An overview of the most frequently cited concerns of CEOs from the PwC’s 26th Annual Global CEO Survey.
The COVID-19 pandemic has had a devastating impact on businesses all over the world. Lockdowns and social distancing measures have forced many companies to close temporarily or operate at reduced capacity, resulting in significant losses of revenue. The pandemic has also disrupted supply chains, making it difficult for businesses to obtain the materials and resources they need to operate. Additionally, the global economic slowdown caused by the pandemic has led to a decrease in consumer spending, which has further hurt businesses. Furthermore, businesses have had to adapt to new ways of operating, such as implementing remote work policies and transitioning to online sales, which has been challenging for many companies. Many businesses have also had to invest in new technologies and infrastructure to support these changes, putting additional financial strain on them.
In addition to the impact of the COVID-19 pandemic, there are several other global factors that have contributed to the turbulence in the business world. One such factor is the ongoing geopolitical tensions between major world powers, which have created uncertainty and instability in the global economy. Additionally, climate change has become an increasingly pressing issue for businesses, as extreme weather events and natural disasters disrupt supply chains and operations. The increasing demand for sustainability and ethical business practices has also put pressure on companies to adopt environmentally friendly policies and practices, which can be costly and difficult to implement. The biggest question is – how are CEOs of companies responding to these turbulent situations?
PwC 26th Annual Global CEO Study
Every year, PwC conducts a global survey of the CEOs of major companies. The annual Global CEO Survey is a flagship PwC survey, in which the views of thousands of chief executives around the world take part. The survey provides unique insights into the thinking of corporate leaders around the world and explores the top-of-mind issues for companies today.
According to PwC’s 26th Annual Global CEO Study, which surveyed 4,410 CEOs in 105 countries and territories in October and November 2022, nearly three-quarters (73%) of CEOs anticipate a drop in global economic growth during the upcoming 12 months. The dismal CEO outlook represents a significant shift from the optimistic predictions of 2021 and 2022 when more than three-quarters of the CEOs in both years believed that economic growth would improve.
In addition to a difficult climate, over 40% of CEOs believe that if their organisations stay on their current course, they won’t be economically sustainable in ten years. A variety of industries, including telecommunications, manufacturing, healthcare and technology, exhibit the same tendency. Since last year, CEO confidence in their own company’s growth prospects has fallen sharply (-26%), the greatest reduction since the 2008–2009 financial crisis, when a decline of 58% was seen. Over the next ten years, CEOs anticipate numerous direct challenges to profitability within their own industries. More than half of respondents in the survey believe that changing consumer demand or preferences will have an influence on profitability, followed by regulatory changes, labour and skills shortages, and technological disruptions.
Inflation, Macroeconomic Unpredictability, and Geopolitical War
Last year, cyber and health risks were considered the top risks by CEOs. According to the latest PwC report, CEOs now consider inflation and macroeconomic instability to be the biggest risks over the next five years. Around 25% of CEOs also feel financially vulnerable to geopolitical risks. CEOs have been forced to reevaluate certain aspects of their business models as a result of the conflict in Ukraine and growing worries about geopolitical flashpoints in other parts of the world. Nearly half of the respondents who are exposed to the geopolitical conflict have increased investments in cybersecurity or data privacy, have changed their supply chains, and reevaluated their market presence.
Expenses, Salaries and Personnel
CEOs are attempting to reduce expenses while accelerating revenue growth in response to the present economic climate. Around 51% of CEOs report increasing prices, 48% report broadening their product and service offerings, and 52% report lowering operating costs. Around 60% of respondents indicate they do not intend to reduce the number of their employees in the upcoming 12 months, and 80% of respondents say they do not intend to cut staff compensation in order to keep talent and lower attrition rates.
On this issue, PwC’s global chairman, Bob Moritz stated that such CEO pessimism (not seen in more than ten years) has been caused by an unstable economy, decades-high inflation, and geopolitical war. In order to retain talent in the wake of the ‘Great Resignation,’ CEOs throughout the world are reevaluating their operating models and reducing costs. But, despite these demands, they continue to put their people first.
The hazards affecting organisations, people, and the planet will only increase as the world continues to change at a breakneck speed. Businesses that do not transform won’t be viable, therefore organisations must carefully balance the dual imperative of minimising short-term risks and operational needs with long-term objectives if they want to not only grow but also survive in the coming years.
Addressing Climate Risk is a Business Opportunity
While CEOs still saw climate risk as having a moderate to significant influence on their cost profiles, supply chains, and physical assets over the next 12 months, it did not rank as highly as other global issues as a short-term danger. CEOs in China feel particularly exposed, with 56% of physical assets, 71% of supply networks, and 65% of cost profiles potentially affected. A majority of CEOs have already implemented, or are in the process of implementing, initiatives to reduce their companies’ emissions, in addition to innovating new, climate-friendly products and processes, or developing data-driven, enterprise-level strategies for reducing emissions and mitigating climate risks, in recognition of the long-term effects that climate change will have on business and society. A majority of respondents, around 54% of the CEOs, still do not intend to apply an internal price on carbon in decision-making, and more than a third do not intend to put initiatives in place to safeguard their company’s physical assets and/or workforce from the effects of climate risk. This is true despite the fact that an increasing number of nations now have some form of carbon pricing.
Transformation, Trust and Long-Term Value
If CEOs want to create long-term societal value, they must work with a variety of stakeholders to develop trust and deliver lasting results. According to the survey, partnerships between businesses and non-profit organisations typically focus on education, diversity, equity, and inclusion, and sustainable development. Organisations must also invest in their people and technical transformation agendas to empower their workforces if they want to remain viable in the short and long term. In terms of technology, more than seven in ten businesses claim to be investing in automating procedures and systems, putting in place programs to upskill workers in crucial fields, and utilising cloud computing, artificial intelligence, and other cutting-edge technologies. To address the increasingly complex risks that organisations face, many CEOs doubt if essential preconditions for organisational empowerment and entrepreneurship, such as alignment with business values and leaders’ promotion of dissent and debate, are present in their organisations. For instance, just 23% of CEOs claim that their organisation’s leaders routinely or regularly make strategic choices for their role without consulting the CEO. Furthermore, only 46% of CEOs claim that their organisation’s executives frequently or regularly tolerate slight failures. A more upbeat finding is that nearly 9 out of 10 respondents believe that employees’ actions frequently or regularly match the goals and values of their organisations.
CEOs claim they are more concerned with boosting present operating performance, as opposed to changing the company and its strategy to satisfy future demands because they are torn between the demands of short-termism and long-term change. CEOs claim they would spend more time on the latter if they could restructure their schedules. On this particular issue, PwC’s global chairman Bob Moritz shared that risks that organisations and society are currently facing cannot be addressed singly or in isolation. In order to effectively reduce those risks, foster trust, and create long-term value for their companies, society, and the environment, CEOs must continue to work with a wide spectrum of public and private sector partners.
What’s the Way Forward?
It has become evident that for most CEOs, the future could be favourable if the existing business environment could be transformed and they could offer a diverse portfolio of services. But how can CEOs steer that transformation? Investments in technology are of the utmost importance; almost three-quarters of businesses are devoted to automation, skill development, and the implementation of cutting-edge technologies like AI. Examining the underlying justification for such investments reveals that 60% of each category is concentrated on reimagining the company for the future, while 40% is focused on maintaining the current company. This 60/40 split was impressively constant over the entire range of investments, which is another illustration of the delicate balance that CEOs must maintain. Needless to say, CEOs require the support of every one of their staff, including C-suite executives, middle managers, and frontline workers, to reinvent their companies while overcoming immediate operational issues. Organisations that are empowered and actively engaged complete tasks more quickly, innovate more frequently, and work together more successfully.