The further the world moves from the financial crisis of 2008, the clearer it becomes that the event marked a fundamental turning point in the Global economy.
Although the economy has improved somewhat, many of the problems associated with the crisis and subsequent Great Recession remain unresolved. Growth remains sluggish; there are even increasing signs that the recovery may be faltering in the developed world.
Combined public and private debt as a percentage of GDP has reached unsustainable levels with inflation at a significant medium-term risk.
This “new normal” has produced a corresponding sea of change in investor sentiment and priorities.
Given the volatility and uncertainty of the current economic environment, professional investors are becoming increasingly sensitive to risk. These investors are looking for companies that can deliver low risk and consistent returns at or slightly above the market average.
Further, they are clamoring for companies to start deploying the trillions of dollars they have accumulated on their balance sheets by increasing cash payouts to investors.
Navigating this new environment will require companies to confront three basic challenges.
First, they need to understand how the new environment is likely to affect their aspirations and ambitions for delivering shareholder value and reset their value-creation strategy appropriately.
Second, they need to translate the company’s revised value-creation strategy into a detailed plan for the company as a whole and for each of its individual operating units.
Finally, and perhaps most important, they need to incorporate in-depth considerations of uncertainty and risk into strategy development and planning, as well as into their approach to setting value creation targets.