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What worries CEOs most? 

By Neil Amato 
January 28 2013

Three major worries are keeping chief executives up at night, but three main strategies are helping them rest easier in an ever-changing business world.

The top concerns are global economic uncertainty, government response to debt and deficit, and overregulation, according to Dealing With Disruption: Adapting to Survive and Thrive, the 16th version of PwC’s annual CEO survey, which was released Wednesday.

The survey of 1,330 CEOs from 68 countries also laid out the tactics to counteract those obstacles: targeting pockets of opportunity, concentrating on the customer and improving operational effectiveness

CEOs’ top worries

Uncertain or volatile growth tops the CEOs’ list of economic or political trepidation – 81% expressed concern. Also, 71% are concerned about government response to debt, 69% worry about overregulation, and 61% are concerned about capital market volatility.

When asked about the top threats to their business, CEOs cited increasing tax burden (62%), followed by the availability of talent (58%), and the cost of energy and raw materials (52%).

Major social unrest (75%) tops the list of scenarios that would have the worst impact on CEOs’ companies. A recession in the US (67%) is second, followed by a cyber-attack or major disruption of the internet, and a natural disaster. An earlier PwC survey focused on the ways companies are trying to better prepare for natural disasters and other events outside their control.

“When people ask me, ‘What’s going to happen in the next five years?,’ I throw up my hands and say, ‘I have no idea and neither do you,’ ” Peter Tortorici, CEO of GroupM Entertainment, said in the report. “How do you cope with that degree of uncertainty? Well, I think, first, by having the right attitude about the process of change and reinvention.”

So, how are executives planning to change and reinvent?

Targeting pockets of opportunity

CEOs are “focusing on a few well-chosen initiatives, primarily in their existing markets, to stimulate organic growth,” according to the report. “They’re more wary about entering new markets or engaging in mergers and acquisitions (M&As) and diluting their resources too much.”

Indeed, the appetite for M&A in the next 12 months appears to be less important than making gains in existing markets; 49% of CEOs say they’ll pursue organic growth in existing domestic or foreign markets. Eight per cent plan to start new operations in foreign markets, and 17% are planning mergers, acquisitions or joint ventures as a growth strategy.

Instead of supporting numerous ideas, the report says, a majority of CEOs (two-thirds) are focusing on a few initiatives to avoid spreading themselves too thin. In other words, companies are sticking with what they know, in the markets they know.

“It’s very easy to just go off and think you can do things that you do well in many countries around the world which arguably need some of your skills,” Steve Holliday, CEO of international energy distributor National Grid Group Plc., said in the report. “We’re very, very conscious of making sure we don’t overreach ourselves.”

Concentrating on the customer

Slightly more than half (51%) of CEOs said that growing their customer base is a top-three investment objective in the next 12 months. They plan on doing that by evaluating the purchasing power and preferences of customers – not just how they’re behaving today but how they’ll behave in the future.

The report says that 49% of CEOs see shifts in consumer buying patterns as a serious business threat.

Also, 82% plan to make changes in their customer loyalty and retention strategies. This can be done any number of ways, but better interaction on social media is one, which the report speculates is one reason 75% of CEOs plan to increase technology investments in the next 12 months.

Improving operational effectiveness

Even as companies have been forced to embrace a leaner approach during an extended economic downturn and slow recovery in the past five years, cost-cutting remains top of mind for most CEOs. More than three-fourths (77%) have undertaken cost-cutting initiatives in the past 12 months, and 70% plan to do so in the next 12 months.

“They’re not wielding the knife indiscriminately; they’re trying to balance efficiency with other strategic objectives,” the report says.

“Downsizing is not a goal in itself,” Artem Konstandyan, CEO of Promsvyazbank, a Russian bank, says in the report. “We’re trying to streamline our operations and improve staff performance.”

Chief executives are trying to cut costs without cutting value. They worry that trimming the workforce too much can backfire: 25% maintained current staffing levels in the previous 12 months, and 48% have added staff.

Looking ahead to the next 12 months, 47% of CEOs will consider restructuring in the form of entering a new strategic alliance or joint venture, and 31% plan to outsource a business process or function.

Still a dim view on the economy

These potential moves come as CEOs remain concerned about the global economy, though with a less dire outlook than a year ago. The survey showed that 28% of respondents believe the economy will decline further in 2013, and 52% say it will remain the same. Last year, 48% of CEOs predicted the global economy would decline.

About their own businesses, 36% are “very confident” about growth in the next 12 months. That’s down from a year ago, when 40% were very confident.

Regionally, confidence varied greatly. In Russia, 66% of CEOs were very confident about short-term growth in their own companies, followed by India (63%) and Mexico (62%). US CEOs were far down the list, with 30% being very confident, and just 22% of UK CEOs were very confident.

Related CGMA Magazine content:

Four Lessons to Learn From High-Performing Companies Worldwide”: What lessons can be learned from high-performing companies’ successful navigation of rough economic times?
 
Finance Executives Worldwide on Alert About US Debt Issues”: Global finance executives are keeping a close eye on the US Congress and its strategy for handling the nation’s debt ceiling and spending. A possible short-term solution could create long-term uncertainty for their businesses, a new survey of 1,300 CGMA designation holders shows.

Neil Amato (namato@aicpa.org) is a CGMA Magazine senior editor.

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