Winning today’s race while running tomorrow’s

Half of CEOs in Malaysia don’t think their companies are economically viable a decade from now

Businesses are perpetual by virtue of the very reason for their existence - to satisfy public demand for goods and services and bring returns to stakeholders. But with 51% of Malaysian respondents believing that their companies will only be economically viable for another 10 years or less on their current path, we looked at what business leaders anticipate will be forces that will impact profitability in the next decade.

63% of Malaysian CEOs believe that regulatory change will be the biggest potential source of industry disruption. Following closely behind are concerns around supply chain disruption, technology shifts, labour/skills shortages and evolving customer preferences, reported by over half of all respondents.

Q. To what extent do you believe the following will impact (i.e., either increase or decrease) profitability in your industry over the next ten years? 

Leaders believe climate change will mainly impact supply chains and cost profiles

CEOs’ race against time is especially urgent when it comes to climate change. About half of Malaysian respondents expect some degree of impact (moderate, large or very large impact) from climate change in the next 12 months—primarily in supply chains (51%), followed by their cost profiles (48%). Fewer are worried about climate-related damage to their physical assets (26%).  

Q. To what extent do you expect the following areas of your business to be impacted by climate risk in the next 12 months?

Preparing for the risk of climate change include decarbonisation and innovating climate-friendly products/services. Physical risk mitigation is less evident, as is internal carbon pricing where over half (57%) of respondents say they do not plan on taking this action. 

Moving with the right pace and priority to mitigate climate risks, generate opportunities, and decarbonise is an enormous strategic challenge. Malaysia’s recently launched Bursa Carbon Exchange, a voluntary carbon market, will enable companies to trade voluntary carbon credits to offset their carbon emissions. 

But we also don’t know how much these actions that are being undertaken most frequently – decarbonisation initiatives, climate-friendly products and services, and offsetting – will move the needle, particularly in the near-term. Even if emissions stop today, warming will continue regardless as emissions already in the atmosphere will continue to have an impact on climate. Adopting an internal pricing mechanism for carbon can help provide insight to account for taxes and incentives, while sharpening strategy to manage emissions in exploring new green ground.

Q. Below is a list of actions companies may undertake to prepare for the risk of climate change. Which statement best characterises your company’s level of progress on these actions?

CEOs in Malaysia rank inflation, macroeconomic volatility, and geopolitical risk as the top threats to growth in the next 12 months

The lingering effects of the last nearly three years on supply chains and the ongoing land war in Europe mean that CEOs globally are facing pressure from similar issues that can reinforce and compound each other. 

Even when viewed through the medium-term lens (five-year outlook), climate change remains a secondary concern, though economic concerns, cyber risks and social inequality see increased exposure. How much of this can be attributed to the urgent challenges of today’s very real cost of living crisis, fueled by the skyrocketing prices of goods? Malaysians appear the most likely (63%) among Asia Pacific territories to cut back on non-essential spending, according to findings from our latest Global Consumer Insights Pulse survey. The time horizon challenge may mean that CEOs run the risk of being blind-sided in the near term as they focus on here and now threats. 

Q. How exposed do you believe your company will be to the following key threats in i) the next 12 months and ii) the next five years?

Unprecedented pessimism - nearly three-quarters of CEOs project global economic growth will decline

The biggest near-term challenge CEOs are contending with is the state of the global economy. In a dramatic about-turn, only 20% Malaysian CEOs believe growth would improve during the year ahead (compared to 91% last year). CEOs’ confidence in their own companies’ growth prospects has also declined by a large margin compared to the previous year.

Last year’s over-optimism as CEOs looked forward to a post-pandemic recovery may have been replaced by excessive pessimism as 2022 events unfolded, such as the war in Ukraine and knock-on effects like surging energy and commodity prices, as well as accelerating general wage and price inflation. After all, CEOs are people, too, and likely to be as susceptible as the rest of us to recency effects and other cognitive biases.

Q. Do you believe economic growth (i.e., gross domestic product) will change, if at all, over the next 12 months in the global economy?

Cost-cutting is in place, but CEOs are not reducing headcount

In response to near-time economic challenges, Malaysian CEOs are cutting costs (74%), and spurring revenue growth through diversifying products and services (63%) — only 14% are reducing the size of their workforce and 3% are reducing compensation.

This is likely because CEOs also believe the 'Great Resignation’ is not ending anytime soon. CEOs in Malaysia think employee attrition is likely to continue at the current rate (37%), with more CEOs suggesting they would rise (38%) than fall (26%).

CEOs are seeking balance between a need to batten down the hatches and an ongoing need for business reinvention, which they can’t deliver if they lose the war for talent. Our research tells us that fair pay, fulfilling work, the opportunity to be one’s authentic self at work and flexibility are critical determinants of employee decisions about whether to stay or go. Creating conditions for progress against forces like these can help CEOs influence forward-looking churn rates.

Q. What actions, if any, is your company considering to mitigate against potential economic challenges and volatility in the next 12 months?

Addressing today’s and tomorrow’s challenges starts with the CEOs’ calendars

We asked CEOs how they split their time between a range of priorities including driving current operating performance; adapting the business for the future; spending time with customers; engaging with employees; and interacting with investors, the board, and other external stakeholders. 

Driving current operating performance consumed the biggest share of CEO’s time. If they could redesign their schedules, leaders say they would spend more time evolving the business and its strategy to meet future demands.

We were also interested to find out if this balancing act extends from the CEO’s calendar to the allocation of corporate resources. While there is insufficient data for Malaysia, we see that this appears to be true of CEOs globally. Around 60% of investments are focused on reinventing the business for the future, and 40% on preserving current business. This 60/40 ratio was consistent across a range of investments including automation, upskilling, and deploying advanced technologies such as AI.

Q. i) During your work time, on average, what percentage of time do you spend on each of the following? ii) Knowing what you know now, if you could start over with a blank calendar, how would you allocate your time as CEO?

CEOs need to role model behaviours that are key to encourage innovation and reinvention 

People are key to any company’s transformation efforts. CEOs need their help - C-suite leaders, middle managers, and front-line employees alike - to help anchor the balancing act of tackling near term challenges while reinventing for the future. 

However, 51% of Malaysian CEOs said that leaders in their organisation do not often encourage debate and dissent. 69% said their leaders did not often tolerate small-scale failures. And 89% said their leaders did not often make independent strategic decisions for their function or division. 

Numbers like these suggest that in many organisations, the conditions aren’t in place for managers and employees to run on their own toward major new opportunities or to independently spot and respond to disruptive threats. A bottom-up approach to innovation takes advantage of ideas from a wider base of employees, who are often in the front lines of the business. CEOs need to double down on setting a shared vision, empowering people to make decisions, and being visible champions for change. After all, empowered and engaged people move faster, innovate more readily, and collaborate more effectively to get things done.

Q. For each of the statements below, please indicate how frequently these occur in your company:

Malaysian CEOs are more likely to collaborate with other businesses or governments to solve today’s challenges

Today’s diverse and complex challenges cannot be solved alone. Partnerships allow companies to access the capabilities of other participants, manage risks collectively, and make greater progress than any organisation can make on its own.

When asked about how Malaysian CEOs forge partnerships, the results show that companies work with a wide network of collaborators, and that those relationships are most often struck to create new sources of value, especially when the collaborators are other businesses such as industry associations (31%) or other companies (23%). Addressing societal issues such as climate change was more often a goal of collaboration with non-business entities like NGOs (20%) and government agencies (31%), a pattern seen amongst global CEOs as well.

Q. To what extent is your company collaborating with the following groups to i) Create new sources of value? and ii) Address societal issues? [showing % to a large extent + to a very large extent]