Ceosurvey

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Ceosurvey

  1. 1. www.pwc.com/ceosurveyGrowth reimaginedProspects in emerging marketsdrive CEO confidence
  2. 2. Contents1. 14th Annual Global CEO Survey2. Indepth CEO Story: Interviews3. CEO interview transcripts4. Executive summary5. Communications industry summary6. Entertainment & Media industry summary7. Engineering & Construction industry sum8. Pharmaceuticals & Life Sciences industry9. Retail industry summary10.Technology industry summary
  3. 3. www.pwc.com/ceosurvey Growth reimagined Prospects in emerging markets drive CEO confidence14th Annual GlobalCEO SurveyMain report
  4. 4. Foreword Confidence is back – say CEOs in PwC’s 14th Annual Global CEO Survey. Chief executives were nearly as confident of growth this coming year as they’ve ever been in our survey. But with much of Europe and North America still confronting the lingering effects of the downturn, many companies in search of sustainable economic growth are focusing their sights on specific markets far from home – where recoveries are strongand the outlook is stronger still. In ‘Globalisation reimagined’, the survey exploreswhere CEOs see growth coming in 2011 and just how they plan to achieve it.Realising growth aspirations won’t be easy – thriving in a multi-speed recovery is anew undertaking for CEOs – one that demands different approaches and attitudes.CEOs are already shifting strategies in areas like talent and innovation andreconsidering the upside of working more closely with partners and governments.Bottom line – companies will not only be affected by this multi-tiered recovery;their targeted investments will help shape the path of globalisation. There aregreat opportunities ahead for those who anticipate how business is changingand creatively search for value in new markets.I want to thank the more than 1,200 company leaders and government officialsfrom 69 countries who shared their thinking on these difficult issues. The demandson their time are many and we are greatly appreciative of their involvement. I amparticularly grateful to the 31 CEOs who sat down with us in the last quarter of 2010for a more extensive conversation and provided additional context to our findings.The tremendous success of the PwC Global CEO Survey – now in its 14th year –is directly attributable to the enthusiastic participation of leaders around the world.We at PwC are very proud of that ongoing commitment.Dennis M. NallyChairman, PricewaterhouseCoopersInternational
  5. 5. ContentsIntroduction .........................................................3Targeting emerging markets ................................4Putting customers at the centre of innovation.......9Bridging global skills gaps ..................................13Achieving shared prioritieswith government ................................................18Globalisation reimagined ...................................22Final thoughts from our CEO interviews ............23Research methodology and key contacts ............30Acknowledgements ............................................31Related reading ..................................................32 14th Annual Global CEO Survey 2011 1
  6. 6. 2 14th Annual Global CEO Survey 2011
  7. 7. Introduction The 1,201 chief executives in 69 outlooks. This year, they have set their countries we polled for our 14th Annual targets on more immediate growth, Global CEO Survey were nearly as in particular, by growing revenues in confident in their outlook for revenue regions where recoveries are strong and growth over the coming 12 months as the promise stronger still. And those in the boom years before the crisis regions are not always close to home. (see Figure 1). The rise in short-term confidence holds true among CEOs CEOs in our survey also identifiedJust two years after from all regions. three focal points to drive strategic change internationally: innovation,the depths of the worst High levels of confidence in light of talent and a shared agenda witheconomic crisis in continued uncertainty in several major government. In all three areas, they75 years, CEOs have a economies are surprising. Yet, CEOs pointed to new attitudes and approaches, honed their cost discipline during the tailored to deal with the issues of therenewed optimism. recession, driving a patient optimism multi-speed global recovery that they about their prospects when global hope is now underway. growth returned. This can be seen in the high confidence CEOs reported last year in their three-year revenue growthFigure 1: CEOs prepared for recovery in 2010 and expect growth in 2011Q: How confident are you about your company’s prospects for revenue growth over the next 12 months/3 years? 60% 52% 51% 50% 50% 50 41% 48% 40 44% 42% 34% 30 31% 31% 26% Very confident about company’s 20 prospects for revenue growth 21% over the next 12 months over the next 3 years 10 0 2003 2004 2005 2006 2007 2008 2009 2010 2011Base: 2011 (1,201), 2010 (1,198), 2009 (1,124), 2008 (1,150), 2007 (1,084), 2006 (not asked), 2005 (1,324), 2004 (1,386), 2003 (989)Note: Percentage of CEOs who are very confident about their companies’ prospects for revenue growthSource: PwC 14th Annual Global CEO Survey 14th Annual Global CEO Survey 2011 3
  8. 8. Targeting emerging markets The divergence within the global‘The key point about Asia is that there is no real need for economy is one of the main reasons why most CEOs (84%) say they’vecapital to come into that market. Rather, the emphasis is on changed their company strategy in thewhat sorts of technology enhancements are needed there. past two years – with a third of themHow can Asian labour work smarter and more efficiently? describing the change as ‘fundamental’. Only half the world is growing at aHow can Asian operations deliver added value to a global robust rate. Although the Internationalmarketplace that is already well served? I think that’s what Monetary Fund (IMF) forecasts globalthe CEOs of the world are thinking about. Being in Asia for growth at 4.2% for 2011, developed countries – which make up 52% of theits own sake is entirely pointless – and a great way to world economy – are growing at onlydestroy value.’ half that pace. In contrast, emerging markets are booming, with Indonesia,Nicholas Moore India and China all forecast to growCEO, Macquarie Group Limited, Australia faster than 6%.1 So where CEOs expect to grow is notable. While 83% of Western European CEOs are at least ‘somewhat confident’ of their overall revenue growth prospects in 2011, for example, 41% see only low growth opportunities for their companies at home. They’re confident because growth will come Figure 2: Growth to come in emerging markets’ operations, regardless of location Q: In the next 12 months do you expect your key operations in these regions to decline, stay the same or grow? Region of operations Company Africa Asia Austral- Eastern Latin Middle North Western headquarters asia Europe America East America Europe Africa 93% 89% 33% 100% 100% 75% 29% 36% Asia-Pacific 73% 88% 77% 40% 80% 70% 40% 32% CEE 80% 87% 83% 73% 80% 55% 71% 69% Latin America 67% 86% 18% 59% 86% 47% 48% 31% Middle East 70% 100% 50% 0% 0% 85% 25% 0% North America 64% 94% 71% 67% 80% 73% 67% 51% Western Europe 72% 92% 57% 75% 86% 75% 55% 48% 0% 100% Base: Respondents who reported operations in said region (168-672) Note: Percentage of respondents who expect to grow their key operations in the region. Source: PwC 14th Annual Global CEO Survey1 IMF World Economic Outlook (October 2010). Estimates for shares of the world economy made on a purchasing power parity basis.4 14th Annual Global CEO Survey 2011
  9. 9. from other regions: 92% of Western Many of those competitors will come to further expand our overseas networksEuropean CEOs expect growth in their from other emerging markets; ‘south- through a range of strategic options thatAsian operations, while only 48% expect south’ trade (i.e. trade among emerging include establishing additionalgrowth in their Europe operations. On markets) will expand. ‘Earlier, Europe branches and considering select mergerthe other hand, CEOs from Asia-Pacific and the US were our major export and acquisition opportunities,’ said Liand Latin America were more likely to markets. Today, they are minor markets Lihui, President of the Bank of China.expect growth in their own regions than for us and the Latin American and ‘Regardless of the approach, though, ourelsewhere. In both cases, this likely African markets have become more objective is to improve the efficiency andrepresents a break from the recent past, important,’ Sajjan Jindal, Vice Chairman profitability of our overseas operations.’when consumption in developed and Managing Director of India’s JSWmarkets was a primary driver of growth. Steel, said. ‘That has been a huge change for us.’‘Any industrial company – if they’regoing to be a global leader – has to have Although CEOs expressed fears of ‘Throughout the world,a large presence in emerging markets,’ protectionism coming into 2010, tradeEd Breen, Chairman and CEO of barriers overall appear to be coming new markets are developing.Swiss-based industrial conglomerate down. As a result, emerging markets We’re soaring in WesternTyco International, said in one of are becoming hyper-competitive Europe, and the Far East,31 in-depth follow-up interviews we battlegrounds for global companies.conducted (see the appendix for some Many of the toughest competitors are Eastern Europe and Latinadditional commentary from the CEOs making reasoned bets in key markets, America are beginning towe interviewed). ‘Fifteen percent of signally intensifying competition in the buy more. So we’re seeingour revenue right now is coming from regions experiencing the most growth.emerging markets, and we’re looking to Sixty-four percent of automotive CEOs a great internationaldouble that in the not too distant future. named China as important for their marketplace for our content.’It’s an opportunity that you have to growth, 25 percentage points highertake very seriously.’ than the global average. Revenues are Leslie Moonves rising steadily for public companies in President and CEO,High expectations are placed on Latin China – but competition is pushing CBS Corporation, USAmerica and Asia (see Figure 2), and margins down.3 So companies needmost clearly, on China. China is likely to approach markets with a carefulto overtake the US as the world’s largest eye on their operating models if theyeconomy within the next 25 years.2 want growth that is profitable andSo 39% of CEOs named China as one of sustainable. That’s true in all markets,the three countries most important to not just in China. ‘In the future, we hopetheir company’s growth. And they’rebeing very selective in choosing specificmarkets, rather than adopting ashotgun approach to entering emergingmarkets all at once. ‘The current situation in the financialStill, the net effect is growth spreadingacross emerging markets, and beyond markets has significantly changed ourthe BRIC (Brazil, Russia, India andChina) economies. Take Africa – approaches and outlook on those areas,companies are not only investing in those territories where we are planning toAfrica’s natural resources, but alsobanking on growth in their African invest. In other words, the range of countriesoperations in 2011. The interest in thecontinent from international players has we are ready to go to has decreased.’not been lost on African CEOs: 28%have changed their strategy because of Evgeny Dod‘competitive threats’ compared with a CEO, RusHydro, Russiaglobal average of 10%.2 ‘The World in 2050’, PwC (January 2011 update).3 ‘Where are the profits?’, The Economist (11 December 2010). 14th Annual Global CEO Survey 2011 5
  10. 10. Developed markets play to CEOs wary of macro risks their advantages As CEOs select target markets overseas, But developed markets are far from 71% are somewhat or extremely barren of opportunity. Indeed, the US concerned about economic uncertainty was the second most popular choice and volatility (see Figure 4 on the facing for a growth market, with 21% of CEOs page). Partly, this is an after-effect naming the nation among the three of the crisis. As Agah Uğur, CEO of‘I am quite sceptical most important for growth. Another Turkey’s Borusan Holding A.Ş. , said, 12% selected Germany. ‘Our baseline is definitely a stableregarding the capacity of political and economic view – a lessgovernments to prevent Large developed economies still have volatile pattern than the past in terms their attractions. Case in point: we askedanother crisis of this of crisis – but the risk is our memories.’ CEOs which nations would be mostmagnitude in the future. important for their future sourcing But they’re also watching a broad rangeI believe a crisis like the needs. China dominates the list, largely of macro-economic threats. Rising for reasons of cost competitiveness. public sector deficits is their number twoone we just experienced is concern. Concerns over the ability of But quality control, risk profiles,likely to occur every 30 or innovation capabilities, logistics and highly leveraged countries to refinance40 years whenever levels existing relationships remain factors their debt, and subsequent volatility in to many CEOs. ‘I haven’t seen a shift currency and bond markets, greatlyof public indebtedness complicate strategies geared towards towards low cost products, nor anyreach a breaking point.’ change relative to low cost country more trade. And lingering uncertainty sourcing. It’s more about the quality could erode the willingness and abilityMarcos Marcelo Mindlin and technology,’ said Stephen A. Roell, of businesses to invest and expand.Chairman, Pampa Energía S.A., Chairman and CEO of Johnson ControlsArgentina Moreover, there is a clear expectation Inc. in the US. ‘Customers are looking for that governments in mature economies quality products and value.’ As a result, will have to raise taxes and cut spending the US and Germany joined China, further. Nearly three-quarters (74%) India and Brazil in the ranks of the most of US CEOs, for example, believed important future suppliers (see Figure 3). their company’s total tax contribution Developed markets that focus on quality will rise because of their government’s and innovation are still competitive response to a rising public deficit. suppliers on the world stage.Figure 3: Developed nations have competitive advantagesQ: Which countries, not including the country in which you are based, do you consider most important to your future sourcing needs? Which of the following reasons apply for shifting sourcing to the countries you have just mentioned?China USA India Germany Brazil Cost 13% Quality 15% 10% 13% 31% Innovation 63% 55% 4% 3% 18% 7% 35% 11% 6% 6% How many CEOs plan to shift their 37% 22% 15% 14% 11% sourcing to this countryBase: China (442), USA (261), India (178), Germany (172), Brazil (137)Note: Top reasons why CEOs plan to shift their sourcing to these supplier nationsSource: PwC 14th Annual Global CEO Survey6 14th Annual Global CEO Survey 2011
  11. 11. The sentiment is shared in manyemerging economies, as well, with 70%and 63% of CEOs in India and Brazil, ‘The high level of governmentrespectively, agreeing. The concerns are debt in Greece could be a concernsurfacing despite concerted efforts atimprovements by a number of countries. in our expansion in the country,A 2011 PwC study of 183 economiesfound paying taxes is getting easier, and as a high government debtthat since 2006, the tax cost has fallen can lead to a crowding outon average by 5%.4 So it is the spectre offuture government policies to address effect, a reduction in privatedeficits, rather than the current taxburden, that haunts many CEOs. consumption and/orRelated government austerity measures investments and constrainare also a concern, and not just in our opportunities for assetmarkets where budget cuts and nationalbailouts are in the headlines. CEOs in all expansion in the country.’regions (except the Middle East) perceiverisk to their own domestic economies Efthimios Bouloutasfrom possible contagion stemming from CEO, Marfin Laiki Bank, Cyprussovereign debt crises in countries likeGreece and Ireland, as well as to the taxrises and public spending cuts that othergovernments are taking to pre-empt therisk of such a crisis. Figure 4: Top risks relate to government policies – and talent Q: How concerned are you about the following potential economic and policy/business threats to your business growth prospects? 2008 2009 2010 2011 1 Availability of key skills Recession/economy Recession/economy Recession/economy 2 Recession/economy Unstable capital markets Overregulation Public deficit¹ 3 Overregulation Overregulation Unstable capital markets Overregulation 4 Low-cost competition Energy costs Currency volatility¹ Availability of key skills 5 Energy security Inflation Economic imbalances¹ Increasing tax burden¹ 6 Scarcity of resources Low-cost competition Low-cost competition Exchange rate volatility 7 Protectionism Availability of key skills Energy costs Unstable capital markets 8 Security of supply chain Protectionism Availability of key skills Shift in consumers 9 Technology disruption Security of supply chain Protectionism Energy costs ¹ New options Base: 2008 (1,150), 2009 (1,124), 2010 (1,198), 2011 (1,201) Note: Rank of top threats, by % of somewhat or extremely concerned Source: PwC 14th Annual Global CEO Survey4 ‘Paying Taxes 2011: The Global Picture’, PwC (2011). 14th Annual Global CEO Survey 2011 7
  12. 12. The heightened awareness of macro Talent is a second strategic focal risks is clearly having an impact in point. As they look across their the boardroom. Risk management is organisations, CEOs fear they won’t increasingly high on the agenda for have the right talent to compete boards and senior management, effectively as recoveries take hold. At a and incorporated in formal strategic time of high unemployment in parts of planning processes, according to CEOs. the world, and large numbers of recent The fact that strategy and risk must graduates in others, CEOs are reportingMost CEOs are responding be considered in concert has always worrisome skills mismatches. A lot ofto a rise of middle-class been present in successful companies, investment in talent over the past few but has been given a further boost by decades has been made in economiesconsumers in emerging the crisis. Senior level attention to this that are now slower growing. Whethereconomies by developing could strengthen the linkage between that talent can understand and adapt toproducts and services operational and strategic approaches the realities of faster-growing emerging to risk, and mitigate the impact of markets remains to be seen. CEOs aretailored to those high-growth another crisis. planning to deal with this deficit now.markets, while also lookingto serve the changed needs Strategic focal points for Yet CEOs don’t necessarily want to go targeting growth it alone. That raises the third strategicof more mature markets. focal point – a more effective Three themes emerged in how CEOs collaboration with government in were reorienting their strategies and areas deemed critical for business operations to respond to the multi-speed growth. Education and workforce recovery. Nearly half of CEOs who health, IP protection and infrastructure reported a change in strategy pointed at development, are all part of a shared the uncertainty of economic growth or agenda with governments to maintain changes in customer demand as the competitiveness. primary reason. Although some sectors were the exception – for example, the These three business imperatives have primary driver for banks is a changed always had their place on the CEO attitude towards risk, while utilities agenda. But now, with the worst fears of are closely watching regulatory shifts – the crisis behind them and an emerging the pattern is clear. recovery ahead, CEOs are applying a different lens to the three focal points. Most CEOs are responding to a rise of We explore them further in the sections middle-class consumers in emerging that follow. economies by developing products and services tailored to those high-growth markets, while also looking to serve For further detail on all results, see the changed needs of more mature the interactive graphics at our website markets. So innovation, in the context at www.pwc.com/ceosurvey, of new patterns of demand, is a where you can explore responses by clear strategic focal point for CEOs. sector and location. A companion The rise in importance for new products publication, the‘In-depth story’ – and services, in fact, marks a significant with more detailed charts from our shift for CEOs in where their best entire questionnaire and insights avenue for growth lies. from the in-depth interviews – is also available at our website. ‘Three themes emerged in how CEOs were reorienting their strategies and operations to respond to the multi- speed recovery.’8 14th Annual Global CEO Survey 2011
  13. 13. Revamping the organisation for innovation CEOs are confident their innovations will succeed: 78% expect their development efforts to generate ‘significant’ new revenue opportunities over the next three years. It won’t bePutting customers at the easy. But they are making changes at all levels of their organisation to makecentre of innovation that happen. ‘For the first time in our corporate history, I’ve decided to task a specific E.ON board member with the responsibility for focusing exclusively onTurning a geographic toehold into a growth stronghold technology and innovation. We realiserequires innovation that is precisely tuned to the needs that our future success really hingesof customers. on our ability to innovate and mobilise new technology’, Johannes Teyssen, Chairman and CEO of German energy CEOs are placing a higher premium corporation E.ON AG, told us. on innovation today. Since 2007, They’re also doing the hard work of business leaders have consistently putting operational arrangements in reported that their single best place to make innovation work. Eureka opportunity for growth lay in better moments are few and far between. penetration of their existing markets. ‘People tend to see innovation strictly in Now they’re just as likely to focus on terms of revolutionary, breakthrough the innovation needed for new products products – technologies to sequester and services (see Figure 5). It’s high on carbon emissions or microchips that can the agenda in virtually all industries, process data 600 times faster. That’s including industrial sectors such as fine. But most innovations are the result metals, chemicals and manufacturing. of steady, continuous improvement’, said Paul Polman, CEO of Unilever, UK.Figure 5: CEOs have a new commitment to innovationQ: Which one of these potential opportunities for business growth do you see as the main opportunity to grow your business in the next 12 months? 40% 38% 37% 31% 29% 30 23% 20% 20% 20 21% 17% 17% 19% 15% 15% 14% 13% 14% 14% 13% 13% 10 11% 10% 10% 0 2007 2008 2009 2010 2011 Increased share in existing markets New product/service development New geographic markets Mergers and acquisitions New joint ventures and/or strategic alliancesBase: 2007 (1,084), 2008 (1,150), 2009 (1,124), 2010 (1,198), 2011 (1,201)Note: Percentage of CEOs who see the following as the main opportunity to grow their business in the following 12 monthsSource: PwC 14th Annual Global CEO Survey 14th Annual Global CEO Survey 2011 9
  14. 14. Yet incremental innovations can only Close to 70% are investing in IT to revenue stream for them, we share in it.become revenue and profit generators reduce costs and become more efficient, We have this arrangement now withwhen companies are effective at linking while 54% are also funnelling funds several customers. It’s a way of “puttingup new ideas with customer needs. towards growth initiatives, including your money where your mouth is”.’So marketing, distribution and finance, emerging technologies in mobileamong other functions, all need to be devices, social media and data analytics. Many companies are bringing theirpart of the innovation development and innovation activities closer to theirassessment process. ‘Innovation goes Cloud computing, for example, can customers by giving customers a sayway beyond just the products. It’s the enable companies to manage business in the design of offerings, or openingway you market the product, the way processes more efficiently. But it can innovation up to more partners.you sell the product, the whole aspect also empower entirely new business A consumer goods business looking toof consumer engagement’, said Louis models, for example, ones that connect expand in India, for example, is focusedCamilleri, Chairman and CEO of Swiss/ supply chain partners in a single not only on shipping the best possibleUS-based Philip Morris International. differentiated offering for customers. product out of its facilities, but also onThat means addressing cultural and In the survey, CEOs told us they where it is best designed, and on howorganisational factors for some, and are exploring both possibilities for to package, distribute and sell it into afresh thinking about what technology technology, in general, and for cloud changing marketplace. Innovation takescan enable for others. computing, in particular. place at each stage and increasingly with different partners along the way.Using technology to drive Innovation begins with customers ‘Today, nearly every new item weambidextrous innovation bring out was produced with at leastIn what could be called ‘ambidextrous CEOs are approaching innovation with one partner somewhere in the world’,innovation’, CEOs are looking to gain an emphasis on putting customers first. said Bob McDonald, Chairman of theboth efficiencies and differentiation at ‘Companies give innovation a lot of Board, President and CEO of US-basedthe same time: 79% of CEOs in the “airtime” but not enough “dollar time”,’ Procter & Gamble Company (P&G)survey believe innovation will drive said Vineet Nayar, Vice Chairman ‘For example, we co-locate scientistsefficiencies and lead to competitive and CEO of India’s HCL Technologies. from partner organisations and fromadvantage, to go with the 78% who ‘At HCL, we put innovation on our our organisation in the same laboratory.expect new revenues. Technology is balance sheet. We innovate on behalf of It’s amazing what you can do whenone way of capturing both; CEOs are our customers and participate with them you knock down the barriers in anapproaching IT with the spirit of in the risk associated with innovation. organisation or the barriers betweenambidextrous innovation in mind. When innovation results in a new organisations.’ Making innovation local Innovation is considered an essential‘Innovation has a cultural dimension too, so Angang Steel ingredient to a global model. ‘You end up having to innovate simply to providehas taken steps to nurture a culture in which innovation the same high-standards across verycan thrive. This includes building relationships with diverse operating environments’, said Douglas M. Baker, Jr., Chairman,external research institutions; engaging clients in research President and CEO of Ecolab, in theand development; creating a corporate environment in US. ‘So, innovation is a constant inwhich risk-taking is encouraged and mistakes are tolerated, our business.’and recognising and rewarding individual initiative.’Dr. Zhang XiaogangPresident, Anshan Iron and Steel Group Corporation, China10 14th Annual Global CEO Survey 2011
  15. 15. Some CEOs, however, are literallymoving development processes tocustomer locales, in order to get closer ‘The question is, where doto them. They’re creating products you place your bets? If youfor faster-growing markets, in thosemarkets, and then distributing go on a certain new mediaworldwide. General Electric’s CEO,Jeffrey Immelt, described GE’s ‘reverse platform, is it going to hurtinnovation’ strategy in 2009. Developing any of your core businesses?’products domestically ‘worked fine inan era when rich countries accounted Leslie Moonvesfor the vast majority of the market President and CEO, CBS Corporation, USand other countries didn’t offer muchopportunity. But those days are over –thanks to the rapid development ofpopulous countries like China and Indiaand the slowing growth of wealthy Consumers now expect that level of CEOs said that developing environmentallynations’, he wrote.5 engagement from businesses. friendly products or services are an Technology has become a key enabler, as ‘important part’ of their companies’Similarly, Juha Rantanen, President and well as a driver of consumer involvement innovation strategy, a nod to theCEO of the Finnish firm, Outokumpu in product development. Close to half greening of consumers.Oyi, told us, ‘One of the big issues for us of consumer-facing CEOs in the surveyis that our European-based customers foresee social media and mobile devices Opening innovation to supplyare moving many of their operations prompting a ‘significant change’ to their chain partners and beyondoff-shore.’ As a result, with its customers strategy, as consumers turn to theseincreasingly moving their factories to The same demand for innovation is media to voice their preferences. U.S.China, Outokumpu established a new driven through the supply chain. Bancorp is investing in mobile bankingservice centre in Shanghai – to serve ‘Our basic strategy is focused on technology, for example, decidingexisting customers as well as new improving technology to improve the time is now right. ‘The next step,customers in China. fuel economy and reduce emissions. though, is mobile banking and the Every country in the world is focused on advent of transaction-based activities,Giving consumers their say including banking on the more viral improving fuel economy and reducing CO2 emissions. It’s turned out to be anYou can’t get closer to consumers than options, and so we have been investing excellent strategy. It was strong beforeinvolving them directly in product and heavily in that’, said Chairman, the recession, it was strong duringservice development, a trend that many President and CEO Richard K. Davis. the recession and it’s strong after theCEOs see coming. That doesn’t mean ‘But five years ago we would not have recession.’, Timothy M. Manganello,shoppers are putting on lab coats and been investing but, waiting for others to Chairman and CEO, BorgWarner Inc.,entering clean rooms. More frequently, do it and then being a quick follower.’ said in an interview. The US autoit involves having consumers test Companies are responding to changing components supplier reduced operatingnew offerings before they’re launched. consumer expectations in other ways. costs during the recession, but hasMedia and entertainment companies, Many continue to innovate in energy- continued to reinvest in technology,for example, increasingly factor input saving and sustainable technologies, innovation and new product launches.from the global consumer base in not because of the prospect of regulation, Post-recession, its fuel economy anddetermining the viability of new but rather because enough consumers are emissions technologies are driving salesproducts and consumption models, telling companies they prefer sustainable while profits growth is stemming frombefore the ‘official’ product launch.6 products and green companies. So 64% of cost-control strategies, he said.5 ‘How GE is disrupting itself’, Harvard Business Review (October 2009).6 ‘Global Entertainment and Media Outlook: 2010-2014’, PwC (2010). 14th Annual Global CEO Survey 2011 11
  16. 16. It’s not uncommon for supply chain McDonald said. ‘Another thing we partners to work together in the search spend a lot of time talking about is for innovation; 39% of CEOs this year new categories we can create. Often, expect the majority of their innovations new categories will fall between the to be co-developed, following boundaries of two existing categories. established models for supplier So if you’re an innovative company innovation (see Figure 6). Consider the and you’re organised by category, automobile industry, where a lot of who’s going to invent the category‘In order to strengthen our high-value components emerge from that falls between the boundaries?’R&D efforts, we have entered suppliers. Entirely new industries are Similarly, UK based Unilever believes evolving with supplier partnerships ininto collaboration agreements innovation at the core; utilities are changing the relationship with itswith universities in Mexico, working jointly with electric car, battery entire supply chain is how it can drive innovation. ‘Tesco is going to be aroundthe United States and makers and IT companies around the for another hundred years or more – smart grid, for example.Europe. We also have and so is Unilever. It only makes sensetechnological partners in In part, the willingness to team-up to work in concert to meet consumers’ reflects post-recessionary challenges needs’, said CEO, Paul Polman.some of our companies, who with working capital, which is also ‘By working together towards aprovide us with valuable reflected in the popularity of joint common goal there is much more valuesupport in this field.’ ventures over M&A among most to be gained than there is in haggling CEOs in the survey. Many CEOs are over costs.’Armando Garza Sada concluding that no one organisationChairman of the Board of Directors, has enough of the right people and theAlfa, S.A.B. de C.V., Mexico right amount of funding to innovate successfully on its own. In brief: Innovation Given that an estimated 90% of all CEOs are adopting new strategies patents expire without creating any to embrace technology and economic value,7 an approach to innovation, and get closer to innovation that envelops employees, customers. Innovation has become partners and alliances makes sense. a big tent, with companies at once It keeps costs down and improves the giving customers a say in product odds of success. Open innovation offerings, opening innovation up provides companies a way to use to more partners, and shifting market discipline to foster innovation. development to the countries ‘The world has changed. The definition where they’ll be purchased. of ‘competition’ is different’, P&G’s Figure 6: CEOs expect innovation to involve external partners Q: To what extent do you agree or disagree with the following statements about your expectations regarding your company’s innovation over the next three years? 5 12 41 23 1 An important part of our innovation strategy is to develop products or services that are environmentally friendly 13 24 30 9 2 We expect the majority of our innovation to be co-developed with partners outside of our organisation 18 26 26 7 3 We use M&A as a significant source of innovation 24 27 19 10 4 We expect the majority of our innovations to be developed in markets other than the country in which we are based 29 27 18 7 5 We expect government assistance to boost our innovation output % Disagree strongly Disagree Agree Agree strongly Base: All respondents (1,201) Note: Expectations regarding companies’ innovation over the next 3 years Source: PwC 14th Annual Global CEO Survey7 C. Wasden, ‘Getting beyond novelty: How discipline and failure foster innovation’, View, PwC (Fall 2009).12 14th Annual Global CEO Survey 2011
  17. 17. sector is the least optimistic aboutBridging global skills gaps jobs growth, for example, as industry dynamics adapt to internet delivery models. By contrast, the technologyGrowth opportunities, especially in emerging markets, sector is the second most likely to add jobs. (For a detailed look at whichprompt changes to talent strategies regions and industries are adding jobs, go to www.pwc.com/ceosurvey.) The ‘war for talent’ was declared more As more ready plans to hire, the talent than 10 years ago, but few CEOs are crunch becomes more apparent: prepared to declare victory. They know two-thirds of CEOs believe they’re talent isn’t just a numbers game. It facing a limited supply of skilled means finding, retaining and motivating candidates, particularly as they establish employees whose skills really fit the a long-term presence in key emerging‘As we look at growing company’s strategy. Given that 84% markets. ‘As we shift eastward, we haveglobally, we recognise of CEOs have changed strategies in the to make sure that our corporate culture past two years, companies’ talent needs and operating model reflect the marketswe’re going to need a more are changing, too. So talent is now at there. Trying to get that right is wherediverse workforce, including the top of the CEO agenda for 2011, I spend most of my time’, Paul Polman,more women and different across all regions (see Figure 7). CEO of Unilever told us. The consumer products group expects around 70% ofgeographic leaders.’ More companies expect to add jobs in its business will come from Asia-Pacific 2011 than they did in 2010 – led by within 10 years.Stephen A. Roell industrial sectors such as chemicals,Chairman and CEO, Johnson Controls, automotive and manufacturing. ThereInc., US are other differences by region and by industry. The entertainment & mediaFigure 7: Talent is now on top of the CEO agendaQ: In response to changes in the global business environment, to what extent do you anticipate changes to any of the following areas of your company’s organisation or operating model over the next 12 months? 17 52 31 1 Strategies for managing talent 23 54 23 2 Approach to managing risk 23 48 28 3 Investment decisions 25 47 27 4 Organisational structure (including M&A) 36 41 22 5 Corporate reputation and rebuilding trust 50 34 15 6 Capital structure 52 34 12 7 Engagement with your board of directors % No change Some change A major changeBase: All respondents (1,201)Note: Anticipated changes in the companies’ organisation or operating model over the next 12 monthsSource: PwC 14th Annual Global CEO Survey 14th Annual Global CEO Survey 2011 13
  18. 18. Thinking globally and locally In high growth markets such as China, India and parts of Latin America, talent Filling skills gaps in these regions begins shortages are as critical as – and in some with companies making themselves cases more acute than – the rest of the more attractive to potential and current world. Businesses looking to double or employees, and looking for better ways triple revenue in five years in emerging to develop and deploy staff globally. markets, for example, and anticipating Becoming the ‘employer of choice’ is a equivalent growth in their workforces, vital advantage in dynamic markets find that the availability of talent is where top talent has the pick of jobs often their biggest constraint. In 2010, from domestic and foreign employers. 41% of employers in Asia-Pacific had Hiring the best workers amounts to difficulty filling positions, according to nothing if the firm can’t retain top talent a Manpower survey of 35,000 employers in hypercompetitive talent markets. worldwide, 10 percentage points greater than the global average.8 Despite the relatively large numbers of recent graduates in emerging markets,‘For much of its history, Kirin was focused on serving a around 40% of CEOs report difficultydomestic market only, but in the past few years, we changed forecasting talent availability in thesecourse dramatically and have embraced globalisation. regions. ‘These nascent markets come with various uncertainties. One isConsequently, Kirin needs human resources that are capable the regulatory environment; anotherof working with people of very different backgrounds is talent-related. Finding the appropriateand nationalities. So our priority is to make sure that talent to take advantage of the growth prospects of emerging markets is oneour young and up-and-coming managers are prepared to of the biggest challenges we face,’work internationally. For their part, however, our young Louis Camilleri, Chairman and CEOemployees appear to have an intrinsic expectation of of Swiss/US-based Philip Morris International, pointed out. ‘There is abuilding careers that include assignments in other high level of education, there’s a lot ofcountries. We also actively recruit veterans with extensive enthusiasm, but there is a pretty steepinternational business experience.’ learning curve as well. It’s just a process, and it will take some time inSenji Miyake some markets.’President and CEO, Kirin Holdings Company, Limited, Japan Figure 8: Retention and deployment figure highly in CEOs’ talent strategies Q: To what extent do you plan to change your people strategy in the following ways over the next 12 months? 34 47 18 1 Use more non-financial rewards to motivate staff 39 40 19 2 Deploy more staff to international assignments 44 41 13 3 Work with government/education systems to improve skills in the talent pool 52 34 12 4 Incentivise young workers differently than others 56 32 11 5 Change policies to attract and retain more women 57 32 10 6 Increasingly recruit and attempt to retain older workers 58 32 8 7 Set compensation limits for executive talent 66 26 7 8 Grow our contingent workforce faster than our full-time workforce 71 20 7 9 Relocate operations because of talent availability % No change Some change Significant change Base: All respondents (1,201) Note: Plan to change people strategy in the following 12 months Source: PwC 14th Annual Global CEO Survey8 ‘Supply/Demand: 2010 Talent Shortage Survey Results’, Manpower (2010).14 14th Annual Global CEO Survey 2011
  19. 19. ‘A top priority in our HR strategy is to develop more financial management talent enhanced withStepping up overseas international experience to the extentdeployments possible, to support the Bank’s futureOver half of CEOs are planning to sendmore staff on international assignments global development.’in 2011 (see Figure 8). The number of Li Lihuiinternational assignments among President, Bank of China, Chinamultinationals increased 25% over thepast decade; PwC predicts there willbe further 50% growth over the next10 years.9 Indeed, 20% of our CEOrespondents lead organisations basedin a nation other than the one wherethey were born. In the talent market, Casting wider nets in theskilled employees with experience inmore than one country are increasingly talent poolviewed as valuable as their specialties. The scale of shortages CEOs describe isNonetheless, close to half of CEOs leading to some new thinking aroundforesee problems deploying experienced existing workforces. Consider two talentemployees in other countries. challenges reported in the survey:Global deployments are a first step to two-thirds of CEOs believe there isaddress shortages as company footprints a limited supply of candidates withchange, but many CEOs know they need the right skills, and creativity in theto nurture local talent in the long run. workforce was found lacking by 44%‘We use foreign managers to manage of CEOs. Fortunately, companies haveforeign companies because they have alternatives within their own companiesthe best management team already; and communities that can addressit’s totally impossible for us to go over both challenges at once – by tappingthere and manage them well. We have underutilised pools of talent.learnt some lessons in this regard’, In virtually all markets, for example,Zhou Zhongshu, President of China many fewer women than men are activeMinmetals Corporation told us. in the labour market.10 Some companiesAny idea that a centralised headquarters have already taken note. For example, incan effectively dictate to far-flung South Korea, where only 60% of femaleoperations in increasingly important university graduates aged 25–64 aremarkets is disappearing. Many of working, foreign multinationals gottoday’s multinationals want to give ahead ‘by aggressively hiring anindependence to local managers, to get excluded group, women, in the localcloser to those markets. ‘We’re building managerial labour market’, accordingthe next generation of leadership to take to research from the Harvard BusinessInternational Paper to the next level,’ School.11 But there is a lot further to go:John V. Faraci, Chairman and CEO of only 11% of CEOs globally are planningthe US-based firm, said. ‘We don’t ‘significant change’ to policies to attractbelieve you can run a global business and retain more of their femalewith expatriates. You’ve got to have employees today.local talent. They understand the localculture and how to do business there.’9 ‘Talent Mobility 2020:The next generation of international assignments’, PwC (2010).10 ‘Women in labour markets: Measuring progress and identifying challenges’, ILO (March 2010).11 J. Siegel, L. Pyun and B.Y. Cheon, ‘Multinational Firms, Labour Market Discrimination, and the Capture of Competitive Advantage by Exploiting the Social Divide’, Harvard Business School working paper (2010). 14th Annual Global CEO Survey 2011 15
  20. 20. mutual interest and passion – not‘Only 20% of our young people every year are studying at structured hierarchies. Consequently, people management strategies will havethe university. OECD said we should have at least 40% or to change so that they look more like50%. And we said no because we do not want an “academic Facebook and less like the pyramidproletariat”. We have our dual education system with structures that we are used to.’apprenticeships on the one hand and university studies on Successfully attracting, developing,the other. I think it’s a perfect model. It’s something that deploying and retaining from these talent pools also helps to address theother countries don’t have.’ creativity challenge. A diversity of backgrounds on a well-managed teamProf. Dr. Peter Gomez tends to foster diversity of thoughtChairman of the Board, SIX Group AG, Switzerland – which is a key driver for creativity and innovation. Ivan Blagodyr, General Older workers are another underutilised Director of Russian energy group JSC pool of talent. In many countries, RAO Energy Systems of East, had that in populations are ageing and baby mind regarding one such pool: ‘We need boomers are becoming eligible for to readjust our thinking, become more retirement. In the US, for example, innovative, and it’s very important not more than one in 10 employees are just to have proper qualifications and currently eligible for retirement. Over experience but a proper mindset as well. half of North American CEOs foresee That is why I think it’s important to challenges as older workers retire. Even recruit young people.’ No doubt others though many valuable workers nearing have had similar experiences when the traditional retirement age say they they’ve tapped underutilised pools of want to carry on working, only 10% of talent of their own. CEOs are planning significant changes Necessity is the mother to hold on to older workers. of retention Similarly, over half of CEOs (54%) Many employers made concerted efforts foresee challenges in recruiting through the recession to hold as many and retaining younger employees – qualified people as possible, opting for the mercurial Generation Y workers hiring freezes and pay-cuts rather than who have their own distinct layoffs. Voluntary turnover declined in expectations about their relationships mature economies during the recession, with employers. However, outside of but historical trends demonstrate that Latin America, only a minority of it will return. businesses are changing the way they incentivise younger employees to In hot talent markets, turnover rates can improve recruitment. be high, reflecting scarcity. Annual staff turnover in China can reach 20% or These three pools of talent are particularly even 40% in some sectors, compared to vital in thinner talent markets where turnover rates that are typically less skills are scarcer – but they require than 10% in the US or UK. ‘Assembling specific strategies to approach. You can’t talent is part of the reason companies just pay lip service to them. As India-based are making acquisitions in the emerging HCL Technologies Vice Chairman and markets. At the same time, retaining CEO, Vineet Nayar, told us, ‘With that talent is very tough. In China right Generation Y coming into the business, now, competition for people is quite hierarchies have to disappear. Generation fierce’, said Ed Breen, Chairman and CEO Y expects to work in communities of of Tyco International, based in Switzerland. A majority of CEOs globally said they’re concerned about competitors recruiting key personnel.16 14th Annual Global CEO Survey 2011
  21. 21. Countering talent poachersRecognising these trends, CEOs are In brief: Talentchanging their people strategies to The challenges CEOs report inimprove employee engagement and recruiting and retaining talentretention. Most CEOs (65%) say they reflect the strategic andplan to use more ‘non-financial’ rewards. geographical changes afoot forThese approaches can take many many companies. Companies areforms, but often involve training and taking the long view on addressingmentoring programmes, with a closer talent needs in every marketfocus on career trajectories. ‘There are where they operate. Experiencedan enormous number of talented people and skilled employees are theirin the world. But the trick for any best asset, and the costs in lostorganisation is to hire people early productivity and retraining areenough so that their careers can grow becoming clear. in tandem with the organisation’svision of its future,’ said Gregory R.Page, Chairman and CEO of Cargill,Incorporated in the US.Likewise, Russian rail transport groupGlobaltrans adopted a ‘careful’ approachto pay increases during the recession, ‘Our capacity to attract, retain and‘Of course, during the crisis we werea bit more careful about annual pay manage executive talent does not dependincreases. But that was the only action on the compensation package, but ratherwe took that affected our work force.There was no significant reduction in on our ability to create a sense of belongingheadcount – but neither were there newjoiners,’ noted Chairman of the Board to an organisation that offers a long-termof Directors Alexander Eliseev. ‘The key relationship and a professionalto our people strategy is to provideevery employee with the opportunity to development opportunity, and that has aadvance their professional development.’ clear conception of itself, of what it wantsInstilling a deeper sense of ownershipby spreading employee stock ownership to be, and of how to achieve it.’more widely is another important Armando Garza Sadaretention tool for CEOs. ‘In a high- Chairman of the Board of Directors, Alfa, S.A.B. de C.V., Mexicogrowth economy like India, manycompanies are building capacity rapidlyand, as a result, become easy targets fortalent-poaching. So, employee retentionis a real challenge,’ said Sajjan Jindal,Vice Chairman and Managing Directorof India’s JSW Steel Limited. ‘In orderto maintain our own retention rates,we’ve made our employee stock optionscheme more attractive.’ 14th Annual Global CEO Survey 2011 17

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