IoD Rules Review

Reminder for IoD members: Have your say on the proposal to change the IoD Rules. Log in for more information.

COVID-19 updates

CEOs adapting to COVID-19

KPMG’s Executive Chair Matt Prichard reflects on the fascinating shift in priorities revealed in its latest CEO Outlook survey and pulse-check.

type
Article
author
By KPMG
date
8 Dec 2020
read time
5 min to read
Road ahead amongst bushes

CEOs around the world are grappling with the operational, market and financial impacts of the COVID-19 crisis. Thanks to a CEO Outlook survey conducted at the beginning of 2020 and a subsequent pulse-check survey conducted mid 2020, KPMG has had the unique opportunity to understand how CEOs’ priorities have evolved as a result of the pandemic.

  • CEOs globally are saying their focus on purpose is helping them make decisions in a crisis.
  • Talent risk has become the highest priority for CEOs globally.
  • New Zealand CEOs are more confident about their supply chains than their global and Australian peers.
  • Dealing with the crisis has pushed climate risk down the immediate priority list.
  • New Zealand CEOs are surprisingly confident about their rapid digitisation.

Purpose in a crisis

CEOs reported becoming more purpose driven in the face of COVID-19 and the associated economic crisis, with KPMG’s CEO Outlook pulse-check showing nearly 80% of global and New Zealand CEOs surveyed feel a stronger emotional connection to their organisation’s purpose since the crisis began.

Purpose-driven organisations have a clear sense of why they do the things they do. We’ve always associated that with better long-term strategic decision making, brand building and customer loyalty. However, the latest KPMG CEO Outlook pulse-check also shows the benefit of a strong purpose for shorter-term decision making in the face of a crisis.

When surveyed in July, 80% of New Zealand CEOs reported that their purpose provided a clear framework for making quick and effective COVID-19 related decisions, and 72% reported their purpose was helping them drive immediate actions to address the needs of their stakeholders.

Talent risk the new highest priority 

Talent risk has dramatically increased as a perceived threat to organisational growth. Globally, CEOs ranked it as their top risk, while for New Zealand CEOs it’s now ranked as their second greatest threat behind cyber security.

This is a seismic shift given that prior to COVID-19 talent risk hadn’t even registered in the top 10. We believe it’s likely that this shift in perception reflects major changes in both demand and supply.

CEOs rely on top talent to execute change. What we’re seeing and hearing from CEOs in the face of the current crisis is that they’re making decisions in days that previously would have taken months and that they’re executing change in a matter of weeks that previously would have taken years. For many organisations, the pace and scale of this kind of change requires a different set of skills than those possessed by the incumbent team, which creates a talent gap.

Pre-COVID, New Zealand CEOs were able to source experienced talent with applicable skill sets both locally and globally, with Australia, South Africa, Asia and Europe proving particularly fertile grounds for recruiting. But border closures have completely cut off the international talent channel and we expect to see an increase in tension in the domestic market for rare skill sets, creating a supply challenge.

We are also starting to see more acceptance of a true global virtual market, where businesses are open to key roles being filled by a person working virtually from somewhere else in the world.

Confidence in our global supply chains

Our survey results indicate that, by mid-year, New Zealand CEOs had become much more confident about managing the risk in their supply chains than their Australian or global peers.

The detailed results of the pulse-check indicate that by this time, New Zealand CEOs had taken actions which justified their confidence. Two-thirds of New Zealand CEOs said that the global pandemic caused them to rethink their global supply chain approach. Whilst their Australian and global peers then rated it as one of their highest risks, Kiwi CEOs’ confidence meant it didn’t make their top 10 perceived threats.

That difference to the Australian attitude is interesting. New Zealand is currently in a less challenging geopolitical environment than Australia in key markets such as China. The volatility of that Australian position, and the possibility of action and reaction between governments, is likely to be driving Australian business concerns about supply chain risk. Another core difference to Australia is that iron ore, gas and coal make up the bulk of their trade and are seen as more correlated to economic activity in those key markets than our food and fibre base.

Our conversations with New Zealand exporters indicate they are acutely aware of the level of dynamic risk at play and how their supply-chain performance is reliant and dependent on other interrelated industries, be it pallet manufacturers, container availability, air-freight volumes, insurance, logistics or other.

The urgent trumps the important on climate change

Prior to COVID-19, over half of New Zealand CEOs told us that their growth will be determined by the ability to transition to a low-carbon and clean technology economy. Several months later, our survey results show the number of New Zealand CEOs that perceive environmental and climate risk as the greatest threat to growth has halved. It is, however, still considered a key organisational and individual material risk.

Climate change may not be the greatest threat to short-term growth right now, but global challenges like climate change are still considered the predominant threat to long-term growth and company value. The fact that climate change still features so prominently in KPMG’s pulse-check as a significant factor for global and local CEOs is remarkable given our current context of COVID-19. This combined perspective on short- and long-term risk provides an opportunity for organisations to plot their course with a more comprehensive perspective on risk, opportunity and resilience.

Pre-COVID, New Zealand CEOs generally agreed that business growth would significantly depend on ethical conduct and that long-term sustainable success requires more than financial growth. However, it appears to be easier said than done, with 52% of CEOs surveyed feeling they lack support from board and investors to do this and 54% struggling to link societal purpose to their organisation’s growth strategy.

Managing environmental, social and corporate governance (ESG) risks and opportunities is critical for long-term growth and our CEOs are feeling the pressure to act from both employees and customers. KPMG’s CEO Outlook pulse-check shows New Zealand CEOs are feeling three times as much pressure for greater ESG transparency and reporting from employees than their global counterparts and our consumers expect higher standards of sustainability from corporations.

Suprising kiwi confidence on digitisation 

Half of New Zealand CEOs surveyed told us that the digitisation of operations and the creation of a nextgeneration operating model has sharply accelerated, putting them years ahead of where they expected to be – a result which shows a much higher degree of confidence than their global peers.

Since our government announced the first move to alert level three lockdown on March 23, CEOs tell us their technology teams have been pulling rabbits out of hats to enable organisations to continue to operate and transact, with technology innovation being introduced at speed.

However, it’s unclear whether the change we’re seeing in the New Zealand market warrants the confidence shown by our CEOs compared to their global peers.

While achieving years’ worth of progress in the space of four months is unlikely, we understand the basis for the optimism. The technology is working. Cloud technology is delivering rapid value. Customers and staff are online and have been forced to change their behaviour because of COVID restrictions. Many organisations that had digital capabilities as a small part of their delivery model are now using digital as the primary (or only) delivery model.

Progress is definitely good. However, it feels like there is much to be done, particularly when it comes to operating models. There’s a big difference in the operating model of a business with 5% of its revenue from click and collect to a business with 25%. The latter business might, for example, need to switch its technology focus from order generation to fulfilment automation.

With 82% of New Zealand CEOs surveyed stating they are personally leading the technology strategy for their organisation, and 80% stating that they are partnering much more closely with their CIO to ensure they harness the potential of emerging technology, it makes us optimistic that this progress can be sustained.

 

The article is featured in the October/November issue of Boardroom magazine

Related content