Adjusting strategic horizons | Deloitte UK has been saved
Limited functionality available
As a part of this year’s Deloitte Private UK Technology Fast 50 programme, we took a deeper look at the theme of agility, and the Fast 50’s ability to quickly make and execute decisions. As global markets and consumers continue to evolve, the Fast 50 have demonstrated their ability to respond and position themselves for success.
The following is an excerpt from our 2020 Fast 50 CEO report, in which we dive deeper into the business strategies of this year’s Fast 50 cohort; we invite you to explore more on our other themes and findings in the full report.
Adjusting strategic horizons
Business strategy is at the core of the Fast 50 performance; respondents identified strategy as the key factor to both their incredible historical growth and expected future achievements. In the last three years, many of these strategies have evolved, temporarily or permanently, as global markets and consumer behaviours have changed. During the COVID-19 pandemic, over half of the respondents decided to adapt to focus on a shorter-term horizon for their strategy.
In this section, we consider the importance of business strategy to the Fast 50, the time horizon it is set over, and the agility shown to adapt that strategy. As highlighted previously, we have defined agility as the ability for a company to respond to change.
A clear and well‑executed business strategy is central to the success of any high‑performing company, and the Fast 50 is no exception. In this year’s survey, respondents identified it as the key factor driving their resilient performance historically, ahead of customer relationships and product innovation. A strong strategy sets a company apart, through its choices regarding ambition, where it plays in the market, how it wins, its capabilities and how it operates.
Companies set their strategy with consideration given to different time horizons; these frame market scenarios, position consumer trends, and guide investment decisions. Looking at the Fast 50 entrants, half consider ‘one to three years’ the key horizon, 32 per cent of entrants value a shorter time horizon, up to a year, with the remaining 18 per cent setting strategy for beyond three years (Figure 3). Reasons for differing time horizons may include the experience and relative maturity of the business and leadership team, the pace of change in the market, and the importance of achieving quarterly forecasts. Our analysis shows that the primary source of funding (i.e. self‑ generated vs. external equity investment) does not materially affect the time horizons used to set strategy.
In comparison to smaller organisations, market studies suggest larger organisations veer away from these shorter-term horizons when setting strategy. Some reasons cited are that smaller organisations adopt more agile and lean approaches (e.g. quickly testing and validating ideas and concepts) and have fewer management layers. They believe they are well‑positioned to action change with shorter approval processes for implementing new initiatives.
Reacting to change: A shift to shorter-term time horizons
A successful strategy may need to evolve, permanently or temporarily, due to market changes. The pandemic has created uncertainty and brought a host of new requirements for how businesses operate and serve customers.
Many of the respondents quickly adapted their strategy‑setting horizons in response to the pandemic, with over half (56 per cent) stating that they reduced theirs. Liam Houghton, CEO of the photobook specialist, Popsa (3rd place overall, three‑year growth rate of 10,576 per cent), remarks “In response to the pandemic, we placed an even greater emphasis on being agile. We have been able to react quickly to changing circumstances by analysing our data in real‑time and then rapidly adapting our messaging and strategy in each market as restrictions are imposed and relaxed”.
Increased barriers (primarily organisational, operational and technological ones) within larger organisations may mean adopting this level of change is more challenging. However, they can look to adopt more streamlined processes that enable quicker decision‑making and execution during times of exceptional change, highlighted in the Deloitte’s report on Unlocking the Flexible Organisation. This can also be reflected in how the role of the CEO and divisional leads evolve to better enable decision‑making under these circumstances.
Differences in adjusting time horizons exist between Fast 50 companies primarily self‑funded and those that are primarily Venture Capital (VC) backed. 60 per cent of companies that were primarily funded through VC investment reduced their strategy‑setting time horizons, compared to 36 per cent of companies who were self‑funded (Figure 4). One potential reason is that self‑funded companies have greater autonomy to update annual performance targets without affecting their long‑term funding trajectory. In addition to this, self‑funded companies are primarily reliant on internal capital, so they have less pressure to show immediate returns to meet external investors’ expectations.
What will be fascinating to see over the next year is how this slight divergence in strategy plays out. Will the longer-term view help drive competitive advantage and longer‑term success, and will the (temporary) reduction in time horizon implemented by VC backed companies help keep funders on board through the pandemic and beyond?
Of the Fast 50 companies that developed shorter‑term strategies, only 5 per cent expect this change to be permanent (Figure 5). The majority expect this to be a temporary, direct response to the pandemic. They expect their behaviours and processes around setting strategy prior to the pandemic to remain resilient and ultimately return. In conversations with the CEOs, they highlighted the importance of having both a well‑defined strategy and the ability to evolve.
In the following sections, we focus on the impact of agility within these fast‑growing businesses. We first consider how they have used agility to help them succeed both historically and in responding to the pandemic through their Business Actions and Workforce measures.
“In response to the pandemic, we placed an even greater emphasis on being agile. We have been able to react quickly to changing circumstances by analysing our data in real‑ time and then rapidly adapting our messaging and strategy in each market as restrictions are imposed and relaxed.”
Liam Houghton, CEO of Popsa
Duncan Down is a Transaction Services Partner with 12 years’ experience of supporting clients on transactions. He specialises in supporting Mid-Market Private Equity Houses and their portfolio companies in acquisitions, bolt-on transactions/ refinancings and disposals across the UK. He works across a range of sectors, but primarily focuses on TMT and Business Services with specific responsibility for Deloitte’s involvement with high growth companies and is the lead partner for our Technology Fast 50 awards. Although focused on UK acquisitions, Duncan has also led transactions involving clients/ targets in the US, Latin America, Israel, the Nordics and Mainland Europe.