As businesses look to regain lost momentum and recover from the economic shocks of the COVID-19 pandemic, finance teams will be called upon to navigate a sustainable path forward. Faced with gloomy economic forecasts and a raft of business closures across sectors, many organisations will have to do more with less and deliver value with tighter operational structures.
To achieve this, organisations will have to look more closely at what they are, whom they serve, and what their real purpose is (see the sidebar, "Pausing to Refocus").
According to Jonathan Marks, senior lecturer of innovation at the Gordon Institute of Business Science at the University of Pretoria in South Africa, this pressure to become leaner is a chance for finance professionals to reassess and re-engage with the core of an organisation's mission.
He highlighted the example of short-term home rental company Airbnb and how the prolonged pause on global travel forced the US company to return to its core mission of fostering human connection by enabling "everyday people" to become hosts.
"This crisis has sharpened our focus to get back to our roots, back to the basics, back to what is truly special about Airbnb — everyday people who host their homes and offer experiences," explained Brian Chesky, Airbnb chief executive, in a May 2020 note to Airbnb employees.
To support this new focus, the company created a "sustainable cost model" and will reduce investment in activities that "do not directly support the core of our host community". For example, investment in Airbnb Transportation and Airbnb Studios will be paused, and teams will be reduced in size based on how well they map to where Airbnb is headed, Chesky wrote.
Although it takes work and requires resources to follow such an example, choosing to ignore your organisation's purpose during these fraught times can be a risky gambit. Without a clear purpose, it can be harder to navigate out of the various crises facing business right now; meanwhile, employees may be less engaged with the organisation, and stakeholders may lose confidence in the organisation's direction.
"This crisis has provided finance leaders with a unique opportunity to understand where the real value lies within organisations, and to test out new models or service lines in the very controlled environment of national lockdowns," said Zayne Nabbee, ACMA, CGMA, group finance manager at Creative CFO, a consultancy based in Cape Town, South Africa. "It's an important time to return to your organisational 'why' and look at new ways of fulfilling it."
4 key steps
For leaders and finance teams, the process of embracing a sharper organisational focus should be carefully structured.
"Having a clear and well-documented purpose will increase the speed and efficiency at which an organisation transforms and innovates, even in times of crisis," said Nadine McLean, director of South Africa-based LIV Consulting.
McLean highlighted four practical steps to rediscovering and strengthening your "why":
Document the journey
The organisation's full journey and evolution must be recorded, from inception to present.
"Leaders should consider some of the most memorable events and achievements, which will highlight how they have historically strived towards a certain purpose," McLean said. Such achievements could include a joint venture with a strategic partner or a community project.
The resulting document should be professionally designed and presented, and available for all stakeholders to view, McLean said. It can be displayed on the organisation's website, for instance, or in a digital presentation that is distributed both internally and externally.
Define the impact
The next step is to engage with all stakeholders — clients, employees, suppliers, shareholders, investors, and communities — in order to understand their needs and gain insight into how they benefit from what the organisation does.
It is critical that everyone feels included in the process and is given a voice as the core purpose is being refreshed or redefined. Led by an internal champion or project manager, this step should involve fieldwork in key communities, roundtable discussions, and the distribution of surveys and questionnaires to gather feedback.
The internal champion can appoint different leaders within the organisation to approach relevant stakeholders; for example, the head of human capital would engage with employees, while a member of the executive committee would approach existing investors and board members.
Clarify the 'why'
Armed with these new insights, refine them into a sentence that captures your organisational purpose. Once the sentence has been written, continue to ask "Why?" until the root purpose becomes very clear. According to McLean, this sentence should clearly illustrate why the organisation exists and the role it plays in its sector.
Create strong alignment
Finally, ensure that all stakeholders gain clarity around the purpose and understand what the organisation is working towards. By drawing on the documented learnings and insights gained in the first two steps, this understanding can be cultivated through workshops and webinars, as well as regular communication in the form of newsletters and emails to stakeholders that reinforce and illustrate the organisational purpose.
All on the same page
The last of the four steps in re-establishing an organisation's focus also marks the beginning of the pursuit of the redefined goals. Aligning governance structures, performance management indicators, and financial activities is a vital stage in the process. This sentiment is supported by 2018 research from EY, which published insights from a survey of almost 1,500 business leaders in which 73% stated that having "a well-integrated purpose will help their company navigate disruption".
In the survey, leaders identified specific ways in which embedding the pursuit of purpose creates long-term value: building greater customer loyalty, preserving brand value and reputation, attracting and retaining top talent, and developing innovative new products and services.
"If stakeholders are aligned to the purpose, they will all work in the same direction, and there will be continuous progress and, ultimately, sustainability in times of great disruption," McLean said.
According to Monica Dimitracopoulos, global long-term value leader at EY, leaders need to anchor the overarching business strategy to an authentic purpose so that it informs key decisions both internally and externally.
"Our purpose at EY, 'building a better working world', sets out why we exist as an organisation and provides meaning to the work we do every day. In order to build a shared understanding of our purpose, we have taken steps to ensure it is central to how we develop our people, serve our clients, and contribute to society as a whole," Dimitracopoulos said.
Your talent strategy should focus on creating clear linkages between individual and organisational purpose from day one. Purpose should be embedded across an employee's professional journey from new recruit through to senior leadership. This can be achieved by creating a set of experiences, such as training programmes and workshops, that allow people to engage with the topic of purpose in tangible and meaningful ways at each stage in their careers.
It is also important to recognise and reward employees and leaders who are working in close alignment with your organisation's purpose.
"Showcase and elevate examples of purpose in action, and share these successes with your employees and customers in a consistent way," Dimitracopoulos said. "In doing so, you are signalling what matters and what is valued in your organisation."
Once an organisation's purpose has been strategically integrated, finance teams can turn to the data they have in hand to find efficient and innovative ways of fulfilling the core mission within the new economic reality.
"It is critical at this point to have accurate and up-to-date financial data, as this will allow skilled teams to run different models and provide forecasts to guide small-scale experimentation," Nabbee said.
For retailers, for example, financial modelling can provide insight into how a new delivery model might work — and what resources would need to be shifted around or acquired to support it.
Nabbee pointed to the example of The Creamery, a producer and seller of handmade ice cream in Cape Town, which had to find sustainable ways of fulfilling its purpose — getting fresh ice cream into the hands of customers — when lockdown forced the temporary closure of its cafés and retail outlets.
Along with Creative CFO, The Creamery's team, led by founder Kate Schrire, explored the financial implications of developing prepackaged products to diversify their revenue streams in both the short and long term.
Within this experimental phase, solid financial data can be harnessed to provide both the signposts for growth and the red flags that indicate where the risks are too high.
For instance, when investigating its prepackaged ice cream model, The Creamery's team leveraged financial forecasting to explore whether it should partner with an existing delivery business or invest in its own home-delivery infrastructure.
"The pivot, with both a short-term and long-term financial strategy in mind, forced us to innovate around a new range of products," Schrire said. "This new focus aligned with and underscored our core purpose, which is to provide a fresh and handmade product to customers, and a joyful experience in their day."
Vukani Mngxati, chief executive at Accenture, Africa, also stressed the importance of aligning organisational purpose with the difficult realities that many customers and stakeholders are facing.
"When rethinking purpose in the context of the COVID-19 crisis, we have urged organisations to adopt an empathetic approach and to focus on the customer experience at every level," he said. "This requires you to firstly understand how your customers have changed, and pull together existing data sources and those of partners to understand new behaviours and trends in the post-crisis economy."
Arguably, the anticipated post-COVID-19 economic difficulties will reinforce the need to embrace an empathetic and multi-stakeholder approach to decision-making. For organisations forced to adjust by recent tribulations, planning for longer-term success beyond just survival could turn a crisis into an opportunity.
"This is the beginning of a new era of business," Mngxati said. "The rules have changed, and employee and customer behaviours have changed as well. This creates new opportunities for organisations with the courage and foresight to change more than immediate needs demand. Those that can reinvent themselves, and do so in ways that further their authentic purpose, will thrive in this new era."
Pausing to refocus
Jonathan Marks, senior lecturer of innovation at the Gordon Institute of Business Science at the University of Pretoria in South Africa, outlined three initial steps to take when beginning the search for an organisational purpose amid the pandemic:
The first phase is an important time to take defensive measures and protect the organisation. During this period, finance teams have to focus on managing costs, following up with debtors, and reducing manufacturing capacities where relevant.
"This is a period of retreating so that you can advance later, thereby ensuring that there is actually an entity to return to after the pandemic," Marks said. "Some organisations might be involved in this over a longer period or might be tactically retreating and advancing as the realities of the post-COVID-19 economy manifest." In general, the retreat phase should be limited to three to five months (depending on cash flow), after which the company should be looking to resume key activities and begin exploring new strategies.
This is a period of consolidation and returning to some form of what the business or organisation may have been prior to the pandemic. Over a period of roughly six months, small to midsize companies in particular should shorten their planning horizons and plan for 30 days ahead in order to remain responsive and agile during the renew phase.
"Businesses should be cautiously spending again in this phase, employing staff, and maybe even looking at small expansions," Marks said. "This could be a great time to revisit the nature of global supply chains and their vulnerabilities — for example, focusing on what we have around us and supporting more local, circular economies."
This stage is about completely revisiting your business or organisational model and considering how your industry or sector has changed and how you can change with it.
"This is the most exciting stage, and it has the potential to really catapult an organisation into a new dimension," Marks said. "A real return to one's 'why' would help to rebuild and refresh the business and the business model around something conscious and sustainable." During this critical refresh stage, which could take three to six months, finance teams should work with leaders to question and redefine the organisational purpose.
Jessica Hubbard is a freelance writer based in the UK. To comment on this article or to suggest an idea for another article, contact Drew Adamek, an FM magazine senior editor, at Andrew.Adamek@aicpa-cima.com.