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When inflation bites: 3 key leadership initiatives to steer through

Inflationary upheavals often mean companies are pressurised into raising prices to maintain profitability. However, a balance must be struck between protecting profit margins and staying competitive.

“In the Middle East, the highest risks come from the cost-of living crisis and the inflation rate. Secondly, we also see recession fears, mostly related to a stagnant global economic outlook.”

Whilst latest research* suggests inflation is expected to decline but still remain high (6.6% in 2023, compared to 8.8% in 2022), the Organisation for Economic Co-operation and Development (OECD)  concurred in June 2023 that underlying inflation pressures remain intense.

However, headline inflation has fallen in many economies in recent months due to the downturn in energy prices, but food and services prices have continued to rise rapidly. This means core inflation currently remains stubbornly high.

Marco Piantanida, CEO, Haribo Italy in Signium’s latest report spotlights the challenges posed on them by inflation –  “The main global risk we see right now is related to raw materials costs and the rise of inflation, which affects all global companies and indirectly affects consumer purchasing power. Another key point is the volatility of markets, particularly tech-related stocks, and the banking sector, as shown by recent bank failures in the US and Europe. Negative media fuels this vicious circle that affects consumer and investor confidence. If you fear the present, you are less open to investing, leading to a decline in the overall economy.”

Navigating a company through this global inflation is complex. So, what three key initiatives should C-suite executives keep front-of-mind?

1. Financial risk management

  • Implementing robust financial risk management strategies is crucial during times of inflation and C-suite leaders should work closely with the finance teams to assess its potential impact on the company’s finances, including increased costs of raw materials, labour and other expenses.
  • Potential vulnerabilities within the company and its sector should be identified and contingency plans developed to mitigate risks. This may mean hedging against currency fluctuations; renegotiating contracts with suppliers; diversifying the supply chain; or exploring alternative sourcing options.
  • Executives should maintain regular communication with their finance team and other sectors to monitor key financial indicators that will enable informed decisions, and adapt strategies to suit current and potential impacts.

2. Cost strategies and optimisation of revenue

Inflationary upheavals often mean companies are pressurised into raising prices to maintain profitability. However, a balance must be struck between protecting profit margins and staying competitive.

To do this, it’s vital that the C-suite collaborate with sales, marketing, finance and procurement teams to develop balanced pricing strategies. This may involve market research to understand consumer behaviour and price sensitivity; identifying areas where price adjustments are feasible; and exploring value-added services that can help the company maintain or gain a competitive edge.

Optimising revenue streams through cross-selling, upselling and customer retention strategies can help offset increased costs and maintain profitability, and seeking new revenue sources may also prove fruitful. Further suggestions include:

  • Invest in marketing – many companies cut the marketing budget first, where those who don’t usually end up being the “top of mind” brand by maintaining a presence on and off-line.
  • Prioritise repeat customers – ongoing orders are bread and butter, where even one large order that appears attractive may get a sales force’s attention. By making sure your repeat clients are appreciated, orders remain consistent.
  • Offer discounts – where possible, discounts can drive new business and encourage regular clients to “strike while the iron’s hot” and increase their orders.
  • Improve efficiency – where employees focus on efficiency, customers notice and many would pay slightly more for quality service than buy cheap with inconsistent service.

3. Company-wide operational efficiency

Where inflation disrupts supply chains, increases costs and impacts operational efficiency, C-suite leaders who focus on driving operational agility to mitigate these challenges will see results.

As nobody can predict the precise timing of inflationary turbulence, optimising resources like employees, time, inventory, equipment and money means streamlining base operations while eliminating redundant processes and waste, thereby creating agility and potential for new revenue streams.

To accomplish this, business leaders may try reviewing the following:

  • Collaboration and communication to identify bottlenecks, streamline processes, and eliminate unnecessary costs can improve business agility and – ultimately, an improved financial outlook.
  • Adopting lean methodologies such as ongoing process improvements and automation can help enhance efficiency and reduce waste. Business leaders should aim to foster a culture of innovation and encourage employees to find creative solutions to challenges.
  • Regular performance monitoring and data-driven decision-making is crucial in adapting to changing market conditions and maintaining a competitive edge.

All initiatives suggested by experts throughout unpredictable inflation rates must be tailored to each organisation’s specific industry, market conditions and unique circumstances – but flexibility, adaptability and proactive leadership are always core to the C-suite successfully navigating a company through global inflation and fiscal fears.

 

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