5 Actions CEOs Can Take to Prepare for an Uncertain Future -PARTHENON
5 Actions CEOs Can Take to Prepare for an Uncertain Future: Recalibrating strategy for a new environment
By Andrea Guerzoni, Nadine Mirchandani, and Jeff Wray
Geopolitical conflict and tensions, greater political intervention in business, and the climate emergency — these exogenous risks are CEOs’ top concerns today. The risks they can better control, such as managing conflicting stakeholder demands and the cost of talent, perhaps unsurprisingly, come further down the priority list.
The Covid-19 pandemic and increasing disruption have been a wake-up call for many CEOs, with many radically rethinking how they transform their companies for growth and new opportunities. Early and bold choices on portfolio-transforming investments, particularly acquisitions and divestments, proved decisive in the wake of the global financial crisis.
If this history of risk versus return is repeating itself for those with bold strategies, the question is how to accelerate that long-term value-creation journey. And to do so, according to the EY CEO Outlook 2022, a survey of more than 2,000 CEOs around the globe, leaders are looking to three main areas: technology, mergers and acquisitions (M&A), and the supply chain.
CEOs’ Three Areas of Interest
Almost half of the surveyed CEOs (47%) see technology as a critical key to customer engagement and maintaining or improving margins. These technology investments can unlock paths to growth and enable the development of data-driven products and services.
In 2021, M&A was the CEOs’ accelerant of choice for such strategic ambitions as buying innovation; fueling digital transformation; acquiring scarce talent; reducing environmental, social, and governance (ESG) risk profiles; and entering new markets and services.
This momentum should continue; nearly two-thirds of respondents (59%) expect their companies to pursue acquisitions in the next 12 months. Given the scale of activity in 2021, many companies will be integrating recently acquired assets, but the most ambitious will remain strategically poised to buy assets that support their growth ambitions.
CEOs clearly still see M&A as a critical method of boosting long-term growth strategies by acquiring companies that bolster their operational capabilities and innovation. Competitive landscapes have been redrawn across all sectors since the beginning of the pandemic, and there is more shifting of positions ahead.
The pandemic has demonstrated how supply security can be a competitive advantage. Many CEOs are rethinking cross-border operations, with increasing role of governments in economies redefining a global operating environment that has grown over four decades. In this context, many companies are reconfiguring supply chains to control costs, better manage ESG pressures, and move away from just-in-time models to minimize uncertainty and ensure sufficient supply to meet current demands. These companies offer the same products and services as before but have completely changed how they produce and deliver them.
Companies are making these changes while adapting to an increasingly multipolar regulatory environment with complex and often conflicting demands. But these shifts do not mean the end of globalization. Of those CEOs adjusting investment plans due to geopolitical tensions, nearly half (45%) have increased cross-border investments. Despite the immediate need to reshape cross-border operations, there is no sign of strategic domestic retrenchment—yet.
Transforming for a Sustainable Future
Given the current environmental, social and governance pressures, it is unsurprising that the pivot toward sustainable transformation is becoming permanent. More than three-quarters of survey respondents (82%) identify ESG issues as important or extremely important to strategic decision making. In addition, 28% of respondents see the competitive advantage of becoming a leader in sustainability.
However, while more than three-quarters of CEOs (78%) report that investors support well-articulated investments, two-thirds (66%) have encountered investor resistance to their sustainability transition strategy. So how can CEOS counter that resistance?
CEOs need to reinforce their narrative with attention to critical growth and innovations that will enable and accelerate their ESG journey. They should also constantly refresh a credible and engaging narrative for their broader stakeholder community and prepare to quickly respond to any concerns. CEOs need to articulate not only the ESG opportunity but also the cost of being perceived by customers and talent to be on the wrong side of the debate.
The Window Is Narrowing
Many CEOs clearly recognize the need to invest now to ensure their company succeeds. Optimizing operations is critical to future investment plans. The good news is that a growing number of CEOs are already expanding their horizons to capture growth opportunities, understanding that bold steps now can increase the potential to lead in the future.
So, while the year ahead looks as uncertain as the one before, CEOs can still drive growth —especially if they take these five actions to reframe their business for a recast future:
- Use scenario analysis to develop robust plans to capture incremental value on upside scenarios and mitigate risk on downside scenarios. And map out a multiyear investment plan that emphasizes resilience, agility, and sustainability as core values
- Undertake a comprehensive strategic and portfolio review to understand how the competitive landscape has changed.
- Create a trusted supply chain by working with multiple partners to ensure security of supply and avoid disruption
- Take a dual-track approach to digital transformation by investing in digital efficiencies in the core business while looking for the next growth opportunity to maintain a competitive edge
- Understand the customer, employee, and societal expectations for increased corporate responsibility on social and environmental issues, and work with all stakeholder groups to develop a roadmap for a sustainable future
Explore the EY CEO Outlook 2022 to find out more and learn how EY-Parthenon teams can help you design and deliver transformative strategies to create long-term value.
Andrea Guerzoni is EY Global Vice Chair – Strategy and Transactions, Nadine Mirchandani is EY’s Global Deputy Vice Chair – Strategy and Transactions and Jeff Wray is the Global EY-Parthenon Leader
The views reflected in this article are the views of the authors and do not necessarily reflect the views of the global EY organization or its member firms.