The CEO Imperative: Why transformation tops the agenda for Indian CEOs?

Value creation and digital transformation drive capital strategy of Indian CEOs: EY India CEO Survey 2022

Without question, the COVID-19 pandemic had a significant impact on India in 2021. Yet, as the second infection wave began to recede in the second half of the year, the economy regained its momentum. Today, amidst challenges of inflationary pressures, supply chain issues, and increasing geopolitical conflicts, CEOs in India are resetting their risk radar and reframing their investment strategy for reshaped future, with transformation and sustainability increasingly driving the M&A agenda.

In this edition of the CEO Imperative Series (CEO agenda), we explore how India’s CEOs are responding to the pandemic and the recovery, and offer recommended actions to help them fuel market-leading growth in the year ahead.

Indian companies demonstrate resilience, despite geopolitical headwinds

According to the EY 2022 CEO Outlook Survey, 50% of Indian CEOs acknowledge the pandemic caused short-term disruption to their industry. Geopolitical challenges have further exacerbated a tumultuous period and created additional risks to business operations. However, Indian companies have continued to demonstrate resilience, as Indian economic rebound.

Four of five (80%) of Indian CEOs also acknowledge making adjustments to their global operations and supply chains. For nearly two-thirds (63%), the purpose has been to reduce logistics costs and increase resilience. Based on demonstrated experience, Indian CEOs understand the opportunity to secure their supply chains to achieve a competitive advantage.

This said, Indian CEOs recognize that increasing geopolitical tensions, trade conflicts and protectionism, along with increasing competition from non-traditional competitors and the acceleration of climate change impacts, will pose the greatest risks to their future growth strategy.

• Change from the inside out: Reconfigure internal processes to strengthen operational resilience and the talent agenda, while engaging external ecosystems — suppliers, partners and customers — to position for future growth.
  
• Plan for the next unforeseen shock: Strategize for the next unplanned event to help maintain supply chain security and open channels to customers.

Technology drives the transformation agenda

Indian CEOs have their eye on technology to transform their businesses and protect profit margins. Roughly half (49%) are planning to use technology and automation to improve scalability and replace higher-cost labor roles, as well as digital platforms to increase customer interactions.

Further, as Indian CEOs look ahead to the next five years, they recognize that data and innovation are critical for unlocking new paths to growth. Nearly one quarter (23%) are prioritizing innovative delivery systems and channels for interacting with customers – a sentiment supported their digital transformation intentions. At the same time, one in five (20%) expect to use data more effectively to innovate new products and services.

Yet, while they have one foot firmly planted in the future, Indian CEOs are also aware of the importance of growing for today, with one fifth (19%) saying growth will also come from increasing sales of existing products and services to existing customer segments.

• Shore up the foundation: Consider foundational technology transformation that aligns to your purpose and business objectives.
• Use what you have: Use customer data to help predict changing behaviors and define future strategies.

Indian CEOs see sustainability as a key factor in achieving competitive advantage

An increasing driver of future change will be environmental, social and governance (ESG). Across all sectors we’re seeing a strong desire to accelerate sustainability strategies or realign sustainability priorities.

More than three-quarters (78%) of Indian CEOs identify ESG factors as extremely or more important when it comes to strategic decision-making. Further, 90% consider sustainability as a primary driver of competitive advantage, long-term strategic growth and lower costs.

Individually, 36% of Indian CEOs cite improving environmental impacts on their company’s activities as their top objective in the year ahead.

• Learn what you don’t know: Understand the unique set of ESG challenges so that you can effectively design and realize your sustainability objectives.
• Make sustainability make sense: Clearly communicate to investors the business case for creating long-term sustainability and ESG value.

Transformation ambitions drive M&A

In addition to their traditional M&A focus on acquisitions that increase operational capabilities and bolt-ons that increase market share, more Indian CEOs (22%) are planning to use M&A boost technology, talent, new production capabilities or innovative startups than global CEOs (14%). 

Keeping their eyes on the future, while the proportion of Indian CEOs planning M&A to strengthen ESG performance in the next 12 months remains relatively small, 96% of Indian CEOs are proactively considering sustainability as a motivating force for M&A. Sustainability factors driving their M&A agenda include KPIs for long-term value creation, and improving their ESG ratings to attract investors, who are increasingly considering ESG performance in their decision-making.

Additionally, more Indian CEOs (11%) are considering transformative deals to transform their business models than their global peers (7%).

• Buy vs. build: Determine which approach is the best option to accelerate digital transformation or boost your ESG rating.
• Beware of affinity bias: Understand synergies and risks from unfamiliar assets that differ from your core business.