Bouncing back with optimism and caution
We've endured a year of disruption and uncertainty. We are at a point when business leaders know things must get better, but know as well that the road to recovery is paved with threats to progress. A return to growth is predicted after the reversals of 2020, and signs of confidence are giving a sense that there is light at the end of the tunnel.
I'm delighted to present the findings of our CEO Survey 2021, the 24th time our global exploration of business leader sentiment has been conducted. We've captured the views of 153 Irish CEOs, and 5,050 global CEOs, a larger sample than in many recent years. When the survey was conducted in January and February, there were some shoots of hope emerging from the cracks caused by COVID-19. Vaccination roll-outs had begun, and the IMF was predicting that the global economy would grow 5.5% in the year ahead, while the Central Bank expects the Irish economy to grow by 2.9% in 2021, and 3.6% in 2022.
We can see from our survey that CEOs are looking past the horizon of the most turbulent of times in a generation, albeit with a healthy dose of caution. While they see our economy coming back from a virtual standstill, they also see the ways they have responded to the pandemic presenting their own challenges. Rapid digitalisation and home working brings with it cyberthreats, reduced revenue means headcount considerations, and ESG challenges such as climate change will drive the next wave of transformation.
Now is a time for business leaders to take a step back and think, what can we learn from the past year and how do we do better in the future? We have seen the power of trust, transparency and collaboration in the last 12 months. Cybersecurity requires strong governance and shared responsibility across your business while remaining aware of the complexities of digitalisation. Climate change action needs businesses to develop and implement net-zero, science-based targets and show stakeholders and clients that the strategy is more than lip service.
The resilience and fortitude that has shone through since last March remains bright. CEOs are confident in their organisation's ability to endure. It is time to think beyond and evaluate decisions and actions against their societal impacts as well as their business results.
As we look at the results of this year's survey and the issues and considerations they raise, we're here as always to help you manage the risks and realise the opportunities.
Feargal O'Rourke, Managing Partner, PwC Ireland
Confidence is rebounding from almost record low levels in the wake of COVID-19. The majority of business leaders expect national and organisational growth in the next 12 months. Organic growth and internal resilience remain business priorities.
In spite of positivity, there are anxieties around the threats that abound in the disrupted environment. Overwhelming numbers of CEOs are concerned about health risks, cyberthreats and over-regulation.
The threat of climate change is not being faced with enough seriousness. Only a third of CEOs have factored it into their risk management strategies at a time when action now is paramount.
Compared to last year's pessimistic outlook, Irish CEOs believe the economy will bounce back in 2021. While 62% said they felt the global economy would decline in 2020, this year only 20% said they believed that would happen. At a time when the local and global economy can only improve, it's unsurprising that this is what business leaders foresee. Their optimism is consistent with forecasts from the likes of the European Commission, who project that the EU economy will grow by 3.7% in 2021.
International CEOs polled in this year's survey also reversed the downward trend of recent years. The results show a 54% increase in those who expect growth to increase in 2021. Although the Irish results mirror that increased optimism, Irish CEOs remain more cautious about the prospects for our own economy. 49% are favourable about growth in the Irish economy. This is very positive and an increase of 33% from last year's low of 16%, the least favourable result in nine years.
In contrast to their cautious optimism about the possibility for growth at a national level, Irish CEOs are much more certain about expectations for their own businesses. 82% of Irish business leaders feel their organisations' revenue growth will increase in the next 12 months, up from 67% last year. A third are very confident about their potential for growth. Coming from such a low base and the shocks of 2020, it is arguable that this is an inevitable result. But it shows that the resilience business has demonstrated in the last year is translating into confidence in the future.
❛❛82% of Irish business leaders believe their organisations' revenue growth will increase in the next 12 months❜❜
A more positive sentiment is apparent from the Irish and global results around the prospect of economic growth in 2021. After years which saw a downward trend, in the wake of COVID-19 CEOs clearly believe that an improvement is on the horizon.
COVID-19 has affected different industries in different ways, as restrictions changed the way we all work, live, move and shop. Every business leader has seen their organisation changed, in fundamental but distinct ways. This is reflected in CEOs' confidence levels. The hospitality, leisure, transportation and logistics sectors reported the lowest confidence levels in this year's survey. Technology CEOs are the most confident of all, a natural byproduct of the pandemic's digital acceleration. Sectors that saw favourable changes in consumption patterns also have a positive outlook.
Taken across a large number of industries, there is a common pattern of reinvention as the vaccine rollout continues. Flexible working models may become a permanent fixture for a range of roles including sales, finance and technology. Striking the right balance will be more challenging in industries such as hospitality, transportation and retail. Irrevocable business model changes will need to be matched by significant shifts in ingrained customer behaviours and employee ways of working.
We will be looking in more detail at the perspective of different industries in the weeks ahead.
❛❛While two-thirds of technology leaders expect to grow revenue in the next year, only 39% of transportation leaders are so confident❜❜
The results of the survey reveal that there is some distance between the confidence of business leaders in different sectors. While technology and pharma CEOs are very confident about the growth prospects in the next three years as they crest a wave of influence in these disrupted times, there is not the same optimism in the hospitality and logistics sectors.
In spite of their ongoing concerns about the impact of Brexit, Irish CEOs still believe that the UK is the most important country to trade with when it comes to their growth prospects in the next 12 months.
While it's positive that a Brexit deal has been agreed, understanding and navigating the new trading rules and regulations will put significant pressure on Irish businesses already reeling from the effects of COVID-19. Additionally, there is no agreement on equivalence in financial services, and data privacy concerns remain to be addressed.
Despite these challenges, Britain remains the leading territory for trade for almost half of the Irish organisations polled in this year's CEO Survey. Our other European Union partners including Germany and France remain strong in the rankings, too.
❛❛45% of Irish business leaders see the UK as the country most important to their growth in the next year❜❜
According to the survey, 45% of Irish business leaders share that opinion, up by two points since 2020. In spite of Brexit, there is no doubt as to who is our most important trading partner. Despite recent challenges around the operation of customs and tariffs, there is no sign of Britain's importance to our national economy diminishing.
Organic activities and operational efficiencies remain top of the list of activities CEOs will use to ensure their growth in the next year. This trend toward keeping your business' future in close control has been present in our survey results for several years now. At a time when business leaders have been managing immediate issues as the pandemic has developed, organic growth as the means of controlling your destiny is becoming more of a focus.
To achieve and sustain organic growth requires an engaged and able workforce. Employees need to adapt and evolve with their organisation. We have seen significant and successful pivots from businesses across Ireland in the last 12 months, borne of necessity in the wake of the pandemic.
We asked business leaders to say which aspect of their workforce strategy they will change to improve competitiveness. Almost half identified their priorities as being on improving workplace culture and behaviours, while 31% identified the importance of staff engagement and communications. A third said that they were prioritising the skills and adaptability of their people, while 37% said that they were seeking to boost their organisation's competitiveness through digital investments in the workforce. They aim to focus on productivity by making investments in technology and automation.
❛❛58% of CEOs in Ireland expect their headcount to increase in the next 12 months❜❜
Organic growth operational efficiencies remain the top growth drivers for CEOs. But there is a six point drop in their intention to launch a new product or service and a four point drop in their intention to enter a new market. This shows a resistance to change what is working, and a reticence to risk a more expansive business strategy.
Despite confidence in their businesses and optimism for the economy, CEOs are very clear about the threats they face in the external environment. The pervasive anxiety of the last 12 months has affected the outlook of business leaders as much as anyone else.
Unsurprisingly, pandemics and other health crises is the number one threat to growth prospects. This is the first time that this threat has been included in the survey for six years, at which time only 9% of global CEOs felt it would be of concern.
Cyberthreats have moved to number two in the list of threats. Again, it is not unusual to see the reasons for this trend. At a time that has seen increasing digitisation and blanket remote working in most sectors, there are increased and inherent security risks involved in that technological transformation.
Misinformation as a concern for business leaders has almost doubled in the course of a year, rising from 36% to 71%. To counteract its potential to disrupt their businesses, leaders need to be able to generate and stand over verifiable facts built on robust data.
Although there is considerable anxiety about these threats and the negative impacts they can have on their businesses, many CEOs do not appear to be looking at the problems head on. While there is acknowledgement of the issues, Irish CEOs are lagging behind their global counterparts, who are more serious about significant investment in key areas of business. Almost half of global leaders intend to invest double digit figures in digital transformation compared to 41% in Ireland. They need to make significant investments in the types of protections and solutions that would mitigate the risks.
For example, we are all aware of the huge increase in digitalisation in business necessitated by the pandemic. The infrastructure needed to enable this transformation brings with it significant cyber-risks. But only 27% believe they will increase their cybersecurity and data privacy initiatives and investment to the same extent. Whether CEOs have the appetite to invest in ways to mitigate the myriad risks facing them now is unclear, but the time is now to ensure your organisation's safety.
❛❛Irish CEOs are extremely concerned about the impact of health crises, cyberthreats, over-regulation and climate change❜❜
CEOs are clear about the threats they face. Although there is considerable anxiety about them and the negative impacts they can have on their businesses, many CEOs do not appear to be looking at the problems head on or planning to make a significant investment in the types of protections and solutions that would mitigate the risks they find most concerning.
There would appear to be a stalling in the response of business leaders to one of the most pressing threats of the modern age as they face another. Although CEOs' concerns about the impact of climate change has risen to an all-time high, this barometer has scarcely moved since last year before the pandemic.
Although 78% see the importance of recognising environmental deterioration, how that sentiment relates to a more specific question makes interesting reading and raises questions about the level of commitment to making those changes to help save the planet.
Although the results of the survey show that Western Europe is one of the global leaders in effecting transformative climate activities, only 32% of business leaders in Ireland said that they had factored these actions into their risk management planning activities at a time when making them central to strategy is essential.
Backing up these concerns is the result that only 20% expect to invest a double digit amount in their sustainability and ESG initiatives over the next three years. At the same time, 47% of Irish respondents admit that they should be doing more to measure and report their organisation's environmental impact. Achieving net-zero emissions requires appropriate levels of attention and funding. Making that a reality needs the type of investment that can turn around years of embedded cultural and operational behaviours.
Although a majority of those polled believe that the Government's recovery plan will include consideration of long-term environmental goals, climate change should be both a Government and a business priority.
❛❛Although 78% of CEOs are concerned about climate change, only 32% have factored it into their risk management strategy❜❜
The European Commission Disaster Risk Management Knowledge Centre says that CEOs in countries with the highest natural hazard exposure, like Ireland, are some of the least prepared for climate change risk. It is very concerning that only 32% of business leaders have factored environmental strategies into their risk management activities.
Based on the evidence of the survey results, what key considerations should business leaders have in mind as they look to the year ahead?
Embrace the constructive elements of fast decision-making developed during the pandemic. Look at your whole operating model and see what you can change for the better. Engage with all your people and foster a sense of purpose and possibility. There is an opportunity now to create a brighter future.
The pandemic saw organisations pivot because they had to. Rapid and decisive change is possible. There has never been a better time to make fundamental changes. Make your business fit for the future, because it's happening now. You need to invest in transformation and your workforce or risk getting left behind.
If the last 12 months has taught us anything, it is that strong risk management frameworks and crisis response strategies are essential. Review the threats facing your business. Have action plans in place and ready to implement. Reassess and stress test them to ensure you won't be caught out in a future crisis.
Putting in place tangible, sustainable and forward-thinking environmental measures is critical now. Commit to net-zero targets, develop a strategy to achieve them, and plan how you are going to communicate your progress to stakeholders and clients.