CEOs from the world’s leading energy companies show solid confidence in their growth prospects – an optimism shared with peers in other sectors. However, energy executive views diverged notably when asked about their strategic priorities, top concerns, and their ability to introduce innovation and disruptive technologies.
These are among the key findings of KPMG’s 2016 Global CEO Outlook, which surveyed nearly 1,300 top CEOs in 10 countries on their growth expectations and strategies over the next 3 years. Distinct challenges are highlighted when the perspectives of energy leaders are compared to executives from 10 other industries.
Despite continued economic uncertainty, energy executives exhibit strong confidence in growth of the global economy, their country, industry and company, at levels that surpass even the broad confidence in other sectors.
For example, 81 percent of energy executives are confident in the global economy over the next 12 months, compared to 70 percent of all industry respondents. Optimism in their own company’s growth also exceeds other sectors, with 44 percent describing themselves as ‘very confident’ over the next 12 months, in contrast to 36 percent in other industries.
This near-term bullishness is fueled by CEO sentiment that conditions are now at their peak. Sixty percent of energy executives say they believe their country is in its peak growth period (vs. 48 percent in other industries) and 49 percent believe their industry is in a phase of peak growth (vs. 44 percent in other industries). This broad enthusiasm among energy executives translates into expected growth between 2 and 5 percent over the next 3 years, according to 51 percent of respondents.
When asked where they expect to derive this growth, the most popular response among energy executives is new markets, with 32 percent describing this as their most important avenue for success, and far exceeding other industries, in which 25 percent believe new markets are most promising. Energy executives ranked new customers, new channels and new products as their second, third and fourth most crucial sources of growth, respectively.
In light of energy executives widespread view that new markets hold the most potential, geographic expansion is naturally among the top four areas in which they plan to devote sizable resources within 3 years.
Energy executives investment plans also hint at other strategic priorities, since 29 percent plan to invest in cyber security solutions, 24 percent will expand their facilities and 23 percent will increase staffing in locations with lower labor costs.
Such defensive tactics also emerged when energy executives listed their top four strategic priorities over the next 3 years. Responding effectively to regulatory change ranked first among 22 percent of energy leaders, versus 14 percent in other sectors. Issues such as talent development, fostering innovation and minimizing cyber security risk also ranked high among 19 percent, 18 percent and 18 percent of energy executive respondents, respectively.
Preparing to make the most of an uncertain future was clearly a prominent theme, as 48 percent of energy CEOs plan to streamline internal processes. Forty-three percent plan to restructure their organizations, which is markedly higher than other industries, where 36 percent of executives expect to do so. It appears that such restructuring is often intended to drive innovation, since 43 percent of energy executives say they will adopt a "fast fail, fail cheap" approach to execution.
To leverage opportunities, energy CEOs show strong enthusiasm (65 percent) for inorganic growth to drive shareholder value in the next 3 years, whereas 55 percent of other industries favor acquisitions or joint ventures. Energy sector interest in organic or collaborative growth through partnerships is also high, but proportionately lower than in other sectors.
Energy leaders also express solid interest in transactions to support their growth, with 53 percent now considering changes to their capital structure through debt financing, in contrast to 45 percent of respondents in other sectors. Energy executives are also open to changes to equity capital structures, business and asset sales and partnerships or joint ventures to energize their strategies.
It’s not surprising that innovation ranks high among energy CEOs, since a healthy majority predict that their company will be transformed into a significantly different entity over the next 3 years (55 percent of energy respondents versus 45 percent from other sectors).
Energy leaders also show confidence that they have strong innovative capabilities in place. In fact, 43 percent of energy CEOs say that their company is taking an ‘accelerated’ approach to innovation, by which innovation occurs regularly through a defined approach, available tools, processes and resources. Just 35 percent of other industry leaders labeled themselves in this top tier of innovators.
This belief in the value of innovation is reinforced by the fact that a large majority of energy CEOs say innovation is one of the top three issues on their personal agenda (72 percent versus 65 percent in other industries).
This strategic thrust has prompted many energy companies to apply disruptive technologies to improve product/service offerings (65 percent) and improve non-financial reporting (60 percent).
Despite their professed emphasis on innovation, energy CEOs acknowledge that there is room for improvement. Only 21 percent of energy respondents say their organizations are considered leaders in the use of data & analytics (D&A), compared to 30 percent in other sectors.
Energy sector respondents were most likely to say they use D&A to manage risk, aid maintenance and service, improve financial reporting or track ROI on training investment. In contrast, a higher percentage of CEOs from other sectors are using D&A to drive process and cost efficiencies, drive strategy and change, and develop new products and services.
Although the KPMG survey highlights strong confidence within the energy sector, optimism among the industries is tempered by unease about various operating factors. For example, 21 percent of energy CEOs say that global economic factors are the biggest risk they face, in contrast to 16 percent of other industry leaders.
Although energy executives share similar concerns with other sector leaders – from sliding customer loyalty to poor preparedness for a cyber-attack, energy executives stand out in claiming that regulations will inhibit their growth over the next 3 years, a view held by 36 percent vs 28 percent across all other industries. In addition, many energy executives acknowledge that reputational risk could represent the biggest threat to their growth over the next 3 years (12 percent vs 8 percent in other industries).
While facing a wide range of business concerns, energy CEOs also share a common worry with their colleagues in other sectors, with more than 91 percent agreeing or agreeing that "I am concerned about the amount of time I have to personally think strategically about the forces of disruption and innovation shaping our company’s future."
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Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm.