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In a post-pandemic world, there are significant growth opportunities for first mover companies that make the right choices now.
Executive summary
- There are growth opportunities in a post-pandemic world – but first, CEOs must understand the key dynamics: geopolitical tensions, supply chain disruption, the role of capital allocation, and sustainability.
Most companies around the world were impacted by the pandemic – but they’re rebounding rapidly. According to the EY CEO Survey 2022, which polled 2,000 global CEOs, businesses are embracing the changes that the pandemic brought, and are actively positioning themselves to capture the upside of the economic rebound.
The survey produced several key trends and imperatives that we believe will drive CEO decision-making in the coming year. In this edition of the CEO Imperative Series, which provides critical answers and actions to help CEOs reframe the future of their organizations, we explore how CEOs are responding to the pandemic and the recovery and offer recommended actions to help them fuel market-leading growth in the year ahead.
CEOs must understand the new post-pandemic world
Most CEOs (86%) were impacted by COVID-19, however out of the disruption came significant growth opportunities for first mover companies that make the right choices now. But first, CEOs will have to understand the emerging ‘new world’ and market dynamics as the competitive landscape gets redrawn across all sectors.
The pandemic was a wake-up call for many companies’ business risk, continuity, digital and tech strategies. It accelerated long term trends into current reality. The major area of focus for South African CEOs is using capital allocation and M&A to swiftly respond to these dynamics. One in four see digital transformation as the single most critical concern on their capital strategy agendas. There is an equally strong interest in pursuing organic growth and value creation by investing in existing businesses.
Geopolitical tensions and supply chain disruption are shifting investment decisions
Many South African CEOs (88%) are proactively reshaping their global operations and supply chains, as well as investing in capacity closer to the end market and end users. This marks the end of a sustained period of globalisation of supply chains, and this is driven by the need to reduce risk and logistic complexity rather than to optimise costs and efficiencies. The world is undeniably facing higher input prices, with the overwhelming majority of CEO’s noting rising costs across transport, logistics, labour, commodities and raw materials.
In addition, geopolitical challenges are forcing many executive teams to adjust strategic investment decisions and capital allocation. We are seeing a return to Cold War era thinking in many spheres, with protectionism and sanctions having a direct impact on the corporate sector’s ability to do business in certain jurisdictions. We expect to see this play out even more across Africa in 2022, with South African CEOs either having already either delayed or halted projects in countries like China, Chile and Kenya.
Capital allocation is a critical aspect of the CEO’s role
CEOs are recognising that many of the strategic decisions they make are, in fact, capital allocation decisions. Investments in new supply chain capacity, new ERP systems, M&A, greenfield businesses or R&D: these are all capital allocation decisions, as are dividend policy and divestment decisions. Recognising that their broader strategy is a capital allocation decision, helps CEOs make use of stronger decision-making processes, resulting in enhanced capital allocation outcomes.
Confidence in growth is returning, spurring investment
CEOs clearly recognise the need to invest now to ensure future opportunities. Practically all South Africa’s CEOs expect to pursue acquisitions in 2022, with three in four (74%) planning to accelerate their cross-border investments. The increase in corporate venture capital, capex and corporate investment all point to companies positioning themselves for growth options.
A key driver of this returning optimism trend is a supportive investor base, which is increasingly willing to sponsor longer-term growth ambitions, so having a clearly articulated narrative is critical for CEOs to build that investor support for their company’s investment plans. In this regard, local CEOs have more support than their global counterparts: 80% of CEOs feel that investors are extremely or at least moderately supportive of their well-articulated long-term investment plans. Having said that, investor activism is on the rise, with 87% of CEOs believing that shareholder intervention is increasing. As a result, CEO’s have to consider a broader range of stakeholders than they may have needed to in the past.
Sustainability is here to stay
CEO Outlook 2022
CEOs are proactively reshaping their global operations and supply chains, as well as investing in capacity closer to the end market and end users
CEOs have long understood that ESG (environmental, social and governance) is not a ‘flavour of the month’, but rather a permanent feature of capital allocation decisions. Most see the upside of having a clearly defined sustainability strategy, and see sustainability as a source of competitive advantage that is fundamental to their long term growth plans. The benefits of investing in sustainability are numerous: a lower cost of capital, greater consumer acceptance, a stronger brand, greater access to talent and lower costs in the longer term as companies transition to low-carbon options.
In the local market there does not appear to be much appetite from CEOs to make use of M&A to accelerate their sustainability ranking or footprint, despite 16% of respondents recognising this as being the third largest risk to growth. This could be due to CEOs still requiring investor buy-in: one-third (30%) of companies face investor resistance to the cost of implementing a sustainability strategy, and more than half (56%) want more visibility of competitors’ strategies before giving the go-ahead.
The bottom line is that we are moving beyond Covid-19 and CEOs who are not yet designing and delivering ambitious investment strategies for growth, risk falling behind in the race to transform themselves as they reach towards attaining long term value.
