Conquering a brave new world
We are entering into a brave new world where companies face a plethora of challenges that they need to overcome in order to become profitable. Since the terror attacks in New York in 2001, it can be argued that the insurance industry operates in a risk based market as opposed to an opportunities based market. Chief Executive Officers (CEOs) have a lot to deal with as they try to overcome these difficulties and steer profitable companies through these waters.
The main question is how this market can be created without boundaries? In this way, companies can be flexible in their approach to challenges and they will able to respond to disruptions in the best possible manner.
Treading the cautious line
This was the context in which global auditing giant PricewaterhouseCoopers (PwC) undertook its 2015 Global CEO Survey. The survey is made up of input from 1 322 global interviews and 41 local interviews.
Despite many reports about the mobility of developing markets, the research undertaken by PwC shows that the pace of growth in developing economies is moderated while many developed economies continue to improve.
There are also concerns over the conflict in the Middle East, where there is a sustained war on terror, and Eastern Europe where Russia looks to push its position in Crimea which is causing conflict with the Ukraine.
The tapering of quantitative easing by the Federal Reserve is also having a major impact on capital flows into emerging markets.
Due to this, there is an air of caution in the market over the expectations of growth of the global economy. There was a stark increase in 2013 where 44% of the CEOs interviewed by PwC indicated their confidence over global economic growth. This dropped to 37% in 2014.
South African pessimism
We are all aware of the difficulties that we face in South Africa. They are well documented and ever present.
These challenges have a major effect on South African growth aspirations. South African CEOs are less confident about their short-term growth prospects then they were a year ago. A massive 24% of local CEOs openly told PwC that they do not expect their companies to grow that much over the long-term. This is in stark contrast to the 12% of international CEOs who point to the fact that their short-term growth outlook is bad. In fact, 45% state that they are confident about growth.
However, confidence over the medium-term is better than the global mark, as 95% of the locally interviewed CEOs showed confidence over revenue growth over the next three years. This is in contrast to the 92% of internationally interviewed CEOs.
Threats and opportunities
There is definitely a sentiment that there are more threats in the market than opportunities. Forty one percent of the interviewees agreed with the fact that the market is inherently risk heavy, while a massive 39% strongly agree. Only 32% of the survey’s respondents agreed that there were opportunities in the market, while 10% strongly agreed with this.
South African CEOs are particularly concerned about the economic policy and threats. Some of the issues that are of concern include the government’s response to the fiscal deficit and debt burden, social instability, high unemployment and inadequate basic infrastructure.
Other issues of concern include the availability of new skills – or the lack thereof – high or volatile energy costs and supply chain disruptions.
The high or volatile energy costs are a particular bone of contention in the South African market. South Africans are facing significant increases from Eskom and they do not even have the capacity to keep the lights on. This is affecting productivity and threatens to affect supply chains as companies who are running tight schedules to deliver their products to customers may find that they cannot meet commitments. This seems to be the fulcrum upon which all of our threats are balanced as this also contributes to social instability and high unemployment levels.
Responding to disruption
Companies are increasingly working together to overcome these difficulties and gain access to elements which are in short supply such as access to new customers, access to new geographical markets and access to new technologies.
The digital transformation looks as if it is going to be the major driver of change. While this is not a new concept, it is becoming more pertinent as companies see the value of having access to data mining and analysis where they are able to access user trends and behavioural patterns. Mobile technologies can also be used as a primary platform for customer engagement, as social networking sites such as Facebook and Twitter are becoming the voice of the people. The move towards technology is also largely based on cyber security.
This presents companies with a major double edged sword. There is a lack of skills in the industry, but a younger talent base is needed to deal with the demands of moving towards technology as they are well acquainted with the platform. Finding a balance between cultivating new skills and harnessing the existing skills that companies have will be important. But how do CEOs do this while executing cost cutting initiatives as staff become the first area to look at when containing costs?
Editor’s Thoughts:
We are entering into a brave new world where companies almost need to be bullet proof when it comes to dealing with challenges. I say this because as soon as they are confident of conquering one challenge, another one takes place. Coping mechanisms need to be dynamic and flexible so that issues are dealt with as soon as they arise. The longer they are present, the greater their impact will be on companies. Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts [email protected].
