Priorities for the C-Suite in 2022

On the Agenda

Tackling Climate Change

To Win the Race to Net Zero, Be Early and Bold

By Jens Burchardt

When it comes to how CEOs should think about climate action, I like to quote Anna Borg, the CEO of Vattenfall: “To be early might be challenging, but to be too late will be devastating.”

The world is embarking on one of the biggest transformations in history—the abandonment of fossil fuels. Environmental policymaking, technological development, and shifts in consumer and investor sentiment are all accelerating. But many of us still underestimate the immediacy, pace, and extent of these changes.

For CEOs, it’s time to move—to commit to leading this transformation. Many leaders who were quick to see opportunities in past big global shifts secured windfalls for companies that are still thriving today. Many of those who only saw risks did not survive or their companies have still not recovered.

Indicators suggest the same holds true for environmental sustainability. Research by the World Economic Forum and BCG shows that companies that lead on climate hire better people. They manage to cut costs or generate premiums through emission reduction. They have lower regulatory risk. They pay less for financing. They are—on average—valued higher by the markets. On the flip side, I don’t know of many companies that have lost competitiveness by reducing emissions too ambitiously.

Companies that move early also manage to move their industries. Although talk of collective action was all the rage at the COP26 climate summit, a lot of progress in recent years has actually come through good old competition. When one company plows ahead of its competitors, the rest feel compelled to follow.

This is a time like no other for bold leadership. If you don’t already have an ambitious commitment, make one. And be aware that in many industries, leadership means committing to more than what science demands. If you do have one, focus on delivering—by transforming your portfolio and your operations and engaging your supply chain.

Getting the Most from Artificial Intelligence

Understand AI’s Full Potential Before Moving Forward

By François Candelon

We are at a major turning point in artificial intelligence. CEOs know that it’s important and are ready to make serious investments. But many don’t really understand what to do with it. To borrow a French saying, it’s like giving a knife to a chicken. Not surprisingly, only around 10% of companies say that they see significant financial returns on their AI investments, according to a recent study we at BCG conducted with MIT Sloan Management Review.

I think the most urgent agenda item for CEOs is to understand AI’s full potential—and what it can do for their business models.

Four basic capabilities make AI exceptionally powerful—especially when connected in new bionic systems with humans. AI can process massive amounts of data in real time. It can provide ultra-granular predictions. It can continuously and autonomously learn and improve. And it can be scaled up at almost zero marginal cost. When combined effectively with human judgment and creativity, AI can revolutionize almost any business process and operating model.

I’ll give you an example from a telecom company we are working with. Telcos typically push out products to consumers through broad marketing campaigns. With AI, they can market to segments of one to deliver the right product, at the right time, through the right channel. Rather than selling to a segmented but faceless customer group, telcos can offer truly individualized packages of services and devices based on data analysis of a household’s needs, usage, and interests. They can also increase their share of wallet by improving the individual’s satisfaction, loyalty, and openness to upselling. We have found that this switch in marketing can boost a telco’s revenue by 10% while cutting costs by 20%. This is massive!

As Spiderman wisely told the world, with great power comes great responsibility. AI is a powerful technology, but it’s just a technology. It requires human oversight to ensure it is not abused or does not lead to potentially adverse, unexpected outcomes. Companies need to make sure developers and executives use AI responsibly and in line with their values. This means it’s urgent that CEOs and executive committees understand the full potential and risks of AI.

Creating the Future of Work

Fundamentally Recalibrate Your Organization’s Relationship with Its People

By Deborah Lovich

The “war for talent” is over. Talent won. Now organizations need to rethink and recalibrate their relationships with their people. For example, in our global research, we have found that 56% of knowledge workers are open to looking for other positions—and 20% are already looking. The numbers are even higher for digital talent.

Do that many people really want to leave their employers? Time will tell. I believe people want to be loyal to organizations. But they’re looking for more than just a job or a career. COVID-19 has made us realize that we don’t want to live to work. We want to work to live. So we want our work to provide better compensation, more flexibility, and deeper connection to peers, leaders, and purpose.

How to recalibrate? First, listen. Find your happiest people and discover what makes them happy. Find your least happy people and ask them what would make them happy at work and what gets in the way of that. What are their biggest frustrations? Start to reimagine together what work can be.

Next, empower and enable your best people to have the agency and resources to make work better. Sit down with them and ask, “What are your specific ideas? If you could change anything about working here, what would it be? What do you need from me in order to experiment with changes?”

More money is obvious, and compensation already is shooting up. But also figure out what benefits are most important. Education, upskilling, and reskilling are critical as technology changes what skills are needed. Day care and wellness and mental health resources all were put on the table during COVID-19. They need to remain there. Flexibility also matters—not just in terms of place but also time. Our research shows that 76% of employees globally are looking for flex in where they work while 93% want flex in when they work.

This means flex is not just for knowledge workers! Manufacturers need to switch shifts to fit around people’s lives. Have shifts that mirror school hours, for example.

Third, establish a real human connection. Tell yourself, “We are no longer hiring employees. We are building relationships with families. We are taking care of them. We are growing with them, investing in them, and giving them what they need.”

Fixing Supply Chains

Give Cost Squeezing a Breather and Start Investing for Resilience

By Marc Gilbert

The COVID-19 pandemic taught everybody a lesson about supply chains. Focusing on cost per unit, being incredibly lean, and perfecting just-in-time worked great in a stable world. But shaving every single penny out of cost catches up with you. It’s time to set aside some of the economics and dedicate more funds to making your supply chain more resilient, because the cost of disruption can far exceed whatever you’re saving.

Where to start? There are a few tactical and immediate things you can do. You can build more inventory by ordering and stocking more. You can develop alternative sources of supply.

But perhaps the most important thing CEOs should do in 2022 is apply new lenses of scrutiny to their capital decisions. CEOs must think more holistically about their manufacturing investments. Cost and access to new markets are important, but CEOs also should assess investments through the lenses of talent, geopolitics, and the climate.

I’m getting a lot more inquiries from companies about mitigating geopolitical risk. We’re seeing more companies looking to re-shore, such as by shifting some production of consumer durables like small home appliances and power tools from Asia to Mexico if those goods are sold in North America. But this will require a slow transition. It will take significant capital investment and a good three to five years to get new factories and suppliers up and running.

CEOs also should start factoring carbon costs into new manufacturing investments. This isn’t top of mind yet for many CEOs, but it should be. The EU is phasing in a system for taxing carbon emissions associated with imported goods, and other nations may follow suit. Also, around 80% of the world’s major companies say they plan to become carbon neutral. So your customers are likely to take a harder look at your carbon footprint. By using a climate lens, you may find it’s better to put a new plant in an area where renewable energy is abundant, rather than a place where you’ll have to burn fossil fuels.

Winning the Battle for Consumers

Instead of Going for the Quick Pivot, Discover What’s Really Driving Consumers’ Decisions

By Aparna Bharadwaj

From what we’re seeing, I would describe consumer sentiment around the world as resilient, but muted. Different economies, industries, and companies will still be recovering at different speeds. CEOs should expect another year of stabilization from the pandemic before we get back to rapid growth.

I see three things CEOs of consumer product companies should focus on in 2022 to navigate this multispeed recovery: they must become more digitally adept, get their supply chains in order, and become more relevant to their customers.

Downstream digital capabilities—sales, marketing, and ecosystem partnerships—will become even more important, because most people are unlikely to go back to their pre-COVID ways of shopping. Companies that invest in frontline digital will succeed.

Because supplier inventories haven’t yet recovered, we’re likely to see demand in 2022 that can’t be met. Companies that keep their supply chains resilient, and have the right diversity of supply, will have a big edge.

Given the rising costs of inputs, some MNCs may see an opportunity to raise prices. But this could backfire if not done right. You may boost profits now but lose market share to competitors with more local supply chains. It may be wiser to be more thoughtful about how you use your production capacity. Will you really need all those SKUs, for example, or only those with the strongest demand? Maybe you should focus more on higher-end, premium goods.

Finally, CEOs in 2022 need a deeper understanding of how consumers’ needs have changed. The pandemic was a game-changing experience for everyone. People are shopping differently, and they don’t value brands in the same ways. Demand is rising and falling in different product categories.

But I see a lot of companies falling into a trap. They notice that people are becoming more digitally engaged, health conscious, and concerned about sustainability. So they attempt quick and dirty pivots based on broad rules. They don’t realize they need a much deeper understanding of what really drives consumers’ decisions.

We’ve done extensive research into this around the world, and what we found is that the mix of attitudinal, demographic, and contextual factors that influence consumer needs differs sharply market by market, category by category. Brands that build a strong understanding of evolving consumer demand will recover most rapidly.

Managing Through the Pandemic

Build Back Better at an Individual Level

By Marin Gjaja

The disruptions business leaders have faced over the past couple of years have mostly been about the pandemic itself. But going forward, I believe the biggest challenges will be dealing with the repercussions of the pandemic, which will be with us for some time.

We’ve all spent a lot of time talking about the second-order effects on the economy, both directly and in terms of supply bottlenecks. What we haven’t talked enough about is the unique impact this pandemic and this recession have had on society. There are a set of human challenges that CEOs are going to face that we don’t fully understand yet.

It’s not just about convincing people to come back to work. Workers who do come back will be less healthy physically, mentally, emotionally, and socially than they were before.

We’ve never had, short of war, this kind of impact on human capital and social development---the disruption to schooling, the impact on marriages, the movement of people to new jobs. And I don’t think we really know where this will go. Will this generation of kids—especially disadvantaged kids—be permanently scarred? Will it affect their capacity for economic output? Will these children be challenged socially? There are already plenty of signals that we’ve got a problem.

This is something business leaders will have to start confronting. For one, you’ll need to retain talent. We’re in a very tight labor market. So you’ll need to make the most of the people you have. What investments will you make in them? How do you make your people healthier—individually and collectively? How do you help them overcome the nearly two-year deficit they’ve experienced?

Everyone’s context is different. I think it will come down to taking stock of each person, meeting them where they are, and supporting them. Companies will need to “build back better” at an individual level.

That’s hard to do systematically and institutionally. But as more people come back to work, these challenges will become more prevalent.

Promoting Diversity, Equity, and Inclusion

Embed Equity into Strategy and Use Your Voice for Change

By Justin Dean

The pandemic and a host of social crises over the past 18 months have put a much-needed spotlight on the important role the corporate community can play in promoting diversity, equity, and inclusion. CEOs were truly moved to do more. Diversity and inclusion is now a top-five agenda item.

But many CEOs look at it only through the lens of organization and culture. They miss what they could accomplish by embedding equity into their strategic priorities and using their corporate voice for social change.

Applying an equity lens to strategy not only enables you to promote social good. It will also help create differentiated value for your company. Take the energy sector, where utilities are starting to combine the ideas of sustainability and equity. A strategy that doesn’t take equity into account might focus on helping affluent homeowners install solar panels on their rooftops. By selling their surplus power on the grid, these homeowners would see their utility bills drop. But what about people who can’t afford to install solar—or don’t even have a house to put it on? Their utility bills could double. So this strategy would exacerbate wealth gaps. By considering equity, you can develop programs that ensure broader and faster adoption of renewables by all customers. This in turn will allow the utility to achieve its sustainability goals faster.

Another challenge CEOs will keep struggling with in 2022 is how and when to use their voice. Racial equity, violence against Asian-Americans, and battles over voting rights are among the issues that compelled corporate leaders to respond.

CEOs need an internal and external strategy. Internally, stay abreast of issues that may impact all of your employees, and acknowledge how they may affect an employee’s performance or mindset. Externally, set clear guardrails and principles for where and how to speak out. Establish a process for making timely judgment calls on gray areas. Finally, when you do use your voice, be very intentional. Where you’ll get into trouble is if your voice for social change is not consistent with your company’s mission and vision.

Accelerating Innovation

Build Your Innovation Muscle to Compete Like a Digital Native

By Karalee Close

CEOs of established companies have long marveled at the “digital natives” and wondered, “How do they innovate so quickly? Why can’t we do that?”

Then came the COVID-19 pandemic, and we’ve seen necessity create new levels of innovation. Within months, most companies mobilized teams that figured out how to conduct business online and to work remotely at fundamentally different levels. We saw business leaders breaking down traditional barriers, working across functional silos to drive innovation, and using data and AI to sense and respond to changes in the external environment. Essentially, we saw traditional players acting much more like digital natives.

So, the logical questions CEOs should be asking now are, How do we learn from these experiences to create a leading innovation engine, especially when our world has become even more digital? How can we compete more like the digital natives at the scale of a traditional business? How can we mobilize digital technologies and teams to innovate not in cycles of years, but in months and even weeks?

Competing on innovation velocity should be a pressing priority for 2022. Look at every major challenge companies face today—achieving net-zero emissions, making the transition to the future of work, building resilient supply chains, adapting to technological changes enabled by AI. Each boils down to the need to innovate quickly.

Digital capabilities are critical to rapid innovation. Our research shows that companies with leading digital capabilities gained more than five percentage points of market share over the past two years than those with lower maturity. These companies achieve higher performance on almost every metric, including top-line growth, efficiency, and time to market. They ruthlessly focus on business outcomes and bring together modern approaches to tech and data as well as changes in processes and ways of working. Essentially, they continuously drive innovation. These companies also increasingly focus digital efforts on growth. They embrace AI and use the orientation around data to drive a real shift in culture.

Digital leaders have an innovation flywheel that’s massively different from most other companies, giving their product teams the ability to create a virtuous cycle of continuous, day-to-day innovation through collecting the right customer data, developing insights and opportunities, and running experiments to validate customer demand.

How can your company build that kind of flywheel? Start small, repeat, and then build. We call the process “spark, scale, and evolve.” Begin by standing up a small number of agile teams—the spark. Empower them to tackle a real-world innovation challenge—say, something to do with sustainability—and provide the resources they need with a “minimum viable” operating model and tech stack.

Then scale up by establishing sprints with small, frontline teams to drive innovation where the rubber meets the road. In parallel, develop the leadership, talent, ways of working, and technological capabilities through cross-functional platform teams to support innovation across the enterprise from the inside out. Finally, in the evolve stage, assimilate the operating model throughout your organization’s value chain.

Digital transformation is an ongoing process. But you’ll be surprised how much you can accomplish if you make it a top priority in 2022.

Harnessing Deep Tech

Start Developing a Deep Tech Strategy Now

By John Paschkewitz

To many CEOs, actively engaging with deep tech is in the important, but not urgent, category in their queue of things to do. Deep tech, or “tough tech,” as it’s commonly known in the US, may suggest technology that’s five or ten years away from being relevant to your business. Actually, much of this technology can be applied now by tapping a vibrant ecosystem of deep tech ventures.

When we talk about deep tech at BCG, we mean emerging technologies that can be combined to solve complex problems and unlock new value. Think artificial intelligence, quantum computing, photonics, and advanced robotics all working together to create new materials using synthetic biology. This isn’t your grandfather’s corporate R&D. 

Now is an ideal time to start building a deep tech strategy. Most of the great challenges confronting companies today—meeting net-zero climate targets, getting ahead of the transformations in mobility and agriculture, reimagining supply chains and manufacturing —can’t be tackled without deploying emerging technologies across the value chain.

Consider the existential risk to airlines posed by the need to reduce the carbon footprint of air travel. We’re now seeing strategic partnerships between aerospace and energy companies and deep tech ventures to tackle this challenge. Airbus, for example, is teaming up with Phillips 66 and Plug Power, a pioneer in hydrogen fuel cells, to develop low-carbon hydrogen fuel for aircraft. Many deep tech ventures like Plug Power realize they need to work with corporations to get their IP integrated into products and scaled up.

The venture world is catalyzing an explosion of new deep tech ventures, which are regarded as undervalued compared with pure digital plays. VCs pumped more than $77 billion into such ventures in the first eight months of 2021 alone. Investors know that some startups have the potential to transform their markets by building integrated systems and platforms. Tesla and SpaceX are famous examples. But established companies already have scale and platforms that can be rapidly leveraged for change.

A CEO’s legacy is defined by anticipating and successfully navigating both technology and market risks. So start having a conversation about deep tech with your board. If it doesn’t seem urgent now, it will become so much sooner than you think.

Reframing Cybersecurity

Treat Cyber Attacks as a Business Risk, Not an IT Problem

By Paul O’Rourke

Over the past 12 months, we’ve been seeing both an escalating impact and an expanding breadth of cyber attacks. These attacks are moving across organizations, regions, and industries, and the targets are spreading well beyond your IT systems to your operating system, your people, and your value chain.

CEOs need to reframe their approach—from cybersecurity to cyber risk. The mindset today is too focused on vulnerabilities and exposures. Many companies still see cybersecurity as a technology problem, something for the IT department to deal with. The IT function is critical, but the response required is much more than just from IT. Approaching cyber from a risk perspective helps you better prioritize investments for protecting the organization.

If technology were the only factor, we’d have addressed it by now. Instead, criminals are increasingly targeting organizations through their people. They attack the weakest links. In many cases, organizations have been compromised because an employee clicks on a phishing email or disregards advice to not use the same password for all their accounts. Cyber attacks also target suppliers. If the company is a bank, this could be a software provider. If you’re a retailer, it could be a payments processor or data management firm that’s connected to your organization. In a world of interconnected supply chains, attacks on one company increasingly impact others as well.

Approaching cybersecurity from an enterprise risk perspective requires a different skill set. It also requires a comprehensive approach that spans technology as well as governance, reporting, oversight, your people, and your supply chain. Indeed, regulators are increasingly focusing on cyber risks within organizations—and are putting the onus and liability on these organizations, and their directors, to manage and govern this risk more effectively.

But it also requires a strategic approach to what you protect. Not all assets are equal. So the most urgent priority is for CEOs to identify their organization’s crown jewels—assets that, if compromised, will cause the most financial, reputational, regulatory, or operational damage—and overprotect them relative to other assets. If your customer data is a crown jewel, for example, then the impact on the organization could be material if it’s compromised. So in this instance, the practical response is to ensure your customer data stores are appropriately protected relative to the risk you are facing.

Advancing the Public Good

Make Sure Your Company’s Good Deeds Are Profitable and Scalable

By Rich Hutchinson

Investors, employees, governments, and other stakeholders increasingly expect companies to work for the public good. These expectations have risen dramatically in just the past few years. As CEOs feel greater urgency to act, they’re seeing more opportunities to make an impact.

My advice is that if you want to make a real social impact, find something you can do profitably. Because if it’s profitable, it’s scalable. And if a solution is scalable, it can be really powerful.

A good example is Essilor, which has set a goal of eliminating uncorrected poor vision by 2050. Essilor created a profitable business by developing low-cost eyewear for some of the neediest populations in the world. If people can read, they can work. And that improves incomes and reduces poverty.

A charity can undertake a similar initiative. But the only way to scale it up is to raise more money. If a program is part of a growing business, profits can be used for further investment. Even if margins are low, growing these programs will bring huge benefits for employees, governments, and partners. 

Companies in pretty much every industry can find similar opportunities. Take financial institutions. A traditional company might charge more for financial services in underserved communities because it sees higher risk. But by making these services accessible and affordable, a company can create a growth business that advances financial inclusion.

Tesla is a classic example when it comes to climate change. Because Tesla has been able to build an amazing brand and business, it’s been an outstanding force driving the shift from internal combustion engines to EVs. Or look at Pfizer, which charged higher prices for COVID-19 vaccines in developed countries than in developing countries—and sold at cost to the nations with the greatest need. This graduated pricing model created a profitable business that addressed a serious social need.

While most companies know of such opportunities, the trick is to scale them up. Find ways to incorporate them into your core business. And as with most other big challenges CEOs face—like achieving net-zero emissions and mastering new technologies— there are advantages to being the first mover. You need to be a leader, not a follower.