In the midst of a global pandemic, Satya Nadella, Microsoft’s CEO, remained optimistic even as archrival Apple took the crown as the world’s most valuable company. He mobilized the company to help enterprise clients “adapt and remain open for business in a world of remote work,” buoyed by the fact that “we’ve seen two years of digital transformation in two months.”
At the same time, while focusing on the here and now, Nadella kept his eyes on the future, quietly increasing Microsoft’s investment in OpenAI, which was a little-known artificial intelligence company at the time. The purpose of these strategic investments was to pursue hope. As he said when they first took on OpenAI: “Whether it’s the pursuit of quantum computing or the pursuit of artificial general intelligence, I think you need these ambitious North Stars.”
Now Nadella’s investment in the future is paying off, and very quickly. As the world emerged from the COVID crisis, OpenAI launched its blockbuster chatbot, ChatGPT, giving Microsoft a technological advantage over its competitors that it hasn’t had in decades. And earlier this year, Microsoft reclaimed its title as the world’s most valuable public company.
So why have Satya Nadella and his ilk succeeded when we are experiencing what some observers call a polycrisis or even a permacrisis? In our opinion, they have several important common features. They maintain a sense of optimism; they develop a vision of what their company will look like in five or even ten years; and they create a roadmap of continuous and rapid change that will help them realize their vision for the future.
To further explore this question, we spoke with dozens of business leaders. As we’ll explain now, the best leaders understand that the future is a state of mind: it’s not here yet—it’s waiting for us to shape it. And to be able to shape it, they demonstrate a diverse set of five core leadership competencies that come to the fore in different situations, depending on whether they are redefining their corporate portfolio, pursuing disruptive innovation, reimagining their global supply chains, increasing sustainability by implementing their artificial intelligence systems and other technologies, meeting their company’s capital and liquidity needs, or building their teams and managing their talent.
Five Essential Leadership Traits for Future-Ready CEOs
In the fast-paced daily life of business, short-term and urgent matters often trump long-term and important ones. But the best leaders manage to free themselves from the constraints of today and focus on tomorrow because they possess some distinctive leadership qualities that are critical to building a successful company that is ready for the future. Here is a list of these qualities and examples of where they are especially useful.
1. Determined and unsentimental
Best for Management: Corporate Portfolio
The best leaders, focusing on tomorrow rather than yesterday, dispassionately analyze their corporate portfolio and decide which businesses create value, which don’t, and which may even destroy value. But many leaders make the mistake of keeping a business for historical or sentimental reasons. “This is where it all started, we can’t give it up,” one company responded when we outlined its massive losses over many years in the consumer electronics business and proposed closing the division. It took executives another three years to exit the business after finally admitting they couldn’t stop the bleeding.
2. Experimental and ambitious:
Best for Management: Innovation, Supply Chain, Sustainability, Technology.
When it comes to research, development and innovation strategy, purchasing and supply chain strategies, achieving sustainability goals, and efforts to create a technology-first culture, the best leaders are experimental and ambitious.
R&D or innovation
In accordance with BCG’s Latest List of the World’s Most Innovative Companies, four of the five largest companies are technology (Apple, Amazon, Alphabet and Microsoft). But what really sets them apart is not so much their technology as their ambitious approach to innovation. They know they need innovative products and services to have a viable future, and so they think experimentally and broadly about opportunities to create value for their customers. They understand that innovation comes in all shapes and sizes: better, faster services; cheaper products with less waste; higher quality materials with greater durability; more personalized services; new business models; and so on. They also understand that innovative ideas can come from a variety of sources—not just the magic of an artificial intelligence algorithm or the people working in central R&D, but also subsidiaries, customers, suppliers, and related businesses.
Supply chains
In an uncertain world, the best leaders are looking to protect their future by quickly reorganizing their supply chains, experimenting with new suppliers that can help them realize their ambitions to capture what BCG calls “…fractal advantage“: growing opportunities opening up at the periphery of the business. While they are not deglobalizing (as they maintain a global presence), they are becoming increasingly multi-regional or even multi-local, focusing on local customers and limiting their dependence on supplies of raw materials, parts and components from other regions. For example, many American companies have reduced their dependence on China as a manufacturing center and switched to suppliers within or closer to the country. Consequently, Mexico overtook China last year as the largest source of goods in the US for the first time in 20 years.
Sustainable development
The best leaders know that their sustainability strategy is aimed at ensuring a sustainable future for the company and the planet. Accordingly, they are experimentally pursuing ambitious sustainable development goals. They improve bottom-line efficiency by reducing carbon emissions, reducing the consumption of all resources, and limiting waste and leakage. They are also pursuing revenue growth by positioning their companies as regenerative businesses that replace the linear economy’s “take, make, throw away” approach with a circular economy’s “reuse, recycle, reduce” approach. If they get it right, the opportunities for future growth are enormous: the circular economy is projected to be worth nearly $700 billion by 2026 (up from $339 billion in 2022); while the green economy is projected to be worth US$10.3 trillion by 2050 as new industries emerge.
Technologies
Technology, especially artificial intelligence, is rightly seen as a potential silver bullet to solve many current and future business problems. But realizing its potential is difficult. A BCG and MIT Sloan Management Review study found that only one in ten companies are realizing significant benefits from artificial intelligence, as most have failed to integrate the technology into daily company operations. To solve this problem, the best leaders take an experimental approach, often following what BCG calls the 10–20–70 rule: Dedicate approximately 10% of your efforts to developing algorithms, 20% to developing core technology and data, and 70% to supporting people and changing organizational processes and culture.
3. Prudent
Best for Management: Capital and Liquidity
Maintaining a strong capital base with sufficient liquidity is essential for long-term survival. But it requires prudence, and judging by the recent string of corporate failures, prudence is a rare leadership skill. As inflation began to rise and then accelerated due to the energy crisis following Russia’s invasion of Ukraine, central banks responded by raising interest rates and many CEOs were shown to be – in Warren Buffett’s inimitable phrase – “swimming naked.” To avoid this, the best managers carefully review their capital and liquidity requirements: they evaluate their company’s actual financing needs and continually use risk models (even those that include extreme scenarios) to provide a financial cushion for future periods. worst times.
4. Patient
Best for Management: Talent.
In the so-called Great Retirement, when large numbers of people are leaving their jobs or looking to retire, the best leaders are showing great patience as they implement their talent development strategy. They know there is no quick fix as they face stiff competition for top talent. So they take the time to think deeply about what their company should look like in the future (and therefore what kind of people they need to hire and retain), and in some cases they use a kind of “People P&L” because they recognize that a constant supply of good people is just as important as a constant supply of money and critical components.
5. Durable
Best for management: all areas of business.
There is another leadership skill that the best leaders possess: persistence. They apply this to all areas of the business because they know that they will have to overcome many obstacles while following their roadmap of continuous and rapid change. When faced with problems, they instinctively look for solutions. What they don’t do is play the blame game or give up. They believe in their vision of the future and their ability to chart a course towards it.
The future depends on you
In many ways, the future is an attitude, a state of mind. The world’s most successful leaders have proven that if you are determined and unsentimental, experimental and ambitious, prudent, patient and persistent, you can navigate through choppy waters to your vision of the future – what Satya Nadella calls his North Stars. To a very large extent, you and your actions as a leader will determine what tomorrow will be like. You truly hold your destiny in your hands—and the destiny of your company, too.
Hans-Paul Bürkner is Managing Director and Chairman Emeritus of BCG and former CEO and Chairman of BCG.
Arindam Bhattacharya is a Senior Advisor at BCG and an Alumni Fellow at the BCG Henderson Institute.
Francois Candelon is a managing director and senior partner at BCG and global director of the BCG Henderson Institute.
Some of the companies featured in this column are former or current BCG clients.