As Asia enters its third year of the epidemic, inflation, scarcity, and instability have become normal. No one forecasts a smooth landing, however amplitude and duration estimates vary.
Companies that rethink and restructure their business methods may thrive in the mid-21st century and beyond. Faced with rising uncertainties, CEOs must make strategic choices. They must motivate their companies to execute these decisions end-to-end, which requires aspiration setting and role modelling from the top. Adaptable, resilient, and sustainable organisations will do well no matter the future.
Asia will take the stage for two key reasons. First, the region’s economies will fuel global growth. Investment in Asia surged in the last decade. In the past decade, the region received more than $1 of every $2 in net investment. By 2040, Asia will account for 40% of global consumption and 50% of global GDP.
Second, Asia has the resources, skills, and ambition to lead change. The region is home to the largest and most important firms in numerous industries, from semiconductors to electronics manufacturing. Asia has pioneered many of today’s world-class business methods, from lean manufacturing to global business services.
Asia brings a unique strategic potential and operational complexity. The region has severe financial, education, and health care inequality. And its energy-intensive, manufacturing-led economies must convert to net-zero.
We think Asia’s vitality, economic power, and untapped potential make it perfect for corporate innovation. For forward-thinking CEOs, Asia might be a testing ground for innovative business strategies that can solve the difficulties of the next decade and beyond.
Prices for energy, components, and raw materials are rising faster than in four decades. Supply chain disruptions cost the average company half a year’s profit over a decade. Eliminating greenhouse-gas emissions will require corporations to make significant tactical and strategic changes and will account for much of an additional $130 trillion in global capital asset spending by 2030. COVID-19 prompted Asian (and global) enterprises to digitise in just a few months. Digitization and automation are changing many jobs. In China, Japan, and India, remote work, automation, and digitization will retrain 70 million people. Leading firms are altering their business operations in response to challenges, creating new sources of value and competitive advantage. Keep customers happy and beat inflation
In the opening months of 2022, it became clear that inflation would remain above the 2 percent planners expected. Instead of boosting prices where they can (and losing margin where they can’t), smart corporations are developing more sophisticated ways to combat inflation.
Data and analytics fuel these new methods. Cleansheet cost analysis approaches can highlight how inflationary pressures affect supply pricing, for example. An Indian air-conditioning firm utilised product teardowns and AI-enabled cleansheet cost modelling to find a supplier was overemphasising rising raw-material costs. That discovery helped the company renegotiate costs with its supplier, turning a request for a 6% price increase due to raw-material inflation and currency fluctuations into a 2 to 3% price reduction. The investigation also led to design adjustments with the supplier that saved another 7% to 8%.
Data helps procurement and product development teams find value-improvement opportunities beyond pricing. The tech-enabled design-to-value (DtV) strategy involves cooperating with clients or suppliers to optimise specifications or reduce the use of scarce resources. One Asian maker of consumer electronics parts encountered significant semiconductor shortages. It worked with its clients to expand its forecast window from three to 12 months, securing forward capacity of crucial components. Closer collaboration lowered certification time for alternative designs from months to weeks, making it easier to locate new suppliers.
At too many companies, direct supplier knowledge is spotty and “tier-n” supply chain understanding is nonexistent. To fill these gaps, successful firms are building digital supply chain control towers by integrating data from across the supply chain and beyond, developing new analytical capabilities, and forming a centralised, cross-functional organisation to speed decision-making and response. One Asian manufacturing-services leader employed this strategy to monitor and mitigate supply chain concerns during the COVID-19 epidemic. While volumes fell, the company’s ability to avoid shortages and control material and logistical cost inflation boosted profitability.
The collection of data intelligence and pattern analysis allows for accurate forecasting and supply chain intervention. This improves decision-making about buying, manufacturing, and selling items. For example, a hardware store uses IoT to track product orders and shipping timeframes. IoT sensors offer real-time point-of-sale analysis so businesses can swiftly replace inventories and cut holding expenses.
Getting supply chain management properly has many benefits, and new ones emerge regularly. Top organisations are also improving the resilience and sustainability of their supply chains. Apple wants its Asian supply chain to be carbon neutral by 2030. The efforts needed to reach this goal—including a move to renewable energy, waste reduction, and recycled materials—will lessen supply chain exposure to energy and material price volatility.
In the past two years, digitization has soared. McKinsey research indicated that corporations spent more on digital investments than on other business continuity measures. In sophisticated organisations, digital is more than a tool. Lessons from 55 Asia-based lighthouses—more than half of the Global Lighthouse Network—show that digital leaders are using advanced technologies to reengineer business processes and customer journeys, create new operating models, and prioritise sustainability and workforce engagement while boosting productivity.
In the services industry, the industrial revolution in services is improving business. Insurance businesses use advanced analytics to handle claims and optimise system management for digital work. Mortgage lenders are using automated-review methods, including satellite pictures and fraud detection algorithms. By digitising end-to-end, some organisations have increased total efficiency by 50%, enhanced employee productivity by 250%, introduced new offerings ten times faster, and boosted customer satisfaction by more than 10%.
Digitization, automation, and AI will disrupt practically every job, and most workers will need new skills. The skills gap is already affecting the economy as companies struggle to fill vacancies. Companies say they need employees with adaptable leadership skills to manage, encourage, and get the most out of high-performing teams, as well as the hard-technology skills to use new digital technologies effectively. McKinsey research on “Great Attrition/Great Attraction” shows the relevance of nonwage components of the employee value proposition. Record job vacancies and quit rates show individuals prefer feeling valued by their organisation, supportive management, flexibility, and autonomy at work.
Companies can utilise many methods to fill skills gaps. They can hire fresh staff from outside the organisation or move closer to talent pools. They can outsource to firms with the relevant skills. They can also retrain their present workforces to prepare for new responsibilities.
Net zero on time and budget
Climate change action is a priority for governments, customers, and investors, therefore enterprises must maintain profitability while increasing the sustainability of their end-to-end value chain.
For manufacturers, especially in process industries like energy, mining, pharmaceuticals, and packaged food, reducing scopes 1 and 2 emissions is a priority. As in other sectors, these organisations realise sustainability requires a holistic approach integrating boardroom and shop floor initiatives. Cleansheets assist companies choose the most cost-effective strategies to lessen the environmental impact of their products. A chemicals business has operated a shop-floor-driven energy-efficiency programme for a decade, and its staff continually uncover fresh improvement opportunities every year. CEOs can make “moon shot” investments in new goods, processes, or regions with such results.
Environmental sustainability won’t merely impact supply networks. From now until 2027, the world will see a tsunami of capital spending on physical assets. This surge of investment will flood into global projects, often to decarbonize and modernise key infrastructure and destroy outmoded carbon-era assets. More than $70 trillion will go to Asia.
Big infrastructure projects are plagued by delays and overruns. Overruns average $1.2 billion, or 79% of the planned budget, and deadlines slip six months to two years. We can’t afford such waste and delay. To avoid it, several organisations are taking a holistic “Projects 5.0” approach to their capital strategies, leveraging data and analytics to improve the design-to-delivery process.
In public infrastructure, utility corporations are shifting to long-term partnerships. Contractors can bid on a portfolio of projects instead of one. This paradigm fosters confidence between owners and contractors, allowing for cooperative and repeatable operating models, and encourages contractors to provide needed resources and expertise to fulfil contract obligations. Following a learning curve, projects are produced faster, more accurately, and with less owner participation. As an ecosystem, best-in-class players agree on improvement trajectories, lowering the unit cost of decarbonization for each release.
Asia is the fastest-growing and most interesting region in the global economy despite two decades of upheaval. For ambitious CEOs, the question in Asia is how, not what. Leading players in the region are upgrading their technology, procedures, and workforce. Are you ready for the operations revolution?
