By Bob Moritz
As philosopher and writer Alan Watts once said, “The only way to make sense out of change is to plunge into it, move with it, and join the dance.” While coping with change (and risk) has always been a key factor in a global economy, it has never been more of a challenge than during the recent economic crisis and today as we move forward with a post-crisis recovery. As in any period of change, winners and losers will be determined by leadership’s response to these and other challenges we are seeing. The losers will be those that hold on to the status quo and allow sweeping change to overwhelm them. The winners will be those that “join the dance” by embracing change and adapting to a new environment.
Earlier this year, we published the 14th edition of our annual global CEO survey.¹ As we reviewed the CEOs’ responses to our questions, it was clear that the world in which they are confronting their issues and concerns is changing radically. For example, centers of power and influence are shifting, as both developed and emerging market countries redefine their roles in the new global landscape. From cloud computing, to social networks, to e-mobility, changes in technology are transforming the way companies do business and interact with their customers, partners, and other stakeholders. Such advances are having a dramatic impact on how CEOs, management teams, and boards are adapting to change.
Take innovation, for instance. As a means of achieving growth, innovation has never ranked as high in our survey as penetrating existing markets. Today, CEOs are just as likely to focus on the innovation needed to develop new products and services. In addition, CEOs are turning to product innovation outside of their home markets and are involving customers, employees, and other partners in each stage of the innovation process, wherever in the world these stakeholders reside.
Sourcing is another example. Historically, because of cost considerations, CEOs have targeted emerging economies as suppliers. However, with growth prospects in those economies considerably higher than they have been, and with the quality, stability, and innovation resident in Western nations, countries such as the US and Germany have joined the ranks of China and other emerging economies as significant future sources of supply.
Depending on how you look at it, talent is a concern or an opportunity. Growth prospects are driving the need for qualified people, but there doesn’t seem to be enough available talent to go around. In fact, two-thirds of CEOs believe they are encountering a limited pool of skilled job candidates, a situation even more acute in high-growth regions like China, India, and parts of Latin America. For these reasons, strategies for managing talent are prominent on the CEOs’ agendas and include more non-financial rewards such as training and mentoring programs and more international assignments. Other strategies include finding ways to better leverage underutilized talent pools.
CEOs’ perceptions of risk are also changing. This year, the top four risks are dominated by threats related to government policies and talent: 1) recession/economy; 2) public deficit;² 3) overregulation; and 4) availability of key skills. This is not to say that CEOs are unconcerned with other risks ranging from energy costs and inflation to higher taxes. However, while this could change given the dynamic environment in which we operate, these currently do not rise to the top of the list.
So what does all of this mean for businesses moving forward in a post-crisis world? First, it means that prospects for growth are driving a renewed confidence. CEOs are confident about the future, particularly in the near term and specifically as it relates to corporate performance. In fact, 48 percent of survey respondents are very confident about their company’s prospects for revenue growth over the next 12 months, up from 21 percent in 2009 and 31 percent in 2010.
Second, it means that, recognizing significant change, companies are gearing up for growth, but are doing so precisely and selectively. For growth initiatives, they have abandoned a scattershot approach and are selectively targeting these to emerging markets that offer the most promise—markets where recovery is expected to be strong. And they don’t want to go it alone. As we point out in our survey, more and more CEOs are eager to partner with governments on shared priorities that are critical to business growth, such as workforce skills and infrastructure. This is an area where the US can and must do better.
Back in 1998, President Clinton said the following: “Rarely have Americans lived through so much change in so many ways in so short a time.”³ Clearly, those words are even more applicable today than they were a decade or so ago. The difference is that today’s successful companies are much better than their predecessors at responding to change by refocusing, adapting, and finding new ways to compete and win. In short, they have plunged into change, moved with it, and joined the dance.
That’s my view. What’s yours? We’d like to know. Send us your comments at pwc.com/view.