Published in Forbes
By Stuart R. Levine

Every company needs to anticipate customer needs and provide an easy, safe, and secure environment in which to purchase goods and services. State of the art customer service requires constant investment in technology and, most importantly, people. Innovation and advancing technologies bring new ways to serve customers. Data analytics, artificial intelligence, and predictive services use state-of-the-art expertise and technology to create a personalized customer experience, improve operating efficiencies, and increase revenue. There is a race to implement these new technologies and companies are finding these tools essential. Innovation is a double-edged sword, however. Along with new customer service opportunities, it also brings increasingly significant investment requirements in hardware, software, and people with new skills and knowledge to keep pace.

Competitive market demands have brought strategic risks, and COVID-19 has added to them. The pandemic has worsened pre-existing concerns such as an uptick in cybersecurity threats, new and changing work environments, and the quickening pace of technological disruption. Before the pandemic, bricks and mortar businesses faced threats from on-line providers, but the pandemic has sped this up. In financial services, research firm BAI describes how the pandemic accelerated mobile banking, making physical locations much less important. More than half (52%) of banking consumers increased digital usage and most (87%) plan to remain mostly digital after physical locations reopen. Retail has been hit particularly hard. Coresight Research, which tracks this sector, projects that as many as 10,000 U.S. storefronts could disappear by the end of 2021, as consumers increasingly choose the convenience and safety of online shopping. This represents a 14% jump in closures from last year, when a record number of major vendors closed over 8,700 stores.

Times of transformation and disruption generally cause substantial capital redeployment and additional requirements just to stay in the game. Larger companies may have an advantage in economies of scale. They can better afford to weather the storm of transformation and have the funds needed to invest in the technology, staff, and controls needed to compete and face this environment of heightened risk. Smaller companies, struggling to survive, face similar immense investment requirements as their larger competitors. They need essential technologies, and must hire, train and retain increasingly scarce human talent. Very often, this will lead to mergers, as smaller entities cannot maintain their competitive advantage. 

In times of major transition, for companies of all sizes, good governance matters more than ever. Boards and senior management must have the capacity and determination to assess, address, and mitigate strategic risk. They must consistently engage in strategic conversations as a regular, inherent, and essential board process, not just a once-a-year exercise. Areas needing attention, such as escalating customer expectations, technological innovation, pandemic related and other social change, to name a few, require smart capital deployment and human resource strategies to face the competitive threat. Boards of smaller entities need to ask the right questions to determine if they need to be acquired or merge and how to protect their customer or member base.

Successful strategies are founded on a strong organizational culture based on vision, mission and values that are clearly understood and embraced by everyone in the company. Beyond capital investments in hardware and software, sound strategies demand that leadership be laser-focused on investments that support the culture. They must concentrate on getting the cultural environment right. A strategic investment in people engages employees, advances talent development and upskilling, promotes learning and training that enhances innovation and creativity, and provides for succession planning. 

The sizeable current investment requirements needed to compete, however, may prove insurmountable for some organizations. For example, in looking to mitigate risk, the optimal strategy may call for a major change, like a combination with a larger firm.  A merger may be in the best interest of the stakeholders, while allowing the company to continue providing products and services in a safe and secure environment.  In any merger situation, leadership confronts many concerns involving the roles of the various stakeholders going forward. Senior management’s and key employees’ roles must be carefully studied and addressed. Consideration of the roles of board members of the acquired organization is important in the merger calculus. And most importantly, it again comes back to your people. Ensuring a workable strong cultural environment for the employees of both companies going forward is immensely challenging, but an absolute must for a successful combination. It will be the boards’ responsibility to ensure this happens. 

The CEO and senior leadership must provide organizational alignment and direction based on shared objectives, ethics, and common values.  The stakeholders need this, and they need leadership to deliver effective communication on the status and progress of any chosen strategy. Many risk mitigation strategies put employees under increasing stress. Their understanding of alternatives and their buy-in for the chosen path are imperative.

Our experience working with clients in situations of dramatic change confirms that full engagement of the board with senior leadership is the starting point of good governance. Whether it is deployment of significant capital to address a multi-threat competitive environment or a major transformation like a merger, senior management’s and the board’s role is critical in the continuous monitoring and mitigation of today’s increasingly challenging risks.