FINANCIAL REPORTING AND IR

In a time of unpredictable environmental/climate change risks, high-impact disruptive technology, changing consumer and societal demands, and a volatile geopolitical environment, CEOs are on constant alert as any change can impact their business outlook. In KPMG International’s fifth annual survey, 2019 Global CEO Outlook, we look at new opportunities, challenges and trends identified by CEOs from 1,300 companies, spanning 11 of the world’s largest economies and 11 key industries, including banking, consumer retail, energy and manufacturing.

Survey Findings – ‘Uncharted Waters’

In last year’s Global CEO Outlook, CEOs expressed confidence in their companies’ growth prospects. This trend continues in 2019 with 94% of CEOs showing similar optimism. However, only 62% expressed confidence in the global economy’s three-year growth prospects, a drop of five percentage points from 2018. Interestingly, CEOs’ concerns over a potential slowdown in the global economy have not tempered their own appetites for growth. CEOs are focused on developing organizational resilience to threats and disruption, while keeping their focus on growth.

When surveyed on what CEOs perceive as threats to growth, environmental/climate change risk topped the chart for 2019, up from fourth place in 2018. (Geopolitical risk was the top risk in 2018.) Environmental/climate change risk is followed by emerging and disruptive technology, which is up from third place last year. As CEOs increasingly focus on environmental risk and the need to reduce reliance on fossil fuels, 76% of them stated that their companies’ growth will be dependent on their ability to navigate the shift to a low carbon, clean technology economy.Third place this year is return to territorialism, down from first place in 2018.

With disruptive technology as the runner-up threat, it is interesting that fully 63% of CEOs believe their company is doing the disrupting, rather than being disrupted (up nine percentage points from 2018). CEOs recognize the need to be on the offence in order to survive, even if this entails disrupting their traditional business models, with 71% of CEOs stating that their capacity to challenge and disrupt the norm is fundamental to their company’s growth.

‘Leading in Uncertain Times’

In order to be the disrupter or to capitalize on disruption, CEOs acknowledged that their organizations need to develop a culture of innovation and agility. In order to innovate, and to do so quickly, they understand the need to incorporate the concept of ‘failing fast’ as part of the iterative innovation process. We found that 84% of CEOs said they want their employees to feel empowered to innovate, without worrying about the negative consequences for them if an initiative fails. However, only 56% said their organization currently has a culture where ‘failing fast’ innovation initiatives, regardless of their success, are celebrated. Perhaps not unexpectedly, the ‘failing fast’ culture is more prominent in some sectors than others. For example, 67% of companies surveyed in the life sciences sector, where R&D has long been critical, celebrate this concept.

Another key contributor to continuing success is agility, which is needed in order to be the disrupter or to respond successfully to being disrupted. Two-thirds of CEOs acknowledge that ‘agility’ is the new business currency and companies that fall behind will become irrelevant.

‘Changing from Within’

Cybersecurity – The ability to drive digital innovation is key to unlocking long-term growth. However, concerns over cybersecurity can put a brake on those ambitions. Cybersecurity continues to be a major concern, landing in fourth spot as a top threat (down from second place last year) and it continues to be a factor important to stakeholders. In fact, 69% of CEOs noted that a strong cybersecurity strategy is essential to fostering trust with stakeholders, up 14% from 2018.

Workforce 4.0 – Disruptive technologies — from artificial intelligence to virtual reality — have the potential to transform the world of work. Upskilling of employees for a digital age is now essential for resilience. CEOs surveyed recognize that training their people is key in adapting to the changing business environment, with 44% of CEOs planning to upskill their workforce in new digital capabilities over the next three years.

KPMG’s 2019 Global CEO Outlook provides some interesting insights into the issues and opportunities facing today’s businesses, through the eyes of their leaders, and how they intend to respond. The CEOs we surveyed clearly recognize that they need to react with agility to the changing world they operate in, and with the average tenure of a CEO at five years today, they acknowledge the need to drive even more urgency and for their organization to act with agility.

Charmaine Mak, CPA, CA is a Senior Manager, and Rob Brouwer, FCPA, CPA is Canadian Managing Partner, Clients and Markets, for KPMG LLP in Canada.