What BCG says CEOs can learn from energy traders

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Aluminium smelters, for example, are typically located near hydroelectricity projects that offer cheap, always-on power.

“But imagine if you could take advantage of very cheap, renewable resources by being more flexible,” Hirschhorn says.

“You can get yourself a cost advantage by taking advantage of that variability rather than trying to lock in certainty. You’re now thinking like an energy trader – you have to be flexible at all parts of your business.”

Uncertainty and volatility aren’t just limited to the energy sector, of course.

And Anthony Roediger, managing partner of BCG in Australia and New Zealand, says a trader’s mentality will be useful as boards and chief executives confront an environment that is far less stable than the past decade.

“Money not being free going forward will impose a discipline that we didn’t have in the past,” he says.

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Roediger believes companies will need to run two tracks of planning: shorter-term, more flexible models that can respond rapidly to changes in the environment; and longer-term plans that offer a company two or three ways to reach a strategic goal.

Take the example of a company in the energy storage sector. It will have an ultimate goal that it is working towards – developing a battery solution for a particular industry or purpose, for example – but its path to that goal will depend on changes in technology, regulation and the macro environment.

Or take a telecommunications company. While it might know that a large trend such as digitisation is going to affect its business, it can’t hope to know exactly what that will look like. So, “the ability to plan across multiple horizons at once and flip between them as the context changes” becomes vital, Roediger says.

“I think boards get that and they’re looking to CEOs who say, ‘we understand our ecosystem and we’ve got plan Bs on lots of different elements – we’re not necessarily going to use them, but we’re ready for it’.

“It takes a bit of cost and a bit of effort to do that, but the ones who do that end up much better off. Theoretical efficiency is one thing, but actual efficiency – where after all the disruptions you’ve managed to navigate through – is actually what counts.”

There’s a practical challenge in switching to this new thinking, of course: volatility doesn’t exactly give companies a whole lot of time to sit back and think about these big picture ideas.

“It’s not like they’ve got lots of time and space to think about retooling how they do long-term planning and so on,” Roediger says.

“I would say almost everybody knows that they can’t go back to the old way of planning and thinking. But only a small share of companies are really thinking, OK, how do we plan for continual volatility?”