In the coming years, business success will be defined by more than just financial performance, and organizations are increasingly aware that both customers and public opinion asses them in terms of the impact they have on society.
These are two of the findings of the PwC’s 19th Annual Global CEO Survey conducted in 83 countries, including Romania.
The sixth edition of the Romania country report of this global survey examines some of the organisations’ challenges in the context of changing stakeholder expectations of business. When referring to stakeholders, the leading organisations are considering a wide spectrum that includes not only customers, employees, shareholders, government and regulatory authorities, but also competitors, suppliers, the media and local communities. Currently, all of them have a significant impact on the company's business strategy.
In this year’s survey, business leaders see an increasingly complicated and multi-polar world of diverging socioeconomic and political models, beliefs and values, where technology is transforming the expectations of customers and other stakeholders. The executives have a tough job finding growth and delivering results year in, year out. But they know an even tougher task lies ahead: to prepare their organisations for a more complex future where customers and other stakeholders increasingly expect them to do more to tackle society’s important problems. To equip themselves for this challenge and to build trust and ensure long-term success, organisations implement multiple changes in the way they evaluate risks, improve the marketing, communication and branding activities, harness technology and innovation, leverage the talents’ skills or choose business partners – to execute strategies that meet greater expectations. Thus, 94% of CEOs in Romania declare that they are implementing changes in the way they define and manage risks in response to the constantly-changing stakeholder expectations.
To strengthen the market position, the executives sometimes get to the point of changing the purpose of the organisation (what it stands for), to define a more comprehensive view of how their business operates within society. Over a third (35%) of respondents believe that they have always had an organisational purpose that includes the broader impact their business has on society. Other 22% of CEOs say that they have changed the organisation’s purpose in the last three years to take account of the stakeholder expectations. Also, other 11% of respondents consider doing so. The organisational purpose is refocusing on creating value not only for shareholders, but for wider stakeholders, in an effort to better highlight the role and importance of organisations in local communities and society as a whole. Thus, 72% of CEOs state that successful companies will be guided by a purpose centred on creating value for all stakeholders, and about four out of five respondents (79%) say that they prioritise long-term over short-term profitability. However, creating value for stakeholders and profitability are interconnected elements for executives. Thus, 57% of CEOs believe that creating value for the wider stakeholders will help organisations to be more profitable.
Technology is reshaping businesses
In today's global economy, technology is the main catalyst in the interaction between organisations and stakeholders. 77% of CEOs anticipate that in five years’ time technological breakthroughs, as a global megatrend, will have significantly transformed wider stakeholder expectations of businesses on communication, reporting, investment and planning. On the other hand, companies use a wider range of digital technologies as communication and networking tools and also as means to increase the level of stakeholder engagement. 91% of CEOs argue that they are improving the way in which they use technology to assess and deliver on wider stakeholder expectations. Business leaders are positive that investments in digital technologies, especially those which improve the experience offered to clients, add value to their businesses. Thus, 83% of CEOs consider Customer Relationship Management (CRM) systems as one of the connecting technologies that generate the greatest return in terms of engagement with stakeholders. In order to find the best way to have technologies streamline operational activities and bring businesses closer to clients, CEOs are willing to get personally involved and actively support the migration to digital.
Most executives understand the importance and tangible benefits of innovation for the success of their companies and they acknowledge the need to adjust to an increasingly high tech world. 81% of them seek to maximize societal values of their R&D and innovation. The winners will be those that harness technology and innovation to deliver products that are cost-effective, convenient, functional and sustainable.
The new competition
The digital economy brings new threats, but also creates multiple opportunities. Organisations need to adapt on the go and be prepared to compete in new sectors. Nearly three quarters (72%) of CEOs believe that there are more growth opportunities for companies today than there were three years ago. Changes in regulations and in consumer behaviour, as well as diversifying competition, are some of the main disruptive factors that could reconfigure many industries. As expected, most CEOs believe that the business strategy of the organisations they lead is significantly impacted by clients (mentioned by 90% of respondents) and industry competitors and peers (79%). There are new aspects to competition, and the current configuration of markets and industries is undergoing sweeping changes. Fiercer competition nowadays no longer means just a higher number of companies operating in the same field, it involves a change in the very nature of competition. The markets and industries will change with their borders growing ever fuzzier, as organisations expand into various business areas, and competition emerges from new sources, which are often difficult to anticipate. Technology as sector is one of the main sources of evolving competitors vying on an equal footing with well-established ‘players’ of various other industries. Also, a growing number of organisations are branching out into business areas other than their original ones – and here again technology is a favourite sector.
Going forward, in order to remain competitive organisations will need a strategy with sufficient flexibility to adjust to market trends or create new ones. More than ever, tomorrow’s organisations should be ready to achieve performance in completely new sectors, while also giving up some traditional business lines and fully reconfiguring themselves. To this aim, a company’s ability to work with ever more diverse business partners is essential for its success in the digital economy. In order to cope with inter-sector competition, organisations cooperate with a wealth of business partners, which generate ample benefits. Enlarging the client base and the access to new markets are the more obvious ones. In the current context, however, CEOs are also identifying other benefits deriving from developing relationships with various business partners: implementing new technologies in operational activities, fostering innovation – seen as vital to business growth, access to new talents, expertise in new fields and, last but not least, more efficient risk management.
Talent as success factor
The availability of key skills continues to challenge the business leaders. The pace of technological advances highlights the importance of skilled personnel, whose abilities are needed by companies to achieve the required performance level in the digital economy. However, the reasons talented employees choose a company over others become more complex. The majority of CEOs in our country (54%) believe that top talents prefer to work for organisations with values which are aligned to their own, while 44% of the respondents think the key talents would rather look for employers that offer competitive compensation packages. Global counterparts are even more convinced of this: two thirds of global CEOs believe that in the next five years shared social values will be the crucial factor in the employees’ decision to work for a certain organisation.
83% of the interviewees in Romania argue that a skilled, educated and adaptable workforce represents one of the most important priorities for society today. Also, the local CEOs believe that this should be among the top priorities for the Government. However, 73% of the executives mention that developing talented and flexible personnel is one of the main areas in which the business sector should collaborate with local and national authorities. This is why diversity and talent inclusion are indicators of competitiveness and an ever-growing number of CEOs are adopting a specific strategy in this respect. 92% of them focus on workforce rights and wellbeing, as an organisational area that they want to improve. And 55% of CEOs focus on identifying and developing leaders for tomorrow, as part of their talent management strategy. Having the right leadership pipeline is critical to achieving business and innovation goals.
New ways of measuring and communicating business success
Under pressure from technological changes which enhance the speed of information sharing and expose businesses in a direct way to public opinion, companies are at a crossroads that involves changing their business model. 88% of CEOs believe that business success will be defined by more than financial profit, and 52% of respondents say that their investors are seeking ethical investments. Thus, executives seem even more focussed on creating long-term value and ethics is making a strong return at the core of doing business.
Reshaping companies built on profit alone into ones where financial results and social purposes combine is not going to happen quickly or easily. But it’s a transformation already underway that businesses need to keep pace with.
Approximately nine out of ten CEOs say they implement multiple changes in the way they measure business success, reflecting the new criteria by which their organizations are evaluated. Also, they develop better tools to communicate drivers of success. Business leaders believe they need to better measure ‘harder’ areas such as major risks, innovation and strategy. At the same time, they think they should communicate more effectively on ‘softer’ matters – the purpose and values of the organization, non-financial indicators (e.g. image, reputation) and impact on the community. But customers increasingly want information about both the “hard” and ‘soft’ drivers of success. Technology and data analytics will play a big role here to ensure businesses are capturing accurate and comprehensive insights on their customers and their needs.
For successful organisations, reporting will also focus more and more on non-financial matters. At the same time, Corporate Social Responsibility (CSR) will not be limited only to certain programmes, but will become the core of all their activities. 38% of CEOs in Romania state that they are investing in a standalone CSR programme, while 43% argue that Corporate Social Responsibility is core to everything they do. Here we see a significant difference compared with their global counterparts, where 64% argue that CSR forms the foundation of all company activities. Also, 74% of respondents in Romania state that the company’s reports will take into consideration both financial and non-financial matters. Indeed, according to European Directive 95/2014 starting with 2017-2018 large companies will have to release non-financial reports that include environmental issues, actions taken to prevent corruption or money laundering and details on their CSR activities.
But all these endeavours to respond to greater expectations and to successfully navigate this new world require a constant and sustained effort from organisations. CEOs are aware that this could translate into additional costs of doing business. And half of the executives agree that this is the main barrier organisations encounter in their attempt to respond to wider stakeholder expectations.
No matter what the business size, the threats it faces are becoming more complex, running from geopolitics and regulation to cyber security, societal development, people and reputation. The organisation’s readiness to respond to a crisis becomes an increasingly important concern and a key factor of success and sustainability.
About the survey: PwC’s 19th Annual Global CEO Survey was conducted during the last quarter of 2015, with 1,409 respondents in 83 countries. In Romania were conducted 82 interviews with CEOs. You can download the full Romanian and Global reports or examine the results in detail at www.pwc.ro/ceosurvey2016 and www.pwc.com/ceosurvey.