While confident about the strength of the global economy and their ability to grow their companies, CEOs are focusing on transforming their businesses.
These leaders are certainly alert to the changes occurring all around them, but they are also awakening to the opportunities that stem from disruption. By doing so, they can respond to escalating pressures and harness the disruptors to improve their growth prospects, enhance their operations and strengthen their relationships with customers. That’s the theme that resonates for me in our newly released CEO Outlook Study, which tracks the views of 1,278 CEOs in 10 key markets and nine industry sectors over a three year horizon.
This key theme also reflects the conversations I’ve been having with clients about their strategic priorities as they face multiplying disruptors – from new competitive pressures and cyber-security risks to innovation and technological change that affects their entire value chain. While concerned about change, the most successful companies are finding ways to manage the interplay between these disruptors and convert them into opportunities.
What’s clear is that CEOs today do not have the luxury of thinking in terms of decades. Agility is what is required in terms of mega trends, customer expectations and competitive shifts. They now need to ask of themselves, “Are we moving as fast as the world around us?”
Optimism in the face of disruption
Despite frequent foreboding headlines, corporate leaders are strongly optimistic about global economic growth in the near term. Indeed, 62 percent of CEOs are more confident now than they were last year about global growth prospects over the next three years, while only 6 percent are less confident. Similarly, 61 percent are more confident than last year about growth in their own countries, with marked improvement in confidence levels in key markets such as China, Spain, Australia, India, France and the UK. The US, where the recovery is well underway, continues to be a desirable market for CEOs.
This macroeconomic optimism seems to be fueling positive sentiments among CEOs about the prospects for their own companies. Overall, 54 percent of respondents expect their companies to grow over the next three years.
The positive tone appears to be driving upbeat business plans, too, since 78 percent of respondents indicate they expect to be in hiring mode through to mid-2018, 48 percent plan to make an acquisition during this time, and 47 percent plan to devote significant capital to expansion outside their home countries. Additionally, developing new growth strategies emerged as the top organizational priority cited by CEOs.
Keeping eyes open to emerging risks
Although this optimistic outlook is encouraging, the same CEOs are very cognizant of the challenges their organizations face. The survey shows that 86 percent are concerned about customer loyalty, 74 percent are worried about new market entrants and 72 percent are worried about keeping pace with new technology. Sixty-eight percent are also concerned about competitors’ ability to take business away from their organization and 66 percent are concerned about the relevance of their product or service within three years.
Concern with technology was significant, with 50 percent indicating that they are not fully prepared for a cyber event such as a challenge to company information security, and 49 percent say they need to improve how their organization manages their data and analytics.
These are not small problems or issues that can be resolved with simple solutions. These issues strike at the core for their organizations and require fundamental changes to the way they do business.
As a result, there is strong CEO appetite for business transformation. This is evident from the 44 percent who indicate that they are only ‘somewhat comfortable’ with their current business model and 29 percent who say their organizations are likely to be transformed into significantly different entities in the next three years. And those executives who advocate organizational change identify the company strategy, business model and operating model as the areas liable to be transformed the most over the next three years.
The status quo is the riskiest tactic
It’s clear from a careful review of these survey data that CEOs in diverse sectors understand they can no longer simply do more of the same. Maintaining the status quo may seem to be the most comfortable path, but they must understand that it is actually the riskiest one for their company. Clients I meet with are recognizing, more and more, that immersing their companies in the disruptive environment, and embarking on transformation, is actually a less risky approach.
That realization is an important milestone. The next question is, ‘How genuine, deep and effective are your company’s transformation programs?’ While I believe most companies are engaged in some level of transformation, it’s important to ask whether their management is driving the program at a speed that will allow them to stay relevant with their customers.
Rather than entering into transformation simply to bring costs down or to lower risk, leaders need to take a harder look in the mirror. They must ask what their customers want that their companies are not delivering right now. That will drive a reverse engineering process, leading to transformation programs that truly improve customer relationships and build a sustainable advantage.
But can this truly be accomplished without a commitment to innovation? Surprisingly, over half the global leaders we spoke with (56 percent) say they do not have developed processes for innovation.
Many company leaders make nice speeches about transformation but hold on to the status quo through their actions. They may realize too late that they can no longer manage the company by steering around economic, social, technological and environmental disruptors. Sooner or later, their business will be disintermediated. The alternative involves finding ways to embrace the disruptors, to get comfortable with things that are currently uncomfortable – from technological advances and demographic shifts to globalization and data analytics.
Transformation as a synonym for executive leadership
Transformation will ultimately become more than a buzzword or a fixed-term company initiative. It will become a genuine synonym for executive leadership. Soon, CEOs in successful organizations will say, “Of course we’re in the midst of transformation. It’s the new normal in the life of our business.”
Although embracing transformation represents a radical departure from how many corporations have been managed for many decades, the KPMG survey findings – revealing the high level of confidence CEOs feel about pursuing growth, facing disruptors and taking transformative measures – suggest that leading global organizations will rise to the challenge.
Setting the course for growth in this more competitive environment will require new strategies, new tools and methods and new thinking, all with a laser focus on rapid execution and a perpetual transformative mindset.
About the 2015 KPMG CEO Outlook Study – The survey targeted 1,278 CEOs in 10 key markets (Australia, China, France, Germany, India, Italy, Japan, Spain, UK and US) and nine key industry sectors (automotive, banking, insurance, investment management, healthcare, manufacturing, technology, retail/consumer markets and energy/utilities). A quarter of the respondents have over US$10 billion in annual revenue. No companies with under US$500 million responded.
Written by Mark Goodburn, Global Head of Advisory, KPMG International.