the largest asset managers using the Return on Sustainability as their guiding principle for investment choices and returns, meaning that this could impact on the cost of capital for organisations not maturing up the horizons.
We will in the next few articles unpack, how organisations can use the horizons in looking at their strategy, growth, operational excellence, risk management, balance sheet improvement, tax and business resilience.
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