EY exclusive: digital strategy and ESG priorities of US CEOs
As companies look beyond the pandemic, CEOs will need to reshape their portfolios, reimagine their ecosystems and reinvent themselves for a better and more sustainable future.
And that’s why EY is introducing the EY CEO Survey as the benchmark of executives’ sentiment on global challenges, growth and sustainability strategy, portfolio optimisation and M&A.
Polling 336 CEOs across 13 different industries in the US between November and December 2021, the inaugural survey is part of EY’s CEO Imperative series providing leaders with valuable insights on the main trends and developments impacting the world’s leading companies along with business leaders’ expectations for future growth.
Unsurprisingly, when it comes to forward-looking strategies that will both optimise operations and improve margins, digital strategy and sustainability are some of the highest priorities on the CEO radar right now.
According to the survey, US companies’ capital strategy is most impacted by optimising current operations, digital investment and sustainability, with nearly one in five CEOs prioritising investment in digital transformation (18%) and sustainability (17%).
“The very nature of a CEO’s job means balancing near-term imperatives — talent, supply chains, geopolitics — with long-term endeavours, like digital strategy or ESG. The catch is, planning for the long haul demands investment right now to accelerate growth,” says Mitch Berlin, the newly appointed EY Americas Vice Chair of Strategy and Transactions.
“As US chief executives recalibrate their risk radar to set their growth strategies, many are focusing on M&A as the answer to better position their businesses for a new economic order. As history shows, fortune favours the bold, and we expect that CEOs pursuing the right portfolio-transforming investments, particularly M&A and divestments, will prove to be future winners.”
Digital is highest priority on the CEO radar right now
In fact, digital strategy is set to take centre stage in 2022 with half of all executives (49%) currently focused on implementing technology to help improve profit margins.
“Over the past two years, we’ve witnessed a global pandemic that pushed companies over the technology tipping point, forcing many to go digital under duress to meet customer demand,” added Berlin. “It challenged and transformed so many business models – from telemedicine in health care to curbside pickups in retail to connected supply chains in consumer goods – that we experienced years of digital transformation in months. US CEOs are embracing the acceleration and placing the greatest resources and attention today towards advancing digital priorities that enable future growth.”
While 27% say they are prioritising the increase of customer interaction via digital platforms and touchpoints, 22% say they are using technology and automation to reduce higher cost labour roles and improve reliability.
This is hardly surprising given that increasingly higher labour costs are a significant headwind, and that investing in automation offers potential for CEOs looking to drive transformation in their organisation to pivot employees to higher-value activities.
To automate intelligently and drive the greatest long-term impact with scarce organisational resources, EY recommends CEOs consider linking the automation strategy to business priorities and performing an organisational review to prioritise potential automation projects by identifying talent needs and skill gaps.
To generate ongoing growth for business, US CEOs see delivery system innovation, increasing existing product sales and data as key, with nearly one in five executives saying that the effective use of data to develop new products and services is its focus in terms of growth over the next five years – nearly twice as important than expanding their products or services into new geographies or customer segments, for example.
According to EY, companies often overlook the rich treasure trove of data they have at their disposal, which is a lost opportunity as often the next big idea can be found by sifting through such data to understand exactly what customers are demanding. It can be used, says EY, to both predict future behaviour and inform the right way to engage with a consumer at any given moment and offers a window into the factors that influence consumer behaviours, interests and expectations.
Growing importance of ESG driving change
For many firms, mergers and acquisitions remain a fundamental part of how they act on and deliver on their strategic growth plans, and EY’s CEO survey certainly proves this to be true with the majority of US CEOs (60%) expecting to pursue deals over the next year.
What’s different, however, are the deal drivers for business, with the accelerating of ESG transition and acquisition of capabilities, increasingly key for business leaders. In fact, 25% of CEOs cite strengthening their ESG ranking or their sustainable footprint as the top impetus for M&A, above perennial incentives such as growing market share or acquiring technology and talent.
“One thing from the survey that’s really interesting is the strong evidence that ESG considerations are reshaping decision-making at the CEO level in the US, and chief executives see M&A as one of the fastest ways to strengthen their ESG profile and their sustainable footprint,” added Berlin.
EY points out that in today’s highly competitive market, with traditional industry landscapes evolving and merging, companies often need to acquire the capabilities required to help them rapidly navigate change. In conjunction, it is technology, innovation and related impacts, such as sector convergence and changing customer behaviours, that are the principal drivers. CEOs are utilising M&A to capture and retain customers and gain access to new markets.
The growing importance of ESG is further driving the greatest change to the CEO role, according to the survey, with nearly one third (28%) of US business leaders citing the growing focus on ESG as offering the biggest challenges and opportunities to the running of the business.
And while investors, consumers, industry peers and governments each have their own demands around ESG and sustainability, what they all have in common is they see ESG as a non-negotiable strategic imperative for organisations to operate successfully in the future, providing CEOs with both the biggest challenges and opportunities.