COVID-19 Is Proving to Be More of a Marathon Than a Sprint
At the start of 2021, many forecast that by year-end, the majority of the world population would be vaccinated and that most economies would shift into expansionary mode. However, one year later, only 44 percent of the global population is fully vaccinated, and herd immunity has yet to be achieved.[1] Our 2022 C-Suite Outlook survey shows that the pandemic will continue to shape a uniquely challenging business and human capital environment. Rising inflation, labor shortages, supply chain disruptions, and changing consumer behaviors are the high-impact events that are top of mind for CEOs and other C-suite executives. Each is directly tied to the pandemic, yet each also threatens to take on a life of its own. Executives will look to digital transformation, business model innovations and better cash flow management, more flexible supply chains, a values-based corporate culture, and innovative human capital management to respond.
Are organizations ready to seize opportunities in the coming year? Strategies for deflecting pricing pressures and transitioning to the appropriate fit for an emerging work-from-anywhere model show agility in action. Yet confidence levels in managing through the next big global crisis vary within organizations. Functional leaders—the C-suite team—generally believe that their organizations are now better prepared to handle a range of future potential systemic disruptions. CEOs are generally less likely to agree. The gap is widest regarding cybersecurity threats. Yet there is consensus on climate change: just one in four agree that their organization is prepared for a major crisis related to an extreme weather event. The past two years have shown that organizations can learn to deal with a global crisis. The key in preparing for the next one lies in developing processes to model possible events and to proactively build contingency plans.
This year’s survey, our 23rd, focuses on the external stress points the C-suite faces and their impact on strategies. We also explore C-suite views on the benefits and risks of hybrid work models, and priorities related to environmental, social, and governance (ESG) matters. This survey was conducted between October and November 2021, with 1,614 C-suite executives responding, including 917 CEOs across the globe.
Insights for What’s Ahead
Inflation concerns are skyrocketing. Over half of CEOs globally (55 percent) expect elevated pricing pressures to last until mid-2023 or beyond. Inflation has jumped to the second-highest external threat to business from the 22nd in our 2021 survey. Most respondents, including 95 percent of CEOs based in manufacturing, say they’re currently facing upward pricing pressure for inputs (e.g., raw materials, wages) due to supply chain bottlenecks, labor shortages, and volatile energy prices. To cope, they plan balancing actions that include cutting costs, passing increases downstream to consumers and end users (the strategy most favored by US CEOs), and absorbing price increases into profit margins (though there are currently few signs that CEOs are willing to take this action). Few see changing vendors as a viable solution—likely a reflection of tight supplies.
Less than 40 percent of CEOs believe their organization is “well prepared” for an inflation-related crisis. They’re prioritizing strategies like agile team work to move their organizations up the learning curve. Many CEOs are running organizations whose workforce, including C-suite executives, has likely never experienced inflation’s broad influence on product pricing and sourcing decisions, customer relations and cash management, and above all, on wages. Agility builds a cadenced resilience in the way an organization makes decisions during periods of heightened uncertainty, allowing it to make short-term commitments and to extend those commitments if needed, depending on real-time, market-based realities.[2] This approach supports both the acceleration of digital transformation and the modification of business models—two high-priority internal focus areas for CEOs in 2022. In a previous C-Suite Challenge™ survey, CEOs identified the critical traits that make organizations better equipped to predict and respond, including effective and engaged change leaders, an open and transparent “speak-up” culture, communicating consistently and transparently at all organizational levels, and effective use of quantitative analytics to inform decision making.[3]
Labor shortages drive talent retention and recruitment to the top of the CEO agenda in 2022. As bargaining power shifts from employers to workers, companies should prepare for higher wage and benefit costs along with increased turnover in 2022. A wage-price spiral—where higher prices and rising wages feed each other, leading to faster increases in each—may already be in the works in some industry segments or regions within economies.[4] A survey by The Conference Board in November showed an estimated 3.9 percent rise in US salary budgets in 2022, the highest since 2008.[5] There is continued interest in automation as a solution to shortages. Scarce labor highlights the importance of innovative worker-friendly policies.[6] Some of the quickest and most impactful solutions involve making changes to the recruitment process, such as adding or modifying employee referral programs, contracting with staffing firms, implementing new/advanced technologies to streamline recruitment and better target candidates, and shortening the recruitment process with fewer interviews and faster hiring decisions. Another strategy involves expanding into new recruitment demographics and geogra-phies.[7] Other recruitment and retention strategies include increasing flexibility for work virtually, finding ways to retain older workers, and cultivating a speak-up work environment where effective and empathetic managers support workers’ needs for work/life balance, and organizational policies are designed to reduce friction. Organizations are “re-recruiting” existing employees to help them see a new path forward and recognizing the sacrifices employees have made over the past two years. Addressing workers’ desire for greater flexibility across virtually every aspect of the new work “contract” underpins these strategies.
Remote work, vital to many firms’ survival during lockdowns, is here to stay. Executives in 2022 will seek to find the right flexibility formula for their business. CEOs globally expect the number of remote employees will significantly exceed prepandemic levels even once the pandemic subsides. The long-term impact could be far-reaching in the US, with 53 percent of CEOs planning for at least 40 percent of employees to be working remotely after the pandemic subsides, up from 28 percent prepandemic (but down from 78 percent during the pandemic). “Hybrid or remote work” is defined in this survey as working three days or more per week away from the physical workplace. The embrace of hybrid work carries important implications for worker productivity and how organizations hire, lead, and foster a distinct culture. It will also drive workers’ decisions about where they live and choose to spend their money. Talented people can now reasonably expect opportunities to work when and where they like—and may be prepared to seek employment elsewhere if these choices are denied to them.
Employees don’t want to return to what was. Organizations need to create a compelling future vision of the workplace. CEOs, as well as other C-suite leaders, believe that a hybrid model, where a number of employees work together on site some of the time, will increase competition for talent. Around 40 percent of CEOs globally also expect this model will lead to improvements in worker productivity as well as an increase in innovation capacity—long-standing goals for many CEOs. Yet survey responses also indicate concerns that these benefits will come at the cost of the kind of relationships that build strong and successful working cultures over the long run. A majority (61 percent) believe a significant shift in corporate culture will be required for hybrid work to work well in their organizations. More than 85 percent of CEOs and other C-suite executives say a high-performing hybrid work model demands more focus on what makes for effective internal communication and management skills for team leaders and executives. Being clear and decisive about how much hybrid work will be allowed and in what types of jobs, how workers are compensated, and where workers can be located will be crucial. Future hiring, retention, and innovation will depend on organization-wide clarity around these issues.[8]
CEOs expect supply chain disruptions to be a high-impact issue in 2022. Current short-term remedies, such as earlier advance orders and higher inventory targets, have increased volatility and amplified the inflationary effects of shortages. Strong demand for goods and insufficient supply may keep order backlogs elevated, increasing costs for manufacturers and the businesses they supply. Geopolitical tensions contribute to the uncertainty, a key downside risk to The Conference Board outlook for the global economy in 2022.[9] The US and China may intensify trade actions that treat each other as economic and political competitors. Our survey shows that supply chain disruptions, a top-five external stress point for CEOs globally, are being most acutely felt in the US and Europe, as well as in the manufacturing sector. Adapting to new conditions will take time—when governments shut down economic activity to manage the pandemic, supply chains seize and are not easy to start back up.[10] While some short-term supply chain solutions are expensive (air freight, onshoring, leasing of cargo ships, storage, including cold storage), companies that are able to be agile about how they source will reap the rewards. And there’s a silver lining to this situation: potential profits. Scarce goods can mean higher prices, potentially bigger margins, and less discounting.[11]
COVID-19 drove a decade’s worth of digital transformation. Expect the stepped-up pace to continue in 2022. This is the second-highest priority for CEOs globally for 2022. Adopting digital technologies and ways of working are seen as a pro-customer growth strategy and cost-efficiency measure, and increasingly as a source of productivity gains at a time of acute talent shortages and rising wage costs. Investment in technology is only a piece of the digital transformation puzzle. It also requires attention to change management, process reengineering, and workforce upskilling to enable a sustainable, competitive advantage.
Business models are being modified as CEOs strive to improve the customer experience. In an era of hyper-connected customers, where the experience is as important as the product or service itself, CEOs recognize that shifts in how customers spend and make decisions will have a major impact on their organizations in the coming year. Modifying the business model and becoming more customer-centric are top-ten issues for CEOs globally. Real-time insights on changing consumer behaviors and attitudes are already differentiating marketing functions. Going forward, go-to-market strategies that emphasize customer experience will be crucial to success.
Stakeholder capitalism—the idea that businesses promote the long-term welfare of all their constituents, not just shareholders—has become a primary focus for CEOs. The interests of customers and employees, whose voices are being amplified instantaneously around the world through social media, are front and center in corporate strategy deliberations. Asked which groups are most important when their board and C-suite are making decisions, CEOs, and their C-suite colleagues rank customers first, employees second, and shareholders third. For CEOs globally, evolving stakeholder expectations of the role of business in society ranks far above shareholder activism as a factor expected to have an impact on their company this year.
Admitted lack of preparedness for potential future shocks and crisis. More than 40 percent of CEOs globally say their organizations are well prepared for a major crisis related to a pandemic, financial instability, or an economic downturn. However, less than 40 percent say they’re well prepared to meet the challenges posed by a major crisis related to inflation, cybersecurity, supply chain disruptions, or climate change. This may raise questions among stakeholders, especially investors, about the resilience of some organizations. Companies’ preparedness measures, such as increasing the resiliency and capacity of supply chains and having a climate change strategy or a strong cybersecurity and business continuity plan, signal to stakeholders that a company has an informed and comprehensive approach to responding to future disruptions, either natural or man-made.
Endnotes
1 Dana M. Peterson, "StraightTalk® A Deep Dive on Risks to the Outlook," The Conference Board, December 2021.
2 Jeff Gothelf, “Bring Agile to the Whole Organization,” The Conference Board, March 2015.
3 Charles Mitchell, Ilaria Maselli, Rebecca L. Ray, and Bart van Ark, “C-Suite ChallengeTM 2019: The Future-Ready Organization,” The Conference Board, 2019.
4 Gad Levanon, “Labor Shortages Are Making a Comeback,” The Conference Board, May 2021.
5 Gad Levanon, “2022 Salary Increases Are the Highest Since 2008,” The Conference Board, December 2021.
6 Levanon, “Labor Shortages Are Making a Comeback.”
7 Gad Levanon, Layla O’Kane, Jennifer Burnett, Julia Nitschke, Frank Steemers, and Bledi Taska, “How Employers Combat Labor Shortages,” The Conference Board and Emsi Burning Glass, December 2021.
8 Levanon et al., “How Employers Combat Labor Shortages.”
9 Peterson, “StraightTalk® A Deep Dive on Risks to the Outlook.”
10 Erik Lundh, Ilaria Maselli, Ataman Ozyildirim, Konstantinos Panitsas, Uwe G. Schulte, Klaas de Vries, “The Future of Global Supply Chains: Five Trends,” The Conference Board, December 2021.
11 “Supply Chains: Where’s Our Stuff?,” The Conference Board, podcast, November 2021.
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