Agility Update July 2024

Becoming Next Gen CEOs

In today’s more interconnected and unpredictable world, the traditional model of a CEO, with a singular focus on internal management and shareholder value, is no longer sufficient. Success in the landscape of 2030 and beyond will depend on a CEO’s ability to manage internal operations as well as a complex web of external relationships and influences. A solution may be for organisations to embrace a model in which 2 complementary profiles share leadership responsibilities, combining internal management prowess with external engagement and strategic foresight. Aspiring CEOs may like to act on these fronts to position themselves for success:

1. Cultivate broad business acumen.

2. Strengthen and prioritise external relationships.

3. Embrace technological innovation.

4. Adopt emerging leadership skills e.g. moving away from the all-knowing leader, thinking like a scientist, and the ability to manage ambiguity.

5. Foster a culture of adaptability and resilience.

6. Champion diversity and inclusion.

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Target the Right Intangible Assets to Drive Success

Although difficult to value, intangible assets can be a major source of value creation in mergers and acquisitions (M&As) as they are increasingly significant in a world where digital transformation and data-driven decision-making are pivotal to business success, according to a UNSW Sydney Business Think article.

Researchers analysing 5420 acquisition announcements by US companies from 2002 to 2021 found the average value of target intangible assets to deal value has grown substantially, averaging 20.5% before 2010 and rising to 31.4% more recently. More importantly, acquirers of exclusively tangible assets in 632 deals experienced no significant gains in shareholder wealth after their acquisition announcements. However, 4788 acquirers of targets with non-negligible intangible asset holdings, on average, experienced significantly positive deal announcement cumulative abnormal returns (CARs).

The researchers cite 3 value creation routes through acquiring targets with larger fractions of intangible assets where the target:

1. is not profitable but has high-quality projects for future growth. Such targets can help profitable acquirers offset the lack of promising internal investment opportunities.

2. is financially constrained and unable to finance all their investment opportunities.

3. overlaps with acquirers’ products and technologies, thus offering a reduction of information asymmetry and potential scale and scope economies through consolidation.

Success Story: Embedding a Data Culture

A recent MIT Sloan Management Review case study of how German airline Lufthansa drove a data-driven transformation makes for interesting reading. The airline broke its goals and culture down into a set of 6 distinct data leadership roles that were crucial to achieving the airline’s transformation goals:

1. Data Visionary: create a vision

2. Data Transformer: promote transformation

3. Data Driver: create value

4. Data Decision Maker: generate impact

5. Data Collaborator: connect people

6. Data Coach: develop competencies

These roles then served as a foundation for a program that educated data-driven leaders across the business. Some people played more than one role e.g., business team or department leaders play the data collaborator and data coach roles. Business product owners, who frequently own specific data assets, play the data driver and data collaborator roles.

That data and the ability to work data effectively is key to success is not in question. In a report, Deciding with Data, dated September 2014, PwC stated data is the new economic input of today’s organisations and estimated that data-driven innovation added approximately A$67B in new value to the Australian economy way back in 2013. Companies in the top third of their industry in the use of data-driven decisions were then, on average, 5% more productive and 6% more profitable than their competitors.

A McKinsey report in 2022 concurred and illustrated the widening gap: Companies that are using data-driven B2B sales-growth engines report above-market growth and EBITDA increases in the range of 15% to 25%. Accenture’s Technology Vision 2023 report confirmed 95% of global executives agreed on the necessity of new data architectures and strategies to effectively manage significant changes in their organisations’ data environments.

The sticking point, as always, is how to bring your people along. Lufthansa seems to have cracked it. Read also Building a Data-Driven Culture: 3 Mistakes to Avoid.