Executive Insights: On the Minds of CEOs
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Recent surveys from global and US CEOs provide executive perspective on the prospects for economic growth, company performance, and overarching issues.

As we start a new year, how do CEOs see 2015 and the near term? Two separate surveys, respectively conducted by the Business Roundtable and the Conference Board, provide the views of CEOs as to the performance of the US and global economies, their near-term plans for investment and hiring, and the greatest issues challenging their companies’ performance. DCAT Value Chain Insights (VCI) examines what is on the minds of CEOs.

Tempered outlook for economic growth
The most recent CEO Business Roundtable Economic Outlook Index, which provides a picture of the future direction of the US economy based upon CEOs’ plans for sales, capital spending, and hiring, declined moderately from the third quarter of 2014, with capital spending declining the most. The Business Roundtable is an association of CEOs, whose members lead US companies with $7.4 trillion in annual revenues and more than 16 million employees. Member companies in the Business Roundtable comprise more than a third of the total value of the US stock market and invest $158 billion annually in research and development, equal to 62% of US private R&D spending.

In the fourth quarter 2014 economic outlook, conducted between October 22 and November 12, 2014. 129 member CEOs participated, representing 63% of the total Business Roundtable membership. CEOs were also asked to identify the two most significant factors holding back increased US investment spending. In response, CEOs said that US tax policy and regulatory issues are limiting US investment spending. “The economy ended the year essentially where it started, performing below its potential,” said Randall Stephenson, chairman of Business Roundtable and chairman and CEO of AT&T Inc., in a Business Roundtable press release. CEOs said they expect 2015 gross domestic product growth of 2.4%, unchanged from their 2014 expectation.

Table I details the results for the 2014 fourth-quarter survey and compares it with the 2014 third-quarter results. CEO expectations for investment and sales declined 5.8 points and 1.3 points, respectively. Plans for hiring increased 3.6 points following the 2014 third quarter’s 15.7 point decline. Overall, The Business Roundtable CEO Economic Outlook Index,  a composite index of CEO expectations for the next six months of sales, capital spending and employment,  decreased moderately in the fourth quarter of 2014 to 85.1 from 86.4 in the third quarter of 2014. The long-term average of the Index is 80.3. The Business Roundtable CEO Economic Outlook Survey, conducted quarterly since the fourth quarter of 2002, provides a forward-looking view of the economy by Business Roundtable member CEOs. The survey is designed to provide a picture about the future direction of the US economy by asking CEOs to report their plans for their company’s sales, capital expenditures, and employment in the next six months. The data are used to create the Business Roundtable CEO Economic Outlook Index and sub-indices for sales, capital expenditures, and hiring expectations, representing diffusion indices that range between -50 and 150, where readings at 50 or above indicate an economic expansion, and readings below 50 indicate an economic contraction. A diffusion index is defined as the percentage of respondents who report that a measure will increase minus the percentage who report that the measure will decrease.

In a question posed annually each fourth quarter, 39% of CEOs reported that regulatory costs were the top cost pressure facing their business over the next six months, followed by labor and healthcare costs. Regulatory costs were also the CEOs’ top concern in the fourth quarter of 2013 and 2012.

Table I: The Business Roundtable Fourth Quarter 2014 CEO Economic Outlook Survey*
  2014
Q3
2014
Q3
2014
Q3
2014
Q3
2014
Q4
2014
Q4
2014
Q4
2014 Q4  
CEO Survey Results & Sub-Indices Increase No Change Decrease Sub-Indices Increase No Change Decrease Sub-Indices Change In Indices Q3 to Q4
How do you expect your company’s US sales to change in the next
six months?
73% 20% 7% 116.4 74% 18% 9% 115.1 -1.3
How do you expect your company’s US capital spending to change in the next six months? 39% 51% 10% 79.1 36% 50% 13% 73.3 -5.8
How do you expect your company’s US employment to change in the next six months? 34% 46% 20% 63.5 40% 36% 23% 67.1 3.6
*The fourth quarter 2014 survey was completed between October 22 and November 12, 2014.
Responses were received from 129 member CEOs, 63% of the total Business Roundtable membership.
The percentages in some categories may not equal 100 due to rounding.

Source: The Business Roundtable

 


Strategies for business growth

Another survey of 943 business leaders conducted by the Conference Board, a non-profit research group whose membership includes over 1,200 companies in established and emerging markets, showed that despite weakness in the global economy, CEOs remain focused on seeking high-quality, sustainable business growth—and the strategies they selected to meet their top challenges reveal a longer-term focus on capacity building and the development of strong cultures of innovation, engagement, and accountability within their organizations. According to the Conference Board report, CEOs remain optimistic about profit expectations but must cope with fundamental changes in customer behavior, the emergence of new competitors globally, and a slowdown in emerging market growth and are seeking to counter those issues with investments in effective leadership and quality talent.

“Once again, we found the issue of attracting, retaining, engaging, and growing talent at the top of CEOs’ minds,” said Rebecca Ray, executive vice president and human capital practice lead at The Conference Board and a co-author of the report, in a Conferece Board statement. “Not only was human capital the top-ranked concern on its own, talent- and leadership-based strategies also figure prominently in their responses to other pressing challenges.”

Since 1999, the Conference Board’s CEO Challenge survey has asked CEOs, presidents, and chairmen globally to identify their most critical challenges. In the 2015 edition, CEOs rank human capital, innovation, customer relationships, operational excellence, and sustainability as their top five long-term challenges to drive business growth. With the exception of sustainability, the other four challenges make the top-five list in every region of the globe.

“CEOs have been putting customer relationships at the center of their growth strategies for the past three years in the survey,” said Charles Mitchell, executive director, knowledge content and quality and lead author of the report, in the statement. “Whether in the business-to-business or business-to-consumer space, CEOs say they are keenly aware of the often disruptive impact that changes in customer behavior and motivation have on how and with what products and services they go to market.”

The survey found cybersecurity to be one of the top five short-term issues that require CEOs immediate attention. Especially in the United States, which experienced several widely publicized data breaches, cybersecurity was the second most-critical hot-button issue following changes in customer behavior as the top issue. “While slowing global growth may lead to profitability becoming a source of concern in 2015, CEOs keep placing their focus on growing top-line revenue supported by bringing new products and services to market and leveraging both innovation and technology to improve processes and operational performance,” said Bart van Ark, chief economist at The Conference Board and co-author of the report, in the Conference Report press release commenting on the report.  “Surprisingly, CEOs put less emphasis on cost containment as a source of strengthening profitability.”

The Conference Board identified 10 major trends from its survey (see Table II). One key trend is to combat slowing global growth with executives more focused on growth-oriented, aggressive monetary, and time-investment strategies in intangibles such as business process redesign, improving workforce and leadership skills, and employee engagement and productivity rather than direct cost-containment measures. A second related trend emerges, notes the Conference Board report. While global geopolitical and economic risks certainly impact the business environment, the focus of CEOs in 2015 survey is on internal development of strong cultures of engagement, customer centricity, innovation, and accountability. “They see organizational agility and flexibility as a critical competency and place relatively less emphasis on geopolitical risk. The one exception is Europe, where global political/economic risk ranks first and regional volatility is high among its hot-button issues,” according to the Conference Board report.

With the emphasis on internal operations, a third trend arises, according to the survey. CEOs see success in meeting their most urgent business growth challenges as being linked to the strength of their human capital. Effective use of human capital resources is their top challenge, and their strategies to improve productivity center on greater leadership effectiveness, building a performance culture, providing training to upskill their workforce, and raising engagement, according to the report.

Table II. Top 10 Trends From Conference 2015 CEO Challenge Survey
1. On the offensive against slowing global growth
2. Focus on internal development of strong cultures of engagement, customer centricity, innovation, and accountability.
3. Strengthening human capital
4. Building a stronger and more dynamic relationship with customers
5. Sustainability emerges as a top global challenge
6. A more integrated approach to innovation
7. Increased trust building
8. A lack of emphasis on cross-cultural competency
9. Increasing comfort with Big Data, but continued uncertainty on how to leverage optimally
10. Higher expectations of executives
Responses from 943 business leaders
Source: The Conference Board

 

In addition, CEOs are now placing more emphasis on what their customers are trying to achieve than on what their companies are trying to sell. Judging by the importance they place on customer-centric strategies to meet an array of challenges, understanding changing customer needs is at the center of their growth strategies.

Interestedly, for the first time in the Conference Board survey, sustainability ranks globally among the top-five challenges. However there are considerable ranking variations between regions, with China and India placing it higher than in the United States and Latin America, according to the report. “CEO priorities focus on meeting market demand for socially/environmentally conscious products and ensuring sustainability is part of their corporate brand identity,” according to the report.

A sixth trend is that although technology still plays a role, corporate culture and an engaged and an empowered workforce are seen as key enablers of innovation. This emphasis in turn obliges a more integrated approach involving the human capital function and overall management of intangible assets, from process improvements to upskilling the workforce. “CEOs see an inseparable link between customer centricity, human capital, and innovation, as well as the importance of diversity on innovation teams,” according to the report.

Another trend is the emphasis on building trust. “Even though trust in business is not seen as a top challenge by CEOs, the emphasis they place on fostering trust-building behavior through their high ranking of strategies related to ethical accountability and transparency to meet an array of challenges shows that trust building is viewed as fundamental to growing their businesses,” according to the report.

Of interest, noted the report, was that cross-cultural competence, even among the largest companies, was of relatively low strategic priority, a trend that might be counter to a belief that a lack of cultural coherence presents a major challenge to organizational alignment, performance management and measurement, and the development of effective global leaders.

As would be expected, Big Data is seen as an important issue, but there is still uncertainty as to how to best leverage. Big Data was 2013’s top hot-button issue, and although it still ranks as an issue, it  has moved down in the ranking of issues, indicating increased comfort with the concept of Big Data. However, its strategic value may not yet be fully recognized by CEOs. “For many companies, it is still early in the learning cycle. Processes for gathering the right data and tying it to the bottom line are still in development,” according to the Conference Board report.

And the last important issue relates to rising expectations among executives of their own performance. “CEOs see themselves playing a very hands-on role by personally engaging with key customers and clients as well as government regulators, according to the report.” The report showed that executives regard organizational culture starts with top management and ethical leadership is as a top-three strategy to meet the challenge of achieving trust.

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