Best Practices
As you put in place 2024 financial plans and objectives, it is a good time to consider the mega-trends that are affecting the world, especially those that may have a significant impact on the oil, lubricants and additives businesses. This article outlines some of these key trends, as well as ideas about what you can do to manage them in your business area.
Artificial Intelligence Grows in Importance
Last year was a breakout year for generative artificial intelligence, with the public release of ChatGPT and the ensuing efforts by others such as Microsoft and Google to provide products in that space. The stocks of companies such as Microsoft and Nvidia had tremendous gains in 2023 due to expectations that they will be among the winners in monetizing the AI potential. While undoubtedly there is some hype around AI, I believe this is an area of great opportunity as well as significant risk, and I recommend that your company put some effort into understanding both sides of this trend.
I suggest that in 2024 you develop an AI strategy for your company, with the help of knowledgeable consultants in the field. You may want to address risks first in order to ensure that your company systems remain safe; however, the opportunities may be significant in the oil, lubes and additives business. For example, AI should allow better analysis and perhaps monetization of the large amounts of data that our businesses collect as well as improve the ability to formulate products with lower costs and reduced investment over time.
Actions to take in 2024: Consider the risks and opportunities associated with AI and start to develop your corporate strategy.
Global Risks Fester
In 2023, we saw the continuation of the Ukraine conflict as well as the start of the Israel-Hamas war. In addition, there was much talk of potential China aggression toward Taiwan and increasing political ties between China and Russia. Shipping companies are avoiding Red Sea routes due to Houthi attacks, and there is worry about potential Iran actions that could widen the current conflict. Notably, 2024 has been dubbed the biggest election year in history, as more than 60 countries representing half the world population will hold some sort of elections this year. Closer to home, we have the United States Presidential election in November, which will no doubt be consequential on many fronts.
Actions to take in 2024: Build an assessment of key global risks into your business strategies and plans.
Supply Chains are Rethought
The rethinking of supply chains began during the pandemic, but the urgency and magnitude of the issues may have prevented a more holistic and cogent redesign from taking place. I suggest you review your supply chain situation with a view toward reducing inherent risk. Consider risks associated with the geopolitical situation described earlier as well as risks due to climate change, potential new pandemics and financial security of your suppliers. Your suppliers and your customers are likely also doing this type of review, so be sure to monitor their actions as well. It may be that your actions to reduce risk will increase costs in the short to medium term, so be sure to factor this into your financial plans.
Actions to take in 2024: Consider de-risking your supply chains, starting with largest risk areas first.
Economies Slow but Don’t Break
Many economists are now calling for a “soft landing” in 2024. Janet Yellen said in late November 2023 that she believes the U.S. economy does not need further drastic monetary policy tightening to stamp out inflationary expectations and was on track to achieve a “soft landing” with strong employment. The most recent “dot plot” from the Federal Reserve officials indicated a potential for three separate quarter-point interest rate cuts in 2024. The U.S. unemployment rate remains historically low, around 3.7%. The rate of inflation has been falling fairly steadily all during 2023 in many developed economies. However, there are some warning signs, such as reduced growth in commercial loans and leases, reduced money supply in the economy, and higher credit card and loan delinquency. All of these pieces of information lead to the likelihood of a slowing U.S. economy in 2024 but one in which consumer demand will remain good.
Actions to take in 2024:
- Manage prices carefully as some costs may come down.
- Prepare for lower interest rates, especially in 2H24.
ESG: More Political but Increasingly Important
As you know, ESG stands for Environmental, Social and Governance, and there was a lot of buzz about these aspects of business management during the past few years. Early on, there was a frenzy of activity to get on the “ESG bandwagon” to ensure proper consideration by funding sources and other stakeholders, but in 2023 there was significant “ESG backlash.” According to a recent study by the Conference Board, 48% of businesses have experienced backlash to their ESG policies or activities, with the majority of the backlash coming from policymakers and political candidates as well as employees. I believe the politicization is unfortunate, and I urge you to pay close attention to ESG-related aspects in 2024. Of course, you may wish to think about how you communicate with regard to ESG to make it more palatable for a wide spectrum of beliefs.
In particular, I draw your attention to the “G” in ESG, as we saw several public examples in 2023 of issues relating to governance. Sam Bankman-Fried was convicted last year of fraud and related crimes in connection with his former company FTX. In a previous article, I recounted how the company shockingly lacked suitable oversight for a company of that size and renown. Also, in November 2023 we saw the Board of the company OpenAI suddenly fire its influential CEO Sam Altman, then rehire him a few days later. Since that time, a new board has been put in place, but the ramifications of that public dispute are yet to come.
Actions to take in 2024:
- Review how ESG principles are being incorporated in company strategy and how progress toward goals is being measured.
- Consider the language you are using around ESG, especially in public-facing media.
Sara Lefcourt of Lefcourt Consulting LLC specializes in helping companies to improve profits, reduce risk and step up their operations. Her experience includes many years in marketing, sales and procurement, first for Exxon and then at Infineum, where she was vice president, supply. Contact her at saralefcourt@gmail.com or (908) 400-5210.