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05/03/2020 – Leadership Series / PwC / CEOs / Global

Choppy waters


CEOs worldwide are navigating a rising tide of uncertainty.


What a difference two years can make. In 2018, PwC’s Annual Global CEO Survey revealed a record level of optimism regarding worldwide economic growth. Yet, at the start of a new decade, the latest study shows a record level of pessimism amongst business chiefs globally.


For the first time, more than half of the CEOs surveyed believe the rate of global GDP growth will decline in the year ahead. This caution has translated into CEOs’ low confidence in their own organisation’s outlook. Only 27 per cent of CEOs are ‘very confident’ in their prospects for revenue growth in 2020 – a low level not seen since 2009. This finding is compelling because the change in CEOs’ revenue confidence has previously proven to be a reliable indicator of both the direction and level of global GDP growth in the year to come, according to PwC’s analysis.


So, what is clouding the view from the top? In a word, uncertainty. PwC’s 23rd annual survey – conducted in September and October 2019, and involving 1,581 chief executives in 83 territories – explores the sources and manifestations of uncertainty, and how CEOs are taking action to address it. 


Uncertainty undermines outlook


No matter where CEOs look or from where they are looking, the path forward is fraught with uncertainty – and uncertainty weighs on growth. In the past two years, the percentage of CEOs who believe global GDP growth will decline has increased tenfold (from five per cent to 53 per cent). In every region, CEOs report increased pessimism. And in almost every region, they show diminished confidence in their own organisation’s 12-month revenue growth prospects. CEOs are more sanguine about the prospects for the coming three years; however, confidence levels are currently at a low not seen since 2009.


This reversal in CEOs’ outlook is undoubtedly dramatic, yet is nonetheless consistent with most economic forecasts as the global economy heads into its 11th year of expansion. In its October 2019 forecast, the IMF noted the global economy is in “a synchronised slowdown”, leading it to downgrading growth for last year to three per cent – its slowest pace since the global financial crisis.


To be clear, economic indicators in many markets remain positive. Unemployment in the OECD countries was at a record low of 5.1 per cent in 2019, measures of consumer confidence are elevated, and financial markets have been buoyant. But growth has slowed around the world and, as the World Economic Forum reports, outsized productivity gains promised by the Fourth Industrial Revolution have yet to materialise. 


Over-regulation remains the top threat, yet concern is also rising over uncertain economic growth, in particular, as well as over trade conflicts, climate change, and cyber threats. The unknowns on all of these fronts cloud CEOs’ outlook on the road ahead. 


Setting up guard-rails in cyberspace 


The Internet – the great global connector and democratiser of information – is now confronting the unintended and dangerous consequences of its promise.

50 per cent of CEOs surveyed in North America said they are ‘extremely concerned’ about cyber threats – the largest share of any region. Meanwhile, 64 per cent of Germany CEOs don’t believe governments are designing privacy regulations that both increase consumer trust and maintain business competitiveness.


“Silicon Valley introduced the notion that more data was better, that data was an asset. What we’re saying is that personal data is actually a liability. People are placing it on the wrong side of the balance sheet,” asserts Dylan Collins, CEO at SuperAwesome, UK. 


With no effective global framework in place that can govern practices or control attacks on digital technology, a majority of CEOs surveyed foresee increasing legislation around online content, data privacy and dominant tech platforms. As a result, it is likely that the Internet will become more fractured. 


The backlash against the Internet’s dominant model of one global, all-encompassing and all-knowing platform is an expected development – and may lead to a path forward that is at once more distributed and underpinned by certain common standards. If the global economy is to realise the full promise of the Fourth Industrial Revolution, a greater level of co-ordination on these issues will be necessary. 


‘To upskill or not to upskill’ is no longer the question


PwC’s own analysis predicts that 30 per cent of jobs worldwide will be subject to automation by the mid-2030s, and that workers with lower education levels will be hit the hardest initially, as ‘blue collar’ jobs are replaced by ‘new collar’ jobs. 


There are correlations among upskilling progress, economic optimism and revenue confidence. Furthermore, CEOs who have embraced the potential of upskilling are realising the rewards – such as stronger corporate culture, greater innovation, and higher workforce productivity. 


Those furthest along in the upskilling journey cite ‘employee retention’ as the primary challenge, whereas those just beginning the process find ‘motivation’ and ‘lack of resources’ to be the biggest obstacles. One reality is clear: increases in automation, changes in demographics, and new regulations will make it much harder for organisations to attract and retain the skilled talent they need to keep pace with the speed of technological change. They will have to grow their own future workforce. 


This is certainly the case for Barbara Humpton, CEO of Siemens US, who says her firm is focused on making “the human-machine interface more fluid and intuitive”. The current approach cannot continue, she says, given the huge skills deficit that exists in the job market. 


Climate change: An opportunity cloaked in crisis


Elsewhere, the survey indicates that the tide has turned on climate change. As CEOs try to navigate disruptive weather impacts, fractured climate policy, rising expectations from the public and the demands of remaining competitive, they are facing a higher level of climate-induced uncertainty. Globally, 24 per cent of CEOs said they are now ‘extremely concerned’ about climate change and environmental damage – a 25-per-cent increase on last year’s results.


While organisations worldwide are starting to recognise climate change risks, they are also recognising the potential opportunities. Compared with 10 years ago, CEOs today are far more likely to see the benefits of ‘going green’ – such as reputational advantage, new product and service opportunities, and government or financial incentives. 


Organisations in Western Europe and Asia-Pacific are furthest ahead in assessing the transition risks to a greener economy – unsurprising, given the government commitments to sustainability in these regions. By contrast, in the Middle East, where economies are most exposed to the global progression towards clean energy, organisations are comparatively behind in assessing the changes likely to result from a low-carbon future.


Succeeding in uncertainty


“Uncertainty can become an excuse to take essentially defensive actions that may make tactical sense but are strategically counterproductive in both the short-and long-term – reducing investment in people, pulling back from new technologies, shying away from big challenges,” says Bob Moritz, Chairman of the PwC Network, who believes companies must lean in to changes “at the precise moments when it is uncomfortable to do so, and communicate openly about the challenges they face and the actions they’re taking”.


“In confronting uncertainty, leaders must act – and act quickly. Instead of narrowing their focus and looking inward, they should expand their field of vision and strive to create a wider range of options to pursue,” Mr Moritz suggests. “Making decisions in a way that is more dynamic and resilient will enable organisations to thrive in the full spectrum of uncertain outcomes.”


At root, this means changing how we think about many of the ways we have conducted business for years, if not decades. For example, leaders today can harness the power of technology to reimagine the way they plot strategy. They can use AI to consider a wide range of scenarios, test and scale options, and feed the knowledge gained back into the system. “Understanding how a company can succeed under different sets of conditions increases confidence,” he points out.


Yet firms can act on opportunities only if they have the organisational agility that allows them to execute rather than simply react. Building on foundations that are strong but not rigid, leaders must learn to make decisions and allocate resources and capital more nimbly in the years ahead. Doing so successfully will enhance not only their own prospects but also the prosperity and vitality of society as a whole.


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