L.E.K. Look Forward 2024: The European Perspective

Speaker 1:
Welcome to Insight Exchange, presented by L.E.K. Consulting, a global strategy consultancy that helps business leaders seize competitive advantage and amplify Growth. Insight Exchange is our forum dedicated to the free, open, and unbiased exchange of the insights and ideas that are driving business into the future. We exchange insights with the brightest minds of the day, the most daring innovators, and the doers who are right now rebuilding the world around us.

Nick Portet:
Hello and welcome. My name's Nick Portet. I'm a writer working with L.E.K. to tell stories about the firm's work. Every year, partners across L.E.K. take the time to review the past 12 months and tell us about the challenges and opportunities they see in the year ahead in a campaign we call Look Forward. This year's forecast takes in a number of key sectors with articles, infographics, and presentations from experts from across our European offices. What are the common themes we're reporting on? What are the opportunities and challenges businesses in all sectors can expect? I'm joined by L.E.K.'s Head of Europe, Ben Faircloth, and European Chief Commercial Officer, David Titus, for a look forward to 2024. Ben, David, before we begin today's discussion, please can you tell us a little bit about yourselves?

Ben Faircloth:
Hi Nick. Good to talk to you. I'm Ben Faircloth. I am region head for L.E.K. Consulting in Europe, which means I'm responsible for all of our activities across the markets in which we're present, so France, Germany, Poland, Spain, and the U.K. And also I work closely with colleagues globally to help drive the firm's strategy and operational delivery at a global level. I joined the firm over 15 years ago and I specialize in healthcare, with a particular focus on life sciences and pharma contract services, as well as med tech.

David Titus:
My name's David Titus. I'm the Chief commercial Officer for L.E.K.'s European business. I joined the firm nearly 20 years ago based in our Boston office and moved to the London office about 10 years ago. I lead our European marketing business development research and knowledge management functions and work closely with Ben and other leaders on the executive team to support the growth of the European region.

Nick Portet:
Ben, David, thank you. I think we'll all agree there's a lot to look forward to.

Ben Faircloth:
Yes, for the year. It's not been the easiest of years, I think for many businesses and indeed for many consultancies. The reasons for that have been macroeconomic headwinds that I think we're all familiar with. We've seen significant interest rate increases in pretty much all major geographies, certainly in all the geographies we're present in in Europe. We saw inflation very high a year ago coming into 2023. That was a significant concern and generally that macroeconomic environment has been quite a break on deal activity, transaction activity, investment activity, the kinds of things that we here at L.E.K. tend to support our clients in delivering as they think about how to grow their businesses. Having said all of that, as we sit here now as we begin 2024, we do see some causes for, let's call it muted optimism. We have interest rates that appear to have plateaued. We have inflation that is now coming down to more normalized levels, certainly in continental Europe and the Eurozone.

That's true, the UK is still somewhat higher, but the direction of travel is helpful. And I think that gives us, as I said, some cause for optimism as we look at into 2024. Why muted? Well, I think as we're all also very aware, the last couple of years since COVID have been characterized by geopolitical events, we obviously had COVID before that. So much of our recent collective past has been characterized by shocks to geopolitics, shocks to the economic system. And as we look into 2024, I think it would be brave to suggest that 2024 is likely to be immune to such things. Let's see how it goes. But we certainly are looking ahead with some muted optimism into the new year.

David Titus:
Affirming that view. I think that the headwinds should be less gusty, but they will be there. The impact of that I think will be the muted optimism. I think there is a bit of a backlog of corporate decision-making and certainly some transaction activity that we would expect to increase a bit, but our recent experience has been mentioned with COVID, it was such a shock and things moved in different directions so quickly. We forget that normally these macro corrections tend to happen much more slowly. We will need to be patient, our clients will need to be patient in the context of wanting to get on with things. So it sort of feels like the economy is understandably sluggish, but the world is happening quickly. So we've got obviously geopolitical issues. We've got technological disruption that make it feel like we need to be quite urgent, but we're stuck wading through the molasses. So I just think we need to come up with ways to pivot quickly while we're knee-deep in the treacle, so to speak.

Nick Portet:
Optimism. It sounds like we all need some. Five decades on from L.E.K.'s Foundation, how are you both seeing clients' needs evolving and how are you keeping the firm's sector-led model fresh and relevant in these sometimes challenging times?

Ben Faircloth:
There is a lot of calls for optimism in terms of the opportunities that most of our clients can see in front of them. I think we are very privileged to have our clients. That includes some really fantastic organizations, fantastic management teams, and as Dave said, what I think generally they're observing is a need for greater agility in decision-making. A need to move with greater confidence in decision-making, because often situations that they might seek to invest in are more competitive than they used to be, and we work to provide that confidence. Now, historically, we have very much focused over much of the period that you just referred to, Nick, on giving our clients confidence about how to grow their top line, so where to invest to enter new products, enter new markets, support with existing franchises to increase the investment, that kind of thing. But increasingly what we found in recent years, and it probably reflects in no small part, the complexities of the age in which we now live, is that our clients attending to us and saying, "It would be great if you could support us with a broader set of capabilities."

And so we have been investing in the recent years into extended capabilities. For example, now we're increasingly working with our clients on helping them work through how to enhance their operations, how to be more effective and efficient in the management of their cost base, in the management of their people, in the design of their organization, ensuring that those organizations are designed in a way that's completely consistent with development and delivery of strategy and of strategic goals over medium and long term. So we're seeing our brand, which we've been working hard to grow over this time since the firm was founded in the early 1980s. We're seeing the brand being taken into new areas by our clients, and I think that does show that clients are keen, as I said, to step forward and continue to drive their business performance with confidence, but it also shows the confidence that we have in wanting to follow them in those expanded sets of decisions, and so we have been investing accordingly.

David Titus:
Yeah. I think Ben, one of the things that occurs to me as I hear your response to Nick's question is that requirement, as you described, for organizations to have even greater certainty even more rapidly. One of the things that we have felt confident in our ability to support clients in those situations is via our data and analytics capabilities. Because the information requirement and the availability of information is greater than it's ever been and has kept pace with the requirement to wrestle down the certainty that that data can provide if it is analyzed and synthesized properly. So that's something that we feel pretty good about, our ability to bring that capability to clients. Data and analytics has been part of L.E.K.'s origin story and is core to the way that we deliver our work product, and it's one of the areas where we feel good about our capability, and I think the client need in terms of working with big data sets and their data assets in a way that helps them make decisions, innovate and expand is stronger than it's ever been.

Ben Faircloth:
Yeah, I completely agree with that. It's also worth talking a bit about the digitalization agenda. We know a lot of our clients are thinking hard about how to take their business models, disrupt them from a digital perspective, enhance them from a digital perspective, enhance the quality of their offer to their customers, their consumers, their key stakeholders. And again, I go back to the theme of confidence. Yes, we live in a time of change, a time of headwinds to a degree, but like many of our clients, we have confidence in our ability to address those challenges. And we've invested earlier this year in an agency, a digital agency, to allow us to extend our offer to our clients.

So now we're able to not just create a strategy around digitalization to identify the key areas of improvement that our clients need to address and work through how they sit against a commercial operational strategy, but also with our new colleagues we can bring them in from the digital agency side and create prototypes of digital offers that really bring that strategy to life. And that's a very tangible bit of evidence as to how we are continuing to evolve our offer, to deepen our engagement with our clients and to help them, as I said, address these opportunities but also navigate some of the headwinds that this period of change represents and presents.

David Titus:
Yeah, the name of the company, by the way, is Hi Mum! Said Dad. They're a brilliant digital agency. In addition to the capabilities that Hi Mum! Said Dad brings to L.E.K. the digital transformation and even some of the strategy work that we've been doing for a long, long time. Hi Mum! Said Dad keeps us honest because it's forced us to really understand what is practical and implementable. So I think it's reversed back some capabilities into the business even where we're not directly engaging with them. So I think it's been synergistic in that sense, and we're excited to reveal its capability to more clients. I think there's a lot of interesting work to be done there.

Nick Portet:
We've talked about optimism, we've talked about confidence, Ben, David, what about resilience? I'm really interested in these turbulent times, how are you helping clients to build the resilience they need given the ongoing geopolitical and macroeconomic storms in the year ahead?

Ben Faircloth:
One thing that we haven't talked about so far in discussion is the depth of capability we have in our sectors. And as a consulting business, we have a series of sectors that we support in depth. We are well-entrenched in those areas and have now for many years been developing our strong capability, not just at a headline level to support consumer businesses at a headline level of consumer trends, but working very much in depth in specific segments, whether it's in retail, whether it's in food and beverage, whether it's in leisure and entertainment. So really driving into sub-sectors with our capability, and developing rich experience through working with our clients in those areas. What I think we are now doing in increased depth is taking the increased set of offers that we've been talking about in this conversation so far. So we've touched on our digital capability that is greatly extended through our partnership with Hi Mum! Said Dad.

We've talked about our greater capability around helping businesses in their organizational capability and their performance, and we're taking those elements and infusing them into our sector groups so that we're mixing the best of that in-depth sector experience and capability with this extended offer that goes now well beyond what you might call our traditional heartland that I've referred to in the past of helping businesses grow their top line and helping businesses expand and accelerate the delivery of their strategy. So I see that interface of sector depth and capability, and our service line expansion, as being really exciting for us and our clients in 2024 and the way in which we are going to continue to drive growth in our clients' businesses first and foremost, and indeed also in our own as we have done this year. Dave, I know you are very close to how our sectors engage with their clients in all the markets in which we operate both geographically and from an industry vertical point of view. Do you want to add a bit of color on some of those interactions between the service lines and the sectors?

David Titus:
Yeah. Well, the first one that comes to mind in the context, Nick, of your question around resilience, we've made great strides as Ben has said in developing our organization and performance practice. And what that allows us to do more than ever is help clients with in the face of the, as you say Nick, the ongoing geopolitical and macroeconomic storms, organizations are getting pretty good at knowing what to do, but there's often a capability gap in terms of how to do it, and it's our organization and performance practice that is really good at working with clients in converting the, I know what I need to do, or maybe L.E.K. or another advisor has helped figure out steps that need to get done, but then making sure that the organization has the capability to do it. Whether that be respond to volatile pricing environments, whether that be having to make difficult decisions around performance improvement, whether that be an organizational strategy to reconfigure an organization to allow it to address geopolitical or macroeconomic headwinds.

And that's one area that comes to mind where we spend a lot of time making sure that our sector expertise and our go-to market model, which is sector-led, is a really viable accessible channel for the capability that the O&P practice can provide. And the sector expertise combined with that organizational service line expertise is really powerful when it works together. I think, Nick, one of the things I know that you've been keen to talk about is the part of our business that can help with some of our organization's sustainability goals. So we can pause, comment on that, but that's another capability along with digital, along with our data and analytics that we've mentioned before, that our sector expertise are really effective channels to bring these capabilities to market, and together that portfolio of capabilities does help our clients build the resilience, Nick, that you mentioned.

Nick Portet:
Expertise is a really interesting point, David, when I look across this year's Look Forward campaign, it's really clear that there are some common threads running across all your practices and across all sectors. I think regionalization, I think supply chain fragmentation, I think the rise of AI, inflation, obviously, and indeed sustainability. When you are looking forward, what do you expect the big challenges and opportunities of 2024 will be, and how will they manifest themselves?

David Titus:
Thanks, Nick. Well, taking the sustainability point that you've listed in your prompt there that I've just mentioned, one thing to be clear, we're not in the business of auditing the sustainability commitments, but what we are good at doing is helping organizations evaluate strategic decisions in the face of sustainability ambitions and sustainability requirements. Only recently the sustainability discussions that we are having with our clients were a bit hypothetical, but in the last few years, the decisions and the board level debates have become quite real, and the needs of organizations to make decisions where sustainability is inextricably linked to them has increased dramatically. So there really isn't a sector, and we talked about our sector expertise. There isn't a sector that goes untouched by having to consider C-suite, board level sustainability issues, and even in sectors and people who operated in the spaces know this by now, but to people who might be listening to this podcast, healthcare sectors are absolutely thinking about sustainability. It's not simply thinking about is their supply chain fit for purpose?

Are they achieving their carbon-neutral goals? There are things around healthcare packaging. There are issues around climate driven incidents and prevalence of diseases that are actually impacting the decisions that companies need to make about whether to invest in research in a particular therapeutic area. So I think the industrial sector, the consumer sectors, transport, those are much more commonly regarded as areas where sustainability is making an impact, but it really crosses the entirety of the economy that we serve, and we're deploying our sustainability capabilities in accordance with that.

The other thing that I wanted to mention is we talked about our digital capabilities. We talked about Hi Mum! Said Dad, but what has now almost become a cliched buzzword is generative AI. It is changing what's possible for many organizations. It's changing what's possible for our own organization. I know Ben has spent quite a bit of time thinking about that, but even organizations that are quite advanced from a digital strategy, digital capability, or which might have undergone recent digital transformation initiatives, AI has changed the game for them because it's not just about organizations that might be behind the curve, it's about organizations that might even be well ahead of the curve and suddenly have this massive digital asset that is impacted or could be amplified or greater value could be extracted from that generative AI has quite recently opened up.

So that's one of the things that we're starting to see quite a bit of, and it sort of levels the playing field between the advanced companies and less advanced companies, because everyone needs to do something to react to this particular trend, which is moving quite quickly. Ben, do you want to come in and talk a little bit about what we at L.E.K. are considering in the face of generative AI?

Ben Faircloth:
Yes, I think you're right to call that out. It's clearly a space that's been very much used for business perspective for much of last year. That is evidence that the technology has moved well into a real world setting and it's being widely deployed. I think it's also fair to say it's still in its infancy in terms of its own evolution and how it's being deployed. So we are evaluating how best to leverage it in the context of our work for the benefit of our clients. I think they're also very aware that one of the likely outcomes of wider use of generative AI technology is ever more proliferation of output, ever greater material. And our experience since the arrival of the internet around the latter part of the 1990s, when at the time people were observing that that was rightly going to lead to significant change in our people access information, access data and use that data in the context of decision-making.

What we've really found is one of the things that our clients look for us to do is to assimilate large amounts of information, whether it's qualitative or quantitative, to assess it and to apply our experience and at times our judgment and then use all of that to give advice. And when you have ever more material that is being fed into that process, the risk of the noise of the material overwhelming the signal of the quality of advice you're working to give goes up. It's certainly my belief, and as I talked to colleagues, I think it's an increasingly shared belief, that one of the great strengths we've always had as an organization is our ability to amass large amounts of information, leverage it to create high quality signal. So to use that information to best effect, to give the best, most objective advice we can to our clients.

I think there's going to be an ever greater premium on getting the signal to come out clearly from that ever greater quantity of material, some of which I'm sure will be high quality, but a lot of which is going to be noise. And that is one of the ways in which we are thinking about how to leverage this technology in our own workflows as we think about the growth of our business and how we want to continue to respond to our client's changing needs over the medium and long-term. So I think it does throw up some really interesting questions, some challenges, and again, some opportunities for our clients, and certainly also for us in helping our clients to be successful. So AI is definitely a topic of significant reflection, Dave, as you were rightly saying, you've rightly touched on other topics we've been reflecting on.

Nick, as you asked the question, I might come back to supply chain resilience and regionalization. You touched on that. Certainly we see a lot of those kind of discussions now propping up in areas like bomber manufacturing, the COVID experience brought home to populations and to governments. The benefits of having a degree of visibility and control over pharmaceutical product supply chain. And that theme sometimes reinforced by policy, sometimes picked up by commercial opportunity, is something we continue to work on with our clients in the bomber manufacturing space. That's one example. I could cite others from industrial, the industrial sector more broadly. So this notion of regionalization as a reaction to the growing complexity often of intercontinental logistics and management is something that we think is going to continue to be a feature of the market, not just in 2024 for many of our clients, but beyond. Then you overlay on that, as David was doing a moment ago, some of the both challenges and again opportunities from sustainability, you get some quite interesting pictures starting to emerge.

So the interplay for example of the sustainability agenda, the regionalization agenda with things like packaging, which is an area where we're very active, a lot of interesting new questions being thrown up in that space that we really weren't addressing five, six, seven years ago, pre-pandemic before a number of these macro developments had really started to embed themselves. And the ripple effect of those macro changes will continue to be felt, I think, in many of our sectors. Not again, as I said, just in 2024, but also beyond. So we're working closely across many of our deep areas of industrial expertise, of healthcare expertise, and consumer expertise to address those topics and identify solutions for this year, for planning periods going out to 26, 27, 28.

Nick Portet:
Ben, when you were talking about data, you rightly talked about its power to bring objectivity, but I'm also really interested in talking to you two today and talking to partners across the firm in preparing the Look Forward campaign, how personally passionate people are about their expertise, about their sectors, about the solutions that you provide. I'm really interested today in what you two are personally looking forward to in the year ahead.

Ben Faircloth:
That's a great question. I am, as someone who has both the opportunity and the privilege of working with colleagues from across our region, across our globe, looking across all the activity we have in all of the markets in which we're present, all of the markets which we serve, I would say the thing that I think is an ever stronger source of competitive differentiation for us as a business is the agility with which we make connections across our business. So we've talked in this discussion about some of those connections specifically between our service line capability, which has been enhanced and grown, and the depth of experience we have in our sectors. And those connections, those nodes for me are really where the magic happens at L.E.K. It's our ability to project the right capability through the right people to our clients quickly so they have it at the right time to make the best decision they can make, that have been developed into a coherent argument for them to make a successful decision.

That for me is really what's at the heart of our success, and as I look around the spaces in which we operate, I see ever greater complexity often in those challenges our clients are facing. And the more complex those challenges are, I think the more the requirement is on us to make sure that we simplify the advice we are giving them. And that doesn't mean it has to be simple advice. What it means, it has to be really clear, really objective, grounded on the best information we can provide, on the best evidence we can access, and told as it needs to be told. And I think the value of that objective support is going up, as I said, in a world where the noise around us is also rising all the time. And for me it's making sure that our teams across the region and across our network globally can operate with as little friction as possible in coming together and projecting that capability for our client's benefit.

That to me is what I think we continue to make great progress on, and what I think is really exciting about where the firm is headed over the next 10 years. And we'll have to use technology to help ourselves get better at that. We've touched on some of that in this discussion previously. So that's, for me, the real key to our secret source, if you like. It's the connectivity we have as a single global partnership. We can draw together that capability and project it rapidly and effectively and efficiently, and we continue to work to reduce our internal friction that inevitably grows. As you get bigger as a business, internal frictions always start to go up. It's just a function of having to be more organized. So we're constantly vigilant about making sure that those are managed to have the lowest possible impact on client delivery so that client delivery can be as optimized as possible. So that's what I think is really exciting as I look across our business region globally. Dave, what would you add to that?

David Titus:
I think that's great, Ben, and the point that you make on connectivity is such a good one. It makes me think that there is a common cultural denominator that greases the gears of that connectivity, which is a combination of intellectual curiosity, which everyone espouses. There's also a benevolent tenacity that we all share in our search for the truth, the answer to the question, the sorts of things that our colleagues get excited by are things like, no one has ever tried to solve this problem before and we've been asked by our client to try to crack it. That is the thing that gets us excited. So the question, Nick, is what am I looking forward to in 2024? It's very simply more opportunities to do just that, really getting stuck in on these complex issues, bringing the full breadth of our excitement and curiosity and capability to work on these things for as many organizations as we can get in front of. In spite of the gusting headwinds over the past year, last year was a great year for our European business.

It's a growth year, in fact, if you can believe it. So when I look at the pipeline, as Ben knows, I obsess over it. It looks really strong. So my hope is that there is latent demand for corporate decisions and initiatives getting started that will allow us to do just that in earnest in 2024, and just get more opportunities to do the thing that basically we're all here to do. In terms of other things that are happening in 2024, this is a judgment on an outcome, but we've got elections in our European markets that are coming up that we'll be keeping an eye on that will have an impact on us and on our clients that we'll be ready to react to. And then I can't ignore the fact that there is a European Olympics coming up in 2024, so that always adds a little [foreign language 00:30:01] as it were, to our European team, and I'm sure we'll have something Olympics themed to draw our European team together in the summer.

Ben Faircloth:
I think those are great points, Dave. I would echo what you were saying about the elections coming up. I mean, clearly there's also elections in the US at the end of the year, so that will be something looming large I think, on the political and commercial landscape in Europe as the year continues. But I want to go back to that phrase we used at the very beginning of the discussion, which was one of how do we think about 2024? We talked about muted optimism, and what really comes out for me as we're talking is actually, and I just saw you do it, we're getting more and more excited about this year as we talk. And so I think the optimism is real. We have every reason to be optimistic about where our clients are heading this year, where we are heading in 2024. So as we start the new year, I just want to take a moment to thank our clients for the trust they've placed in us.

Certainly the trust they placed in us last year, and we very much hope they'll continue to place in us this year. We absolutely don't take that trust for granted. We work hard every day of the week to reaffirm it, to regain it, to retain it, and we value it enormously. I also want to thank my colleagues, colleagues such as Dave and his quite right ongoing obsession with our pipeline, which I also greatly value, and our colleagues in our core service teams, our consulting teams, my fellow partners, for everything they have done to tee up 2024 to be a great year for the firm and for us to continue to move forward with the optimism that we certainly had coming out of 2023. I think the optimism is real. I think hopefully you can get a sense of that as we're talking today. The muted part really is primarily, I think, and Dave, you pointed it out with the elections, we live in a complicated changing world.

Geopolitics is a word you tend to hear in most business articulations of expectations of the future, because we have to recognize the complexity of the world we live in. We have to recognize that there are events that come up with little to no warning that can be very significant across multiple regions in the globe, and we've had a whole range of those in the last four or five years. So it would only be prudent to continue to assume that we will have to navigate ongoing shocks as the year continues, and that's before you come to those moments of potential change that are actually programmed. Elections being the most obvious case in point, and we may face this year something that is extremely rare, which is a simultaneous election both in the US and the UK. So next November, obviously it doesn't have to be November in the UK, but my understanding is that the smart money is on November at the moment.

That is likely to be a period of some significant political, if not necessarily change, certainly reflection, and I'm sure at times heated debate. So let's see. But I think that spirit of optimism, that spirit of enthusiasm for what it is we do, I think they've just captured it really well in that articulation of that tenacity and that interest in getting to the right answer. That is what I think gets us excited about being lucky enough to be in this profession and to work for this firm, and that certainly isn't changing. So hopefully one of the things that we've been able to convey as we've been talking today is that the optimism may be muted through factors that largely sit beyond the control of certainly us or our clients, but the optimism is real. It's the context that remains highly unpredictable and subject to potentially significant and unexpected and rapid change.

Nick Portet:
You've been listening to L.E.K. Consulting's European leaders, Ben Faircloth and David Titus, looking forward to 2024. If you'd like to hear more about any of the themes discussed today or would like to tell us about your own challenges and opportunities, please contact a member of the team by visiting us online. We hope you've enjoyed listening.

Speaker 1:
Thank you, our listeners, for joining us today at the Insight Exchange presented by L.E.K. Consulting. Links to resources mentioned in this podcast can be found in the show notes. Please subscribe or follow for future episodes wherever you listen to your podcasts. Also, we encourage you to submit your suggestions for future insights online at LEK.com.