2015 US CEO Survey

Leading in
extraordinary times

US CEOs believe there are more opportunities today for their companies than existed three years ago.
The world’s CEOs are looking to the US for business growth in 2015.
CEOs are innovating and accelerating the impact of technology for their customers.
Cross-industry competition heats up. US CEOs far more willing to partner with rivals or customers.
New talent models taking shape as businesses recruit for a wider range of skills.

The world’s CEOs are looking to the US for business growth in 2015.

For the first time in five years in PwC’s Annual Global CEO Survey, more business leaders rate the US as their most important market for overseas growth ahead of all others, including China’s.

As the US recovery gains traction, it is gaining more adherents. Challenges remain, yet key measures of US economic health are improving. Business hopes are building that the American consumer market will start firing on more than one piston in 2015. PwC projects US GDP growth of 3.2% this year.

Yet even as US economic indicators recalibrate to a more normal setting, it is likely the business environment will not. If there has been one constant throughout the shifts in risk/rewards over the past five years for US CEOs, it’s been this: with every upgrade and new Internet hook-up, devices got smarter, customers got smarter, employees got smarter.

Businesses resigned to dealing with the effects of extreme transparency on pricing models at a time of constrained US spending may find a new set of challenges as the US market gains the global leadership spot.

CEOs everywhere are forging ahead in an environment they believe is more volatile and unpredictable. Across a number of areas, more CEOs are worried about threats to business growth in 2015 than they were three years ago.

Yet 61% of CEOs globally—and this is even more so for US CEOs (67%)—believe there are more growth opportunities today for their companies than three years ago. What’s more, 46% of US CEOs are ‘very confident’ of achieving revenue growth this year, a five-year Survey high.  What’s changed?

We are living in extraordinary times

Great advances in technology and science are giving us building blocks to solve problems that in turn, are giving rise to new business models that can better meet and even create demand. For CEOs, it means great opportunities to create value in areas they have not gone before by combining the right building blocks together.

Michael Dell, Chairman and CEO of Dell Inc., put it this way in an interview with PwC: technology is at the center of all the big changes in business, but the industry’s expanding. “Nobody has an enormous lock on the market. The markets are always changing, and it’s a great time to be listening, learning, figuring out what problems are unsolved with customers, because there are always emergent problems. And that’s how you win.”

Actions US CEOs are planning for 2015 show how US businesses are being positioned for this new era where growth in their important markets balance more evenly between developed and emerging economies, and where mainstream adoption rates for digital technologies everywhere are surging.

PwC surveyed 1,322 business leaders across 77 countries between September 25 and December 9 in 2014, including 103 CEOs in the US, for insights on how businesses are setting a course for growth. PwC also sat down with 28 US CEOs to gain greater context.

US CEOs intend on making their company smarter

They are seeking to move their organization up the learning curve in distinct ways. This year, the interviews and responses reveal:

  • CEOs are innovating and accelerating the impact of technology for their customers. CEOs say they are seeing real payoffs from these investments. They expect to take risks to operate within diverse and fluid networks.
  • Yet as CEOs spiral up to better performance with a new set of technology capabilities, tensions are surfacing inside the organizations that are acute and are not going to get better. Activist investors and competitors are pressuring businesses to find new ways to extract value now. Half of US CEOs (50%) believe a significant competitor is emerging or could emerge from technology sector versus 32% of CEOs globally.
  • Much within their own portfolios are under review—hard assets as well as capabilities. Over half of US CEOs (54%) say they expect to complete a domestic acquisition this year, up from 39% a year ago. This year, 23% plan to divest a majority stake or exit a business, up from 15% a year ago.
  • But it’s not all about buying (or selling) assets. US CEOs are widening their use of alliances to secure new technology and speed up innovation. They are significantly more willing than peers globally to consider partnering with competitors or customers. Traditional industry boundaries are blurring, and CEOs expect cross-industry competition to accelerate. Over a fifth (24%) say their business entered or considered entering the tech sector within the past three years.
  • Businesses are recruiting for a wider range of skills and looking for the right fit in more places. They want to better reflect the increasingly global and dynamic customer sets of their organizations as well as meet growing technology demands within their organizations. Over half (59%) expect to expand headcount this year.

CEOs are asking themselves ‘what if’…

Wearable sensors become good enough to transmit streams of highly accurate biometric data? What if devices start to dominate the volume of Internet conversations? What if cash disappears? Or our cars are networked to the surrounding infrastructure? Or hospitals become so inviting that we’ll meet there for lunch after our annual flu shot at the drugstore? What if we’re fitted for blue jeans by a scanner on our mobiles?

These all are real scenarios that US companies are working with now. Within the past five years, each has moved closer to reality. And they truly are scenarios, not just incremental product or service enhancements. The knock-on effects will have nth-degree implications for their business models, distributors, and suppliers. These examples alone lift a curtain on a near future where drug development, banks’ relationships with small businesses, equipment maintenance, healthcare provision, and clothes shopping will be done differently.

As the ‘what if’ scenarios take shape, so does the opportunity. If McCormick & Company, a spice distributor in an ancient industry, develops a personalized recipe engine to engage with online consumers and deploys robots to rapidly mix and fashion new flavors, you know we’re in a different place. Any company, in the view of McCormick Chairman, President, and CEO Alan D. Wilson, has to be on the forefront of technology to survive. “It’s not just a small move to one thing or another, it’s a diversification and fragmentation of where the consumer is, and that’s opened up the opportunity for a lot of competitors, as well as opportunities for us, to grow.”

At the same time, the risk of inaction is apparent. “If we did not act, we’d be vulnerable to activists. We’d be vulnerable to other companies that see our strong assets, strong channels, and our technology would become outdated. So not moving is more risky than moving,” said Alex A. Molinaroli, Chairman, President, and CEO of multi-industrial supplier Johnson Controls, Inc.

Given the technology means, the ends are changing. Classic industry lines are blurring: 36% of US CEOs say they entered or considered entering a different industry at some point over the past three years. Take drugstores as an example. Retailers by design, they’re taking that consumer expertise to push deeper into care delivery, offering services from immunizations to counseling for chronic conditions.

Most US CEOs see cross-industry migrations like this accelerating: 61% think it’s likely businesses will compete in industries other than their own over the next three years. While a fourth of US CEOs said they already partner with firms from other industries, 39% are considering such a move.

And as more mainstream businesses grow ambitious with technology, competitors from within the industry are also veering from predictable routes. Regional bank CEOs are very much at the intersection of these competitive cross currents. D. Bryan Jordan, Chairman, President, and CEO of bank holding group First Horizon National Corporation, expects their greatest competitors are likely to remain other regional banks, but he adds that “the nature of that competition is going to change as technology is introduced.” There are non-banks entering American banking, too. Consider the activity in the mobile payments process, for example, or in peer-to-peer lending platforms or the growth of preloaded or prepaid cards sold by retailers.

“It’s all about who has access to the customer and the ability to introduce products and services that allow them to expand their relationship with that customer,” Jordan said. “The more they can put through that infrastructure, the more data they have about what’s going on in the marketplace, and what’s going on in that customer’s wallet daily. With that, they have the ability to produce more and broader and deeper technologies that allow them to meet more and broader and deeper needs.”

Advances in data and automation techniques are pushing the ‘what if’ frontiers. Five years ago, KeyCorp was still building branches, said Chairman and CEO Beth E. Mooney. Today, the Cleveland-based lender is deploying funds toward digital platforms. Yet, customers still want contact with their bankers, and half of the payments in the business sector are still done through paper checks. Mooney has to balance these trends. “There has been a seismic shift in preferences in how people do business and what their expectations are,” she said. “These are things we’re going to constantly be monitoring, constantly making trade-offs, because the future is going to look different.”

2015 PwC CEO Survey

Leading in extraordinary times


Doubling down on customer-facing tech

Here’s one important change: CEOs don’t think of tech on its own as a threat. They are not puzzled or vexed. Many US CEOs today were likely just shaping their careers as some of the technologies that are defining our age took commercial shape. The mobile phone, the first commercial solar plant, the Worldwide Web… the promise in each was clear to enough back in the 1980s. What has changed is that these technologies and the opportunities they represent are migrating to the core of the business where once they may have been treated as ‘bolt on,’ a job for the web team or the sustainability group.

This is not necessarily because innovation or product cycles are slowing. In manufacturing, in fact, the opposite is happening. Thomas J. Lynch, Chairman and CEO of electronic connectors and components maker TE Connectivity, told PwC he’s not sure he’s “ever seen as much acceleration in manufacturing technology, including smarter robots, advancement in sensors, connectivity, and 3-D printing.”

Yet this relative comfort with tech-led disruption does suggest that staying on top of the trends—that is, being able to extract value through technology differentiation—is now part of the CEO’s mandate.

How this gets done will differ. At TE Connectivity, investments in R&D are growing faster than sales, Lynch said. “Sometimes that can be controversial with your investors, but you just have to do it.” TE Connectivity sets a three-generation technology road map for each business, even if it’s not going to result in a product in five to ten years. The mapping means the “chances of you becoming a disrupter are better, and [the chances of] preventing yourself from getting disrupted is better,” he said.

For John C. Plant, Chairman, President, and CEO of supplier TRW Automotive, differentiation has meant moving up the technology spectrum, particularly around software capabilities. TRW has raised investments in engineering, both in absolute dollars and as a percentage of revenues, he said. “By and large, it’s been successful,” he said. “When I look at the evolution of our margins, maybe two-thirds of that development has come from the whole repositioning of technology and product within the supply industry.”

CEOs in consumer-facing businesses describe redoubling efforts to tailor the customer’s experience. It’s a mind shift on where differentiation can take place. Technology involved behind the walls—and, for example, involved running a hotel, like point of sale, property or spa management systems—“are utilities in many respects,” Arne M. Sorenson, President and CEO of Marriott International, Inc. told PwC. “What’s much more interesting is the technology that we are using with our guests.” Whether it’s about ordering room service or special pillows to marketing or resolving complaints before guests leave the hotel, “all of those things create a need for technology, which is much more significant than what we’ve had in the past.”

Think of it as the sharing economy effect. The point isn’t so much that new companies with an app and few assets are garnering multibillion dollar valuations, it’s that they energized a customer base that everyone else apparently left on the curb. This is clarifying the business case to accelerate the hunt for touch points with the customer that really move the needle on loyalty, convenience, and trust as well as the bottom line. Listen to how Christopher J. Nassetta, President and CEO of Hilton Worldwide, Inc., describes the impact of lodging-sharing services on his industry. Renting out rooms and couches is an old business, but it’s now being done far more efficiently and that’s an improvement. “The reason I don’t worry about it is, in a way, it is democratizing travel even more,” he said. “In a simplistic way, it’s making the pie bigger, generally. It’s not taking the same pie and taking a sliver out of that pie.”

Applications of digital technologies are part of the reason CEOs in the US and around the world are now seeing customers and the potential of the US market for their businesses with a fresh pair of eyes.

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It helps that mainstream businesses are seeing real payoffs from their investments in customer-facing technologies. Take Domino’s Pizza, which delivers more than a million pizzas a day worldwide. Close to half of all orders are coming in digitally, said President and CEO J. Patrick Doyle. The transactions done this way are more profitable for Domino’s; customer retention and frequency are higher, he said. “It’s simply a better model for the customer and for us,” he said. Around a third of Domino’s staff at headquarters is now in technology. “We just continue to find more and new and interesting areas that we can apply technology to, and it all has a terrific return on investment,” he said.

And it helps that the majority of consumers and employers are now digital natives or digital learners. Half of America is now walking around with a mobile that’s ‘smarter’ than an early-generation space probe. They’re using it to find jobs, spouses, buy car insurance, and hire a plumber they can trust. Americans are effortlessly blending digital tools into their lives, and they’re increasingly worried about losing control of their information. What company can afford to silo these strands anymore in an alternative sales channel? The physical world is merging into the virtual world.

David Holl, President and CEO of Mary Kay Inc., has experienced the transformation in digital technology comfort levels within the cosmetic company’s salesforce. By nature, direct sale consultants are socially adept, but where once many were reluctant to embrace social tools (and perhaps relied on their teenagers to help them work their phones) today it’s a different dynamic. The consultants, he said, are “not only understanding the technology we’ve made available, but they’re also pushing us, ‘Hey, why can’t we have this? I know it’s out there. Figure it out. This is what we need.’ For us, that’s been refreshing and enjoyable.”

CEOs have embraced the tech mantle and expect digital to deliver customer-facing innovation—while still paying dividends in faster, cheaper, and more resilient operations. But there’s much left to be done. After a year of devastating cyber breaches and leaks, worries over the state of cybersecurity surged among US CEOs: 45% say they are ‘extremely’ concerned, up from 22% a year ago. This is not an issue business can resolve on its own, said John Donahoe, President and CEO of eBay Inc. “The role of any Internet company is to protect its customers and provide them the safest possible experience and to be as transparent as possible around privacy. Now, when you step back and look at the role of a company versus the role of a government, clearly if we’re going to provide the safest possible experience in aggregate, government and companies need to work together.”

CEOs in fact are looking to work more closely with a range of partners in many areas.

Designing the deal to complement the opportunity

In the US, transformational deals continue to drive growth in both domestic and cross-border deal activity. Currently, M&A value is at the highest level in recent history. Through November 2014, there were 10,330 transactions representing $1.9 trillion in disclosed deal value—the highest recorded annual deal value since 2007, according to data compiled by Thomson Reuters and analyzed by PwC.

Designing the deals means ownership but it also means alliances can become the vehicle to create value that a single company cannot do on its own. Over a third of US CEOs (44%) plan to enter a new strategic alliance over the next 12 months. Those alliances today are with suppliers and customers. In the future, more CEOs want to extend to alliances with start-ups, competitors, and firms from different industries. “Most companies are going to have to stretch themselves out of their comfort zone and find partnering opportunities in order to be successful in the next decade,” said Johnson Controls, Inc.’s Molinaroli.

For many US CEOs (28%), the number one reason they partner is to get access to new and emerging technologies. Businesses are looking for a lot more from alliances than a sales conduit for existing products and services. They are partnering to accelerate innovation, access technology and new industries. As Joaquin Duato, Worldwide Chairman, Pharmaceuticals, Johnson & Johnson, puts it, “we are beginning to understand how technology companies and healthcare companies like Johnson & Johnson can collaborate and create value. It’s new, it’s different, and it’s not the same path that we take with life science companies.”

Yet the management challenge is rising: CEOs say partnerships are more important and, at the same time, becoming more complex. Like in M&A, success rates with alliances are low by some measures. Consider the outcome of many acquisitions: in looking for overlap and redundancy, acquirers shed human resources as quickly as possible. This is driven by the view that the value lies in the market that business is targeting, not in the people who got them there.  In a partnership, it’s the people. It’s finding the right companions you can trust, whose values you share, to work together on the ‘what if’ journey.

As Joel Allison, CEO of Baylor Scott & White Health, the largest not-for-profit health care system in Texas, views new competitors in the healthcare space, “one way we address it is, to ask the question, ‘Can we partner with them?’,” he said. “Our business is about relationships, and so it really is not just the organization, it’s the people inside that organization with whom we’re going to partner.”

New talent mix: What If + What Works

CEOs say they want a workforce that reflects an increasingly diverse customer base that’s more global and tech-savvy. But there’s more at play. For the few who have created massive value for their customers and investors, the path to success was paved not with old thinking, but with new models. They use data-supported talent strategies; foster innovation-friendly cultures; think of diversity differently; and pair up Producers (the ideas people) with Performers (those who convert good ideas to good business) so that opportunities—the known and the unknown—don’t get missed.

The Henry Ford Health System in Detroit deliberately took this step by hiring an executive from a luxury hotel chain to run their new hospital.  “People thought I had lost my mind, but I will tell you that without his vision for what that hospital could be, we never would have advanced as far as we have, particularly in health and wellness, in creating an environment that really brings the community in, and we teach and support people in managing their own health,” said CEO Nancy M. Schlichting. “That never would have happened with our traditional thinking, including my own.” West Bloomfield Hospital now operates a greenhouse that grows organic produce used for all the cooking for our patients. “Our design, the ambience of the facility, really invites people in. In fact, we have a couple hundred people every week that just come for lunch.”

In a world with more opportunities, US CEOs know they need to scale up their organizations’ ability to learn and innovate. They’re looking for talent in more places to fuel the bigger bets they’re making. In all, 80% of US CEOs say they are looking for a much broader range of skills when hiring than they did in the past. And 92% say they’re using multiple channels, including online and social, to recruit candidates.

Skills shortages are a factor as companies revamp recruiting methods: 78% of US CEOs are concerned over the availability of key skills, up from 70% a year ago. Concern levels are rising even as CEO hiring plans are little changed on the year with 59% expecting to expand headcount in 2015 versus 62% who said the same a year ago.

Stronger growth in the US this year, and the added interest from CEOs around the world in growth from this market, will increase the pressure building on US businesses to secure the people they need to expand in new ways.

In particular, tech-savvy talent is considered key to making the most of digital investments: 46% say that specific hiring and training strategies to integrate digital technologies throughout the enterprise are ‘very important’ (34% global). IT skills are the one skill set that John G. Russell, President and CEO of CMS Energy Corporation and Consumers Energy Company, says has changed the most, “because of the demands that we have or our customers have,” he said. The Michigan electric utility is planning to invest $1.7 billion this year. “We need managers who can turn these ideas into projects. We need the skills to design them and build them.”

Leading in these extraordinary times

Connected devices are smarter; connected customers and employees are smarter; connected industries are smarter. Businesses need to get smarter.

When asked what one attribute they think CEOs should have to succeed in the future, we heard this: Tomorrow’s CEO is a continuous learner. A connected leader. A trusted partner. An orchestrator of talents and capabilities.

Tomorrow’s CEO builds a company that is genius-friendly, not just performer-friendly.

The world will tell you where it’s going, it will tell you what it needs, but it’s going to be in code, and so you need to be able to connect the dots. It’s important that global CEOs listen carefully to what the world’s saying, from each region, and be able to take that input and piece it together to formulate a vision, a strategy, and the tactics of how his or her particular company is going to take advantage of where the world is going. And the ability to decode the messaging is going to be extremely critical.

- Rodney O’Neal, CEO and President of Delphi Automotive Systems LLC