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What will this year bring? LBS faculty suggest what to watch in order to maximise opportunity, minimise risk and enjoy your working life
While the business world seems more unpredictable than ever, the contours of a post-Covid landscape are starting to come into focus. Here, our London Business School faculty sketch out a few of the key macro trends that will shape our working lives over the coming year and beyond.
Michael G Jacobides, Sir Donald Gordon Professor of Entrepreneurship and Innovation; Professor of Strategy and Entrepreneurship
Looking ahead to the coming year, I expect that the distinction between tech-enabled versus old-world companies may sharpen further, but we may be about to get some more balance. The issue is that we’ve seen changing fundamentals – shifts in customer orientation and firm capability to respond – and changing capital markets, which have continued to disproportionately reward tech firms and have been very tolerant of absent cash flow, provided some vague promises of network externalities exist on the horizon. Yet the deflation of firms such as WeWork with its oversold ecosystem play, and Softbank with its tech-related bravado, suggests that the irrational exuberance for all things tech/platform/ecosystem may be tempering towards an awareness of nuance. If monetary largesse subsides in 2022, one can expect that the correction from the heights of unchecked optimism may become an important theme.
Still, investors’ excitement with technology, driven in no small part by the Fear Of Missing Out, is shaping current corporate agendas. Established firms are grimly watching their valuations, hampered by the vestigial requirement of quarterly earnings and detailed performance explanations, while their tech peers, untethered to many such demands, defy gravity and attract cash with abandon. Of note: Tesla turned its first true operating profit in 2021; prior-to, it relied on trading carbon emission credits and (rather ironically) investing in heavily-carbon-emitting Bitcoins, suggesting that even if something is clearly overhyped, with enough funding it can create its own momentum and drive a virtuous cycle where spin begets reality – and a Trillion Dollar market cap.
Tech success, though, is based on more than hype. It’s the result of accelerating shifts in industry boundaries, brought about by progressive regulation, consumers spoilt for choice and digital technologies enabling the creation of new bundles. This means that in the coming year(s) we’ll see an increasing shift from products to experiences. “Experience” (or “multi product”) Ecosystems are the new excitement of many traditional companies angling to reach customers with tech-enabled experiences and selected ecosystem partners. Such “free-form competition” will be a theme for 2022, and one I’m exploring with colleagues at Evolution Ltd, working, for example, to define Lavazza’s experience ecosystems, which can help respond to customer needs, broaden the offering and drive brand perception.
Finally in 2022 we will have to grapple with the increasing growth of corporate power and the challenges of regulating platforms and ecosystems. Behind Apples’ $3 Trillion market cap, for instance, lies not only superior product design, branding and a customer experience. Apple has also built a formidable web of relationships and leverages its power as a bottleneck, capturing a disproportionate share of total value added, expanding in profitable segments that cement its power. Regardless, with its massive influence and lobbying power, Big Tech continues to float in the stratosphere above any EU or US wrist-slapping. By contrast, China’s power to reign in Big Tech with strict oversight is evident in the market-blowback that accompanied its toughening stance. Whether or not regulation curbs the strength of the Big Tech firms (I am doubtful), it will change the competitive landscape for existing firms. This is why I believe that regulation may become the new hot thing in strategy, so getting an in-depth understanding of regulation’s impact will be important.
Metaverse, an impressive 2021 firework, will be another hot area (and one I’m working on with BCG’s Henderson Institute, so tune in for more). Last year, it was mostly spin, with Facebook co-opting the name. Its future will depend on how (and if) consumers embrace it. What value will they find in this virtual parallel universe? As we cannot yet see how consumers will interact and find value, we cannot yet see how it will affect firms. Some possibilities bubble up as questions: will it be the new form of social media, a blend of reality and SecondLife (an online multi-platform virtual world with halcyon days of 2006), with consumers buying virtual products for their virtual lives? Nike is betting on this, as it has bought a virtual shoe company (the mind spins) making NFTs of shoes. Will the metaverse consist of AR/VR interfaces with platforms set up by retailers, to enhance their physical presence? Will it help broaden the gamification market? Will new platforms emerge or will the existing ones dominate? How will firms be able to take their customer relationships and use and amplify them in the metaverse? I don’t have answers, but I am intrigued to watch from a cautious, physical distance.
Vyla Rollins, Executive Director, LBS Leadership Institute, Executive Education Programme Director and Executive Coach
As 2022 unfolds, the biggest business trend we’ll encounter will be “strategic multi-tasking”. Organisations will be forced to re-fashion themselves in such a way to successfully respond to the wave of conditions created by the global pandemic and its knock-on effects – supply chain challenges, labour shortages, geopolitical developments, and more – whilst continuing to operate.
Surviving requires embracing the fact that the conditions we are experiencing will continue, if not escalate, in the years to come. It also means accepting that organisations will need to adopt new ways of operating and facilitating internal change in order to stand a chance against these phenomena – in a way that they can not only survive, but thrive.
Needing to embrace the conditions we are experiencing is not a new realisation for many. That said, it is interesting to watch a significant number of organisations continue to deploy strategies to drive major organisational change that are fashioned on binary, linear, and cascade-oriented methodologies. Approaches that ultimately will not yield what they need to move towards, in terms of leadership behaviour, employee agency and engagement, stakeholder collaboration, and purpose-driven performance.
This year provides a great opportunity for organisations to make time to review their strategy formulation and execution efforts (especially reviewing the impact of global events on these) to ascertain if they’re using the most effective and engaging approaches to achieving the organisational shifts they aspire to. Hint: if you find that issues the organisation has been working to address for years still persist, then it’s likely you need to deploy an approach that, at the very least, involves a “whole systems” method to craft the way forward. An approach that cultivates the emergence of collective aspiration, energy and action, which has been shown to produce change in a variety of environments and cultures, and is informed by evidence-based insights on how change manifests for individuals, groups and organisations.
It’s also important to “bite the bullet” and accept that not everyone in the organisation will want to go on the specific change journey required. You may need to encourage them to push forward, no matter their level, influence, or length of service. Remember, resistance to change is fuelled when practices, behaviours, attitudes, and/or mindsets have been served to keep individuals in power, control, or “looking good”, or when their weaknesses are threatened. If change is not happening in a system, it is critical for those in positions of authority to commit to reflecting and acting on what they are doing, or not doing, that is contributing to change being blocked, or the status quo being maintained, in the systems they are a part of.
Gary Dushnitsky, Associate Professor of Strategy and Entrepreneurship
The confluence of Web3 and no-code tools can unleash exciting opportunities in the creator economy. The creator economy has been on the rise for over a decade, as no-code tools and platforms substantially altered the profile of current-day entrepreneurial creators. The advance of no-code tools facilitated a dramatic drop in the cost of launching an e-commerce business or harnessing one’s band of fans, leading to millions of individual and e-commerce offerings over the past few years. Moreover, no-code tools empower ‘non-techies’ to try their hands at entrepreneurship by giving a presence and robust offering that were previously the realm of individuals or teams with significant technological knowhow. This is clearly reflected in the fact that platforms such as Shopify, Wix and Patreon, enjoy multi-billion dollar valuations, which mirror the millions of participants they support.
The pandemic has seen a new wave of growth for the creator economy – and the advent of Web3 has the potential of fuelling an even bigger wave. In the coming year, one should heed the confluence of Web3 and no-code tools that will be built specifically on – or for – it. There are unique attributes of Web3 that could be highly attractive to creators. Those can transform the creation, distribution, and monetization of entrepreneurial offerings. For example, as a decentralised online ecosystem based on blockchain, Web3 may offer new ways to showcase and manage the provenance of creative offerings. Easy-to-use tools that harness this feature may be particularly attractive to creative individuals. In fact, they may bring about a notable expansion of the entrepreneurial ecosystem as it broadens to include those who previously lacked access to technological or business skills.
Standing at the start of 2022, one can easily recognise the growth that no-code tools and platforms brought to the creator economy. The ultimate use-case for Web3 remains unclear at this point, but one exciting trend to watch in the coming year would be the application and implications of Web3 tools and thinking in (re-)shaping the creator economy.
Julian Birkinshaw, Professor of Strategy and Entrepreneurship; Academic Director, Institute of Entrepreneurship and Private Capital
Adjusting to Covid-19, there will be further variants and plenty of scares along the way, all part of moving into a phase of living with an endemic disease. Fortunately, this means that full-on lockdowns will be a thing of the past, but some sectors, notably travel, hospitality and tourism, will continue to struggle. We can expect government intervention in our daily lives to be greater than before, particularly in regard to vaccinations and rules for travel. We can expect some of the changes in consumer behaviour caused by lockdown to endure, such as our willingness to talk to our doctor, bank manager or lawyer over Zoom. And the workplace may never be the same again, with most companies adopting some sort of hybrid model.
Inflation is back; current levels in Europe and North America are 4-5% and once inflationary pressures start, they are hard to contain. Interest rates will inevitably rise as well. There are some silver linings here, however; underfunded pensions around the world will finally get some relief. But for the most part, inflation is bad for business, because it creates uncertainty and reduces investment. And it’s also uncharted territory for anyone less than 50 years old, as the last period of significant inflation was more than thirty years ago.
We’ll also see a shake up in big tech. There are two big changes coming in this world. One is a stock market correction – the so-called Buffett indicator (market cap/GDP ratio) is at an all-time high, far higher than it was before the Internet bubble burst in April 2000. The other is new and potentially punitive regulations: minimum corporate tax rates, enhancements to consumer privacy and data protection, competition policy requiring sell-offs and even break-ups. Policymakers in North America and Europe are emboldened by recent successes and hungry for change.
Protectionism will continue. Covid was an acute reminder that global supply chains are efficient but not resilient, so governments are now questioning their dependence on others, and reinvesting in local sources for medical equipment and drug manufacturing. There was already a trend away from global free trade before Covid, and it seems likely these protectionist tendencies will hold sway in the short to medium term, as governments seek to take care of their own citizens first. For those in the UK, don’t expect big trade deals with other parts of the world any time soon.
Overall it’s a gloomy – but not disastrous – picture. As I have written in How Incumbents Survive and Thrive for Harvard Business Review (Jan-Feb 2022), firms should be both proactive and defensive when dealing with external threats. So keep your eyes open for the new opportunities, but make sure to get your defences in order first. 2022 is a year of retrenchment – an opportunity to take stock, get the basics right, and position yourself for the next upturn.
Luisa Alemany, Associate Professor of Management Practice; Academic Director, Institute for Entrepreneurship and Private Capital
Environmental, Social and Governance (ESG) factors will be in the agenda of European, and perhaps RoW, venture capitalists for 2022, having been widely incorporated by different types of investors, including asset managers, institutional investors, pension funds and insurance companies. Last year, for example, up to 30th November, $649 billion had already been poured into ESG equity funds, over $100 billion more than in 2020 and thrice the amount in 2019. It is estimated that ESG funds now account for 10% of worldwide assets and that a third of all professionally managed assets, or roughly $30 trillion, are now subject to ESG criteria.
According to a 2018 study, more than 70% of institutional investors integrated ESG considerations into the selection and management of their investors. In the venture capital (VC) world, however, this is yet not happening. Investors in this asset class, that selects the most promising startups and supports them with capital and strategic guidance, the so called “limited partners”, have not yet imposed ESG factors to the venture capitalists. The same limited partners have, on the other hand, requested private equity funds (the same asset class as venture capital) to do so.
We face complex challenges often attributed to the enormous footprint of established businesses, from climate change to the loss of biodiversity, from the energy transition to healthcare and growing inequality within and across countries. Large companies are trying to become part of the solution. Despite being unencumbered by complex bureaucratic processes, young, fledgling ventures are better-positioned to break away from the status quo and be “born-ESG”. VC has been a major funding force behind disruptive, high-growth startups – this is why it is so important that they integrate ESG factors as part of their own business model, as and when they select and fund these companies. The impact of their investments in those startups, with ground-breaking business models that will be solving some of society’s most pressing problems, is significant.
In a recent study with my LBS colleagues Ioannis Ioannou and Olenka Kacperczyk, we witnessed that the focus on ESG integration among European venture capitalists (VCs) was growing. They were interested in discovering how to incorporate ESG into their portfolio companies and in their business models. It was action instead of reaction to a requirement by their investors. Interestingly, the same was not happening in the USA.
In a 2019 survey conducted by the European Investment Fund (EIF) on a sample of major European VCs, the main motivation for ESG engagement (75% of the VCs) was ethical or social responsibility considerations. Our interviews strongly indicate that the primary drivers of this change include: firstly, an increased awareness of how VC activities may impact the world’s more pressing challenges, such as climate change and social justice; secondly, the understanding of how adopting ESG can advance specific business goals, such as increasing sales, attracting top talent, and reducing operating risks; thirdly, a belief that ESG represent untapped market opportunities; and finally, conformity pressures, especially in light of the recent adoption of disclosure requirements, such as the Sustainable Finance Disclosure Regulation (SFDR) by the European Union.
According to the survey, the impact of ESG considerations in European VC funds was limited to a light-touch approach. As many as 50% of VCs, for example, only use negative screens to eliminate startups that fail to meet specific ESG criteria. Others have implemented a system that allows them to monitor the ESG status of their entire portfolio of ventures, as opposed to each startup separately. We believe 2022 will mark an important change; ESG objectives in the VC process will become the next frontier for the industry. Top European VC firms are already working on it, and there is no way back. There is still a long way to go, and several important questions remain unanswered, but some joint initiatives are currently taking place, such as the ESG_VC, which brings together some of the world’s leading VC firms. The peer pressure will accelerate this trend in 2022, making it the year of ESG in European VC.
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