Rampant inflation fears, geopolitical tensions and the shadow of COVID-19 pandemic are the critical threats occupying the minds of CEOs. Findings from the EY CEO Outlook Pulse - October 2022, a global piece of research conducted by EY, show that most CEOs see inflation as a critical risk, with the majority of respondents (69%) predicting it will negatively impact their company's performance and growth. That majority includes 16% who identified inflation as the single biggest threat to their company's revenue and margins.
Global energy prices have risen sharply, primarily as a result of Russia's invasion of Ukraine. In April 2022, the World Bank warned that expensive food and energy costs will be with us for the next three years, stoking fears of weak growth and high inflation as happened in the 1970s. Inflation in Malta has remained well below the European average, supported by over €1bn in forecast government subsidies across 2022 and 2023 for energy, fuel and food costs, to help maintain a positive business environment. However, government support cannot cover all fronts, and many companies are seeing major price increases across raw materials, components and finished goods imported for resale.
Inflation is not the only challenge business leaders need to grapple with. Geopolitical disruption and volatility are set to persist, which will also affect global economic growth and inflation. Indeed, there are multiple disruptive forces shaping the global operating environment, including climate change, technological innovation, demographic shifts, talent shortages, supply chain disruption and the rising influence of non-state actors. This creates a highly uncertain outlook for the future of globalisation.
In an increasingly uncertain and opaque environment, CEOs need to revisit their existing business strategies and challenge the implicit assumptions that underpin them. Will local economic growth trajectory persist if Europe enters into a recession? How and to what extent will external factors impact different segments of my customer base and what are the implications for my revenue and my competitors? Should I focus on investing in my existing business to accelerate growth organically or should I harness M&A to drive inorganic growth when company valuations are down? Will I be able to find the financing or re-financing I need to support growth and business operations, and if so, at what cost? What return do I need to generate from my investments when the cost of capital is higher? Which new KPIs and related business drivers do I need to identify and prioritise to drive my strategy forward?
Strategy development is a complex process which is compounded in times of volatility and uncertainty. The part that follows, strategy execution and implementation, is often just as complex and where we see many companies fail.
In 2021, EY and the University of Oxford's Saïd Business School formed a research collaboration. Our research highlighted that 85% of senior leaders have been involved in two or more major transformations in the last five years alone. Two-thirds (67%) of those we surveyed said they have experienced at least one underperforming transformation during this time.
It's a staggering, if unsurprising, statistic. More staggering is that companies continue to accept this rate of failure as the price of change. In any other context, and by any other standard, this level of performance would be completely unacceptable. Our research highlights that complex factors influencing a transformation's success or failure are rooted in human emotions. These findings are largely consistent regardless of industry or geography.
The transformation journey is neither linear nor easy. There will be twists and turns along the way. The key is to embrace change in a structured way, create a culture of both discipline and experimentation, and use technology to quickly realise the vision, and learn as you go. Effective programme management is critical, as is prioritisation, and being able to deliver those highly visible successes that make a big positive difference to either your staff or customers. These wins cultivate the right mindset needed to drive change. Where legacy cultures embraced a command-and-control, top-down hierarchical approach, with leaders setting the vision and workers executing, today's constant state of transformation requires interdependency and collaboration.
Business strategy in times of volatility and uncertainty will be a topic for discussion at EY-Parthenon's Malta Future Realised conference. Panellists include Hili Ventures CEO and Chairman, Melo Hili; Natalie Briffa Farrugia, Chairperson of Vassallo Group; Kenneth Farrugia, CEO of Bank of Valletta plc; Falco Weidemeyer, EY-Parthenon Global Head of Restructuring; Luca Martini, EY-Parthenon leader for Central, Eastern and Southeast Europe and Central Asia with the discussion moderated by Theo Dix, EY-Parthenon leader for Malta.
Tickets and further information are available at www.ey.com/en_mt/events/malta-future-realised-2022
Theo Dix is the Malta Leader at EY-Parthenon