Michael G Jacobides: How accountants can help businesses emerge from the pandemic
By CA magazine
29 September 2021
Michael G Jacobides, Professor of Strategy and Entrepreneurship at London Business School, tells Laurence Eastham that with smart investment and agile thinking accountants can help businesses emerge from the pandemic stronger than ever.
The effects of the pandemic on the global economy have been manifold, accelerating new ways of doing business in the present and redirecting business’s future vision through a lens of cloudy uncertainty. It’s a “new normal” that has had mixed consequences. But for Michael G Jacobides, Professor of Strategy and Entrepreneurship at London Business School, the crucial stabilising distinction lies in recognising that the pandemic has introduced changes and opportunities rather than just disabling uncertainties. These include a significant shift in terms of customer behaviour, accelerated digitisation and a greater acceptance by consumers of virtual technologies, creating new ways of consuming and collaborating.
“That has led to a cascade of implications, both in approach in terms of the product market, and in the way that we organise, creating new opportunities and challenges in the ways that we work – and correspondingly for ICAS members of how to measure, assess and verify, which is part and parcel of the profession,” he notes.
For the past year and a half, many businesses have been facing issues relating to the contraction of demand and the changes in spending patterns. But as the pandemic’s impact has evolved, the question has extended out to encompass a more medium-term perspective; namely around how to turn crisis into opportunity and maximise business performance in this changing, challenging landscape.
“During a crisis, people are generally loath to look ahead and invest and instead try to preserve and support,” he notes. It might be prudent, but for Jacobides, this approach is not conducive to future success. “If you look at the studies that we have from other crises, starting with the global financial crash, we see that organisations that simply decided to stop investing found themselves behind after the crisis was done,” he says. “Perhaps counter-intuitively, the firms that had a significantly bigger return on assets were the ones that did not curtail R&D or stakeholder engagement.”
Living with risk
Organisations trying solely to preserve their financial stability during tough times may not be doing enough to pick up the signals of changes in customer behaviour, competitor products, channels and relationships. One of the common pitfalls, Jacobides says, is that a company will just make cuts horizontally without regard to the different opportunities in different parts of their business.
Arguably, then, the most successful companies in these situations are those that invest more than their peers in new opportunities, recognising that a crisis offers a chance to carve out a new competitive position. Now, he says, is the time for business to take a few well-considered risks, including maintaining or increasing investment spend in certain areas.
Importantly, as the rolling chaos of recent years has perhaps diminished the idea of forecasting with confidence for many, having the boldness to take these calculated risks might also come under the umbrella of agility. For Jacobides though, agility as a business virtue has more to do with the ability to integrate information and embed more dynamic planning – and to revisit it regularly. In short, decisions can only be truly strategic if they are made in ways that are commensurate with ongoing feedback from the wider environment.
“Every time you make a plan, there are embedded assumptions in it,” he says. “And we generally don’t need to bother with these when we can’t check them often, or they operate in a very long-term horizon. What is changing in the environment today is that there is a significant enough velocity of change to [need] to revisit your plan at much tighter periods. In addition to that, businesses now are starting to need to plan in areas that have very different maturities.”
What is now needed, he says, is for companies that were comfortably set in their ways to be more open-minded. Crucially, though, flexibility and agility are not a magic potion for market success in changing and often volatile times. “I would draw a sharp distinction between flexibility and lack of spine: you need to have a sense of what your game plan is,” he insists. “On the other hand, you need to have something that will allow you to know whether your bet is panning out, so you shouldn’t expect the results to be immediate.”
Jacobides cites examples of those companies – such as American Express in the wake of the financial crisis – that overcame unfavourable conditions to come out swinging, noting that these success stories all had the benefit of clear long-term vision, but were also ready to adjust regularly on the basis of market results.
“You need to have some sense of where the market is going and why you’re making the choices that you are making, in addition to being able to take advantage of the dynamics of the market as it evolves,” says Jacobides. “If you try to be too adjustable and too flexible, people may sometimes mistake that for simply not having a clear plan.”
Role of the accountant
The role of accountants in creating those “clear plans”, amid a business environment more volatile than it has been for many years, is crucial. Both technically and in an advisory role, they can play a key part in reframing crises as opportunities for growth, optimising the future for their clients. And it all starts with pragmatism.
One needs to start by finding the possibilities, and reconciling oneself with the truth, which may not be what you expected or bargained for.
“There is no silver bullet, but [the key] is not to cling on to the previous plan, and [instead] say clearly: ‘This is not working – what could work in its place?’ In answering this question, being able to not only adjust the assumptions inherent in the models that didn’t pan out, but also trying to see what it is that you can learn in terms of the interests of the customers and what they are asking for [is crucial].
“It is easy to be overwhelmed by the frustration that an expectation has been belied, rather than it saying what you wanted. So, what can we offer? And how can we find a bridge between the two? It is about going back to first principles – look both at what the market requires and at the skills and capabilities you have, as opposed to trying to stick to ‘the plan’ and stretch it in order to adjust.”
Accountants looking to add value to businesses in the wake of the pandemic will also need to develop an understanding of different sector dynamics and how these might evolve, to allow them to offer knowledge and information useful to their clients.
“It’s clear that organisations able to make significant advances are the ones that are close to the customer – there is a need to be more responsive,” says Jacobides. “You need to take advantage of the insights that come from outside your zone of expertise and understanding.”
Expanding the accountant’s base of expertise so that they can respond to this broader and more challenging remit requires them to leverage flexibility and exercise ethical judgement as well as embracing accelerating technological trends. The effects of the pandemic on tomorrow’s business models are being overlaid by ongoing digital innovations to which accountants must also adapt, with AI the most important.
“What we will see is that there are going to be choices in how decisions are made, and how firms are able to identify opportunities, respond to them and scale up, which is more organisational than anything else. And how that is connected to their ability to extract value from the information that they have, which is where the role of AI is important,” says Jacobides.
Ultimately, the new business landscape is one that could be either the making or breaking of many accountants. “The answer is a matter of individual skill, positioning and ability of the advisers – and this is where the profession is at an interesting crossroads,” says Jacobides. “It can either take on the opportunity or retreat from it. [An accountant’s] remit will be limited if their understanding is limited. However, I think that if they are able to offer insight and translate that insight into financial performance, they will find very willing interlocutors. But it is up to the accountants themselves to ensure that their approach and perception is as dynamic as it can be.”
Michael G Jacobides will be speaking at CA Summit. Register to book your free place.