Global private businesses reconfigure their supply chains to address risks and build resilience
According to the EY CEO Outlook Survey: October 2022 (pdf), less than a third of global private business CEOs report that the pandemic caused short-term disruption to their industry, 25% fewer than publicly listed company CEOs who say the same. Additionally, 46% more private than public respondents report that the pandemic accelerated existing trends in their industry. However, slightly more global private than public business CEOs acknowledge that the pandemic fundamentally reshaped their industry for the worse.
My experience in talking with clients suggests that all private companies were impacted by the pandemic in one form or another. This was particularly true of their supply chains. Yet while some private businesses are trying to work their way back to where they were at the end of 2019, I don’t believe that’s the baseline from which they should now be setting their future strategy.
Despite a strengthening recovery from the pandemic, new geopolitical risks in early 2022 mean that we are all going to be living in a state of uncertainty and change for a much longer period than previously anticipated. Private companies need to understand what operating in such a transitioning economy might mean, and in particular, what role rising inflation will play.
Global private business CEOs are responding and are already reconfiguring their supply chains to reduce costs, minimize uncertainty and build resilience. Many private companies are still producing the same products and services, but the ways in which they are being manufactured and delivered have shifted.
For example, a fifth of global private CEOs say that their businesses have increased the number of suppliers to increase resilience. Pre-2020, supply chains were configured and optimized for efficiency, but the pandemic laid bare the just-in-time dependencies that can put businesses at risk. Private companies’ ability to understand and react is therefore more important than ever, as addressing these dependencies is increasingly critical, especially in an inflationary environment.
That said, capital continues to be available to private businesses for growth, transformation and M&A from a wide range of capital sources. As much as private companies are building resilience to address the risks, they should also make the most of the available capital to drive their transformation agenda and accelerate growth.
Global private business CEOs see revenue growth and environmental, social and governance (ESG) as critical value drivers
As private businesses don’t have to prioritize quarterly earnings and shareholder returns above all else, they are able to move more to their own rhythm, enabling them to focus more on revenue growth over cost-cutting and capital efficiency as they emerge from the pandemic.
A similar percentage of both private and public businesses (more than a third in each case) claim that not only articulating, but also acting upon their ESG strategy is now the second most important driver of value, after revenue growth. Overall, private businesses are finding that more of their investors are fully supportive of their sustainability strategies than their public counterparts. However, we see regional differences: in the US, for example, fewer private company CEOs rank ESG as a key value driver over the next few years.
Depending on where they are on their ESG journey, private businesses have an opportunity to learn from one another to activate and accelerate their ESG strategy. They need to identify who’s who in their ecosystem, where the ESG leaders are and what they’re doing differently, and then think about how they might work together to jointly achieve their ESG goals.
How private businesses can navigate uncertainty in the months ahead
Here are three key actions private businesses can take right now in order to position themselves for greater agility and resilience in an uncertain and inflationary environment:
- Set a strategy that enables you to pivot and adapt in a transitioning economy.
- Identify dependencies that pose risks to your supply chain and take steps to address them, either by diversifying your supplier base or deepening relationships with existing suppliers.
- Partner and learn from other businesses in your ecosystem to elevate your ESG maturity.