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The choice between agile and irrelevant

CEO Outlook: The choice between agile and irrelevant

The choice between agile and irrelevant

Stefan Pfister | Partner,

Every year, KPMG surveys more than 1,300 CEOs from around the globe to ask about their biggest challenges and documents its findings in a study. This year’s CEO Outlook paints a mixed picture for the near future. Last year’s optimism might still hold true with respect to the CEOs’ own organizations, yet this time it is accompanied by a variety of concerns. Anxiety expressed in the previous year about existential threats and geopolitical volatility have intensified in 2019. We currently find ourselves in an era of unprecedented change and have a choice to make: Either we are agile and adapt successfully – or we hold on to the status quo and become irrelevant.

Climate change, digitalization and political uncertainty pose the biggest risks

Most CEOs compare global developments with “uncharted waters” through which they must steer their company safely. Ongoing digitalization has put proven business models under enormous pressure to adapt. The technology risks associated with it, alongside climate change and the growing trend toward territorialism seen in most countries, are mentioned as the biggest factors of uncertainty. Confidence in the global economy has fallen significantly: Just under two-thirds (62%) of the CEOs surveyed were optimistic about global economic growth, compared with 92 percent last year.

5 biggest risks

Fig. 1: The five biggest risks remain the same, but now environmental/climate change risk tops the list around the globe.

In Switzerland, too, political and economic uncertainty dominates corporate leaders’ agenda: The important framework agreement with the EU still hangs in the balance and is under fire for different reasons in various political spheres. Moreover, now that the Corporate Tax Reform has been approved by a clear majority at the federal level, the question arises in many cantons as to whether the reform can actually be implemented.

From an economic perspective, therefore, the upcoming National Council elections in the fall might not just bring good news. Finally, the KOF Swiss Economic Institute of ETH Zurich is warning about significant economic risks, in part due to the Swiss economy’s heavy dependence on exports.

Uncharted waters also offer opportunities

Fortunately, “uncharted waters” are always accompanied by a host of opportunities that can be leveraged both successfully and profitably – even in Switzerland. Corporate leaders are therefore focusing on making their companies more agile and resilient in order to strengthen their own growth momentum and ensure their ability to respond quickly and effectively to external disruptions. Mergers and deals will play a key role in the companies’ growth strategies in 2019 as well. Acquisitions of innovative digital companies will constitute an important part of their efforts to rapidly build up digital expertise.

In the future, emerging markets will play a decisive role in global economic growth – 63 percent of the companies surveyed worldwide prioritize emerging markets for medium-term geographical expansion, while the rest (36%) plan to prioritize industrialized countries. And nearly two-thirds (65%) of those companies that are prioritizing emerging markets prefer to target countries that will be along China’s new Silk Road. Switzerland’s most important sales market by far for goods and services remains the EU, and Germany in particular. In 2018, exports to the EU totaled CHF 135 billion, of which Germany alone accounted for CHF 47.3 billion. By contrast, Swiss companies exported goods and services worth CHF 40.1 billion to the USA and CHF 29.6 billion to China.

Mistakes as a source of inspiration for innovations

One fascinating insight revealed by this year’s “CEO Outlook” comes from the question of how companies deal with innovation and how their corporate culture views mistakes. The echo is clear: In today’s world, CEOs must be willing to accept mistakes and use them as a source of inspiration for innovation and creativity. Otherwise, they will struggle to respond to disruptive technologies and to adapt their own added value both efficiently and profitably. In line with this, 84 percent of the CEOs surveyed around the world say they are striving to establish an error-tolerant culture – employees should be able to work on innovation without having to fear that errors or mistakes might have negative consequences. However, only 56 percent of the companies say that this kind of culture is already in place.

Percent of CEOs who say that their sector has a culture where errors and mistakes are accepted

Fig. 2: Percent of CEOs who say that their sector has a culture where errors and mistakes are accepted as part of the innovation process.

More Swiss businesses need to adopt a culture that encourages “failing fast” so we don’t run the risk of losing our innovative edge over our global competitors. In cycling they say: It’s harder to stay at the top than it is to reach the top. The underlying figures concur: In 2017, Switzerland spent 3.37 percent of its GDP on research and development.

Swiss organizations alone account for around three-quarters or CHF 15.6 billion of these investments. Universities, too, play an important role in this and invest around CHF 6 billion. Only South Korea and Israel are ahead of Switzerland in terms of research and development.

Read the full report: 2019 Global CEO Outlook