2013 CEO Pulse Survey...

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Irish CEOs feeling more positive – while still tackling business challenges

2013 CEO Pulse Survey

PwC’s 2013 CEO Pulse Survey, launched today, reveals that despite ongoing challenges, the business confidence sentiment level on the Irish economy is on the increase and is at its highest level since 2007. Nearly a third (31%) of CEOs are favourable about the outlook for Ireland’s economy compared to just under a quarter (22%) last year. On a similar note, nearly half (44%) of Irish CEOs are favourable about the outlook for their own businesses with many expecting revenue (56%) and profit growth (53%) this year. Capital investment is on the increase with 43% of CEOs now planning to invest compared to 33% last year. Important areas of focus for CEOs in the year ahead are the availability of key skills and staying closer to their customers. Surprisingly, fewer respondents than last year expect employment levels to grow (2013: 34%; 2012:40%). Overall, Irish CEOs are more concerned than their European counterparts on a range of economic and business threats, with much potential change still on the agenda. The survey highlights three priority areas:

Targeting growth opportunities in markets they know: Irish business leaders are actively looking for growth opportunities but sticking to tried and tested markets. With higher levels of capital investment, over half (55%) of respondents plan to expand their market footprint in existing foreign markets. It is encouraging also that over half (56%) anticipate further expansion opportunities in the domestic market. They realise that growth is not just about revenue growth, with significant focus on the bottom-line impact and approach to market development and expansion.

Fine-tuning operations: The focus is very much on finding the right balance. While cost control is still high on the agenda, at the same time CEOs are investing in their businesses and looking for value. They are not wielding the knife indiscriminately; they are trying to balance efficiency with other strategic objectives in an effort to streamline operations and improve performance. For example, while half of survey respondents are planning cost reduction initiatives, the majority are planning to increase investment in technology (74%) and innovation (56%).

Dealing with the skills mismatch: The survey confirms that the lack of availability of key skills is more pronounced in Ireland (60%) than in Europe (47%). It is not surprising, therefore, that a third of Irish CEOs report this shortage to have significantly impacted their company's performance. However, they're also addressing this challenge with more Irish CEOs (73%) planning to increase investment in creating and fostering a skilled workforce compared to their European counterparts (54%).

Launching the survey, Richard Bruton, T.D., Minister for Jobs, Enterprise and Innovation said: “Over the past two years this Government has been implementing our plan to bring growth and jobs back to the economy, putting in place for example more than €2billion in non-bank funding for business. While it is clear that many challenges remain, we have been seeing increasing signs of optimism in recent months, with 2,000 jobs now being created every month in the private sector. This PwC survey, which is a valuable insight into the challenges and opportunities facing businesses across the country, confirms that while significant difficulties remain to be overcome, significant progress is being made. With continued strong implementation of our plan I am determined to ensure that we can build on this progress and accelerate growth and job-creation in the economy”.

Speaking at the survey launch, Ronan Murphy, Senior Partner, PwC said: “Despite ongoing challenges, Irish businesses are actively looking for growth opportunities. At the same time, they are sticking to what they know best, investing in their businesses, while trying to balance efficiency and value. Consequently, they are emerging more agile and resilient. As an exporting economy, our recovery will depend on the extent of the pick-up in the economies with which we trade.”

Overwhelming confidence in foreign direct investment
The survey confirms Ireland’s attractiveness as a location for foreign direct investment. An overwhelming majority (84%) of MNC CEOs with Irish operations reported that they are either increasing or holding their investment in Ireland, up from 72% in 2011. Of this, a third (34%) is considering increasing this investment. The top two factors critical for increasing and/or maintaining FDI investment are retaining our 12.5% corporate tax rate (42%) and improved cost competitiveness (42%).

Customer growth/retention strategies is the top area for change
Customer growth/retention strategies (81%) is the top area singled out for change in the year ahead. This may be a reaction to the fact that nearly two-thirds (64%) see the shift in consumer behaviour as a critical factor for business growth. CEOs realise the importance of getting the customer on-side. They are taking active steps to stimulate demand by creating new offerings and leveraging emerging marketing platforms and digital channels. Change continues to be very high on the agenda and other key areas are: organisational structure (77%); increasing technology investment (74%); strategies for managing talent (72%); approach to risk management (60%) and increasing R&D and innovation capacity (56%).

Other key findings include:

 
  • 31% are confident in the outlook for the economy compared to 22% last year and is at its highest since 2007; 44% feel favourably on the outlook for their own businesses, similar to last year; 14% are very confident in revenue growth in the year ahead compared to 27% for their European counterparts;
  • 56% are planning revenue growth (2012: 59%); 53% are planning profit growth (2012:54%);
  • 43% are planning capital investment, up from 33% last year;
  • More CEOs (46%) expect costs to increase compared to last year (2012:43%). Nearly two-thirds (64%) report that energy and raw material costs are a significant threat to business growth;
  • 32% anticipate export volumes to increase by more than 10% in the next 3-5 years; a further 21% expect these volumes to grow by more than 5%; The top export markets are the UK, Western Europe and North America; understanding the local regulatory regime is the top challenge for exporters;
  • 92% of CEOs said that uncertain economic conditions is the top external threat for business growth;
  • An overwhelming majority (86%) said that the top business threat by far is the increasing tax burdens specifically on employees and is a much greater concern when compared to their European counterparts (59%);
  • 80% said over-regulation was also a concern, compared to 59% for their European counterparts;
  • A third (33%) said that talent constraints significantly impacted their company’s performance compared to just under a quarter (22%) last year; CEOs are addressing this with 72% planning to change their talent management strategies in the year ahead;
  • Most CEOs (85%) are satisfied that HR is partnering with the business to proactively manage the talent agenda, with 22% being very satisfied.

Also speaking at the launch, Paul Tuite, PwC Advisory Leader, added: “A key challenge emerging from the survey is the availability of key skills and this may reflect the quantity and quality of the talent supply and shifting skills requirements. Addressing the skills gap will be critical to ensure that Ireland does not lose out as more growth opportunities come on stream. The key challenge for business will be in defining what these new capabilities look like and how business leaders, working with HR, can accelerate the development of these future skill needs. Effective talent management programmes, that are properly measured, can have a huge impact on redirecting key talent to the areas needed most and such programmes can go a long way to addressing the skills gaps identified.”

Evaluation of individual Director performance is an important area for focus by the Board
The survey reveals that the top area the Board needs to address, given the heightened focus on corporate governance, is the evaluation of individual Director performance (39%) and this has been replaced ‘overall Board performance’ from last year. However, over half (53%) said that executive performance-based pay models are not working as intended while 43% agreed that executive incentive pay structures are now too complex. It is of little surprise that half (49%) reported that they are changing the way they set executive pay in response to shareholder and public reaction. This reflects the heightened scrutiny on this facet of business and the intense spotlight on the alignment needed between effort, results and reward. The responsibilities of boards, and in particular remuneration sub-committees, to ensure that a robust approach to reward is in place have never been in sharper focus.

Reducing public sector costs is the top priority for Government
Over half (54%) of Irish CEOs are of the view that the top Government priority in the year ahead should be reducing public sector costs, up from 47% last year. The second most important priority, according to 52% of business leaders, is job creation, up from 46% last year. The importance of reducing personal taxes has increased by 18%, while the importance of fostering a skilled workforce has increased by 10%.

MNC CEOs slightly more positive on the economy and on their own businesses
Over a third (34%) of MNC CEOs are favourable about the outlook for the economy compared to 29% for their Irish headquartered CEOs. Nearly half (47%) of MNC CEOs are positive about the outlook for their own business compared to 41% for their Irish based counterparts. Other key variations included:

  • More MNCs are also confident on revenue growth (MNCs: 63% v Irish:50%);
  • The inability to finance growth (70%) is a far greater threat for Irish headquartered CEOs compared to their MNC counterparts (31%);
  • The MNC community are more likely to implement cost reduction initiatives (60%) compared to their Irish headquartered counterparts (48%);
  • Talent constraints are impacting Irish headquartered CEOs (38%) more severely than their MNC counterparts (28%).

Ronan Murphy concluded: “Continuing to support our domestic economy remains a key priority for business leaders with some positive signs emerging. Continuing efforts to support job creation and ongoing investment in technology and innovation will also help this sector as it begins its way towards a recovery.”

Ends

The survey was carried out in May 2013 and had over 225 Irish participating CEOs across all industry sectors employing approximately 100,000 people.