Building resilience and trust in turbulent times

To navigate through an uncertain environment, CEOs are focused on building resilience that allows them to ride out short-term shocks and build for the longer term

Chief executive officers (CEOs) across the world are cautious about short-term growth prospects and the outlook for the global economy, but are more confident of delivering growth in the medium term, reveals the PwC's 16th Annual Global CEO Survey. Just 36 per cent of the CEOs are "very confident" about their business's growth prospects over the next 12 months, down from 40 per cent in 2013 and 48 per cent in 2011. In contrast, 46 per cent of the CEOs are very confident about delivering growth over the next three years.

"CEOs remain cautious about their short-term prospects and the outlook for the global economy. However, given the high levels of concern among CEOs about issues - such as over-regulation, government debt, capital market instability - it is no surprise that CEO confidence has declined in the last 12 months," said Dennis M Nally, chairman, PricewaterhouseCoopers International, while releasing the global survey in January.

"We find CEOs working to deal with the ongoing risks. Strategically, CEOs continue to refine their operations, looking to cut costs without reducing value as they manage through sluggish times. They are seeking growth opportunities organically, avoiding large outlays that could strap resources for the future. Most important, they have a clear focus on customers, collaborating with them more closely than ever on programmes to stimulate demand, loyalty and joint innovation," he said.

The survey findings will be the basis of a panel discussion at the PwC-Business Standard CEO Summit 2013 in Delhi on March 18.

The last decade has seen economic volatility and disruption escalate to unprecedented levels. In a globalised world, where economies and companies are more interconnected and interdependent than ever before, risks that once seemed improbable and remote, have become the norm. Between 1970 and 2011, the number of man-made disasters nearly tripled while the number of natural disasters surged seven-fold. CEOs feel they can ride the turbulence by making their organisations more resilient.

The survey highlights three common approaches CEOs are adopting to become more resilient, as outlined by Nally in his preface to the survey. First, they are targeting specific pockets of opportunity for organic growth, avoiding spreading their resources too thinly. Second, they are maintaining a clear focus on the customer, taking steps to stimulate demand, loyalty and innovation in their customer base. And finally, they are fine-tuning their operational effectiveness by reducing costs without cutting value and collaborating with trusted partners.

Two-thirds of the CEOs are focusing on a few carefully selected initiatives rather than nurturing numerous different ideas. They feel that concentrating your firepower works much better than adopting a scattergun approach. Which pockets of opportunity are the CEOs targeting?

Nearly half are pinning their hopes on organic growth in their existing markets. But CEOs also know that if they want to grow their business, they will have to go where the growth is - Indonesia, Brazil and South Africa (growing and accelerating); and China, India, South Korea, Mexico, Russia and Turkey (growing but decelerating). At the same time, CEOs also realise that large, mature markets (like the US and Europe) will remain attractive for high-value products and services, given their more affluent customers.

Irrespective of the markets they are in, a top priority for CEOs is to grow their customer base. CEOs are trying to attract more customers while focusing on a smaller, more targeted range of growth strategies. This is challenging in the current economic environment as the slowdown has marred consumer sentiment. Between 2000 and 2011, consumer spending in mature markets increased by just 2.1 per cent a year. In growth markets, in contrast, it increased by 5.7 per cent a year.

Improving operational effectiveness is among the top three investment priorities for CEOs this year. Cost-cutting is still high on the agenda: 77 per cent of the CEOs have undertaken cost-saving initiatives in the last 12 months and 70 per cent plan to do so in the next 12 months. But they are not wielding the knife indiscriminately; they are trying to balance efficiency with other strategic effectiveness. Companies are also diversifying their supply chains, after they were hit in the aftermath of the tsunami in Japan.

The global financial crisis and questionable behaviour of some companies have badly damaged faith in institutions of every kind. And this is impacting brand value and performance. Nearly 37 per cent worry that lack of trust in their industry could endanger their company's growth.

To rebuild trust, 56 per cent of CEOs - rising to 72 per cent in West Asia and 76 per cent in Africa - plan to focus more heavily on promoting an ethical culture this year. But they are also keen to develop a more inclusive workforce. They are also strengthening their engagement with stakeholders they see as influential.