The world is going through an inflationary peak of considerable duration. In the first months of 2022, it became increasingly clear that this year and next, inflation rates well above the 2.0% that both experts and Central Banks had forecast will prevail.
According to recent McKinsey & Company analysis, Navigating inflation: A new playbook for CEOs, in the United States, the consumer price index increased by 8.5% from March 2021 to March 2022, 7.5% in the eurozone and 7% in the United Kingdom.
At the national level, according to data from the Central Bank of the Dominican Republic, year-on-year inflation from March 2021 to March 2022 stood at 9.05%, 2.3 times higher than the 4.0% of the center of the target range. The year-on-year result included inflation of 2.80% in the first three months of 2022, which was impacted by the behavior of world markets after the Russia-Ukraine conflict.
How might CEOs guide their management teams during this period?
Like central bankers, CEOs need management guidance on inflation. This guide can be understood through key questions to themselves and to the senior executives of the most important operating areas. Here are some important questions to consider:
? Where will customers see added value in this new environment? How to design products, services and experiences to offer this added value?
? What is the fastest route to stabilize and redesign supply chains that have been affected, and in the worst case, broken? What capabilities will be needed to increase the resilience of my business and control costs?
? How can I help purchasing leaders to create value in their operations? How does the dynamic of new talent affect compensation, benefits and labor standards? In a volatile labor market like the current one, what can I do to attract and retain collaborators?
? How to address the issue of price revision in an inflationary market?
? What are my priorities and how can I organize myself to carry out my management guide?
In a new scenario for private companies, CEOs play an important role in setting clear direction, aligning the organization, and managing stakeholders in times of crisis or change. In this sense, the global consulting firm, McKinsey & Company, provides six key points to consider in the management strategy of a CEO.
Redesign product and service offerings for value and availability – it is necessary to respond to raw material volatility, component shortages, and higher production costs, while maintaining the core functionality that customers require. Is contemplated:
? Quickly restructure products and services that need to adapt.
? Reinvent the way you provide your service.
? Promote close substitute products.
Build digital, integrated, transparent and agile supply chains – McKinsey & Co. recommends that companies act on key points together with their collaborators in order to mitigate bias in supply chains:
? Make your entire supply chain visible.
? Identify and manage potential supply chain risks.
? Make planning from start to finish a priority.
Transform purchases to create value, in addition to reducing costs – Purchasing leaders make strategic partners by expanding their focus from cost of goods sold to value creation. In response to these needs, procurement leaders have implemented actions that previously would have taken months and years:
? Broaden the focus of the business:
? Base contracts on current reality.
? Rethink and restructure logistics.
? Invest in technology and process automation.
Adapting to the new talent game – why do employees quit? – According to the numbers, the cost of changing jobs has dropped significantly and there is less stigma attached to gaps in the resume. They also highlight factors such as uncaring leaders, unsustainable job performance expectations, and lack of career growth. To rebuild relationships and retain top talent, managers could take a new approach to talent:
? Rethink salary compensation and benefits, improve growth expectations, flexibility and work environment.
? Make your work model attractive and differentiating.
? Search for non-traditional and latent workers.
Set prices to strengthen customer relationships – As costs rise, revising prices to maintain margins is often unpleasant for companies, so a conciliatory role can be adopted.
? How can we adjust discounts and promotions to maximize non-price levers?
? Can metrics help us personalize more effectively?
? Can we communicate our value more effectively?
An inflation program management office – CEOs could opt for specialized offices for their inflation program, a center that benefits the entire
company by improving the pace and quality of its decision-making, providing focus on strategic action and reducing risks.
Organizational resilience is key in a world as changing as the current one. Similarly, in an uncertain scenario, the role of the CEO goes beyond thinking about profitability. This focuses on taking care of all the company’s stakeholders through agile and strategic action, despite inflationary peaks. The aforementioned strategies can guide the decision-making path of managers in favor of their organizations.
With proper guidance, CEOs will successfully manage the impact of the current inflationary environment and establish a new level of organizational resilience, no matter where prices move next.
The author is Antonio Novas GarcÃa, manager of the firm McKinsey & Company in the Dominican Republic.