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CEOs In Realigning Mode

Author: Dasari Sreenivasa Rao/Wednesday, November 4, 2020/Categories: Exclusive

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CEOs In Realigning Mode

Engaged In Charting New Strategies To Take Leverage Of Key Emerging Trends; Digital Transformation, Supply Chain, ESG Programmes & New Work Realities In Focus; India Inc Factoring In Headwinds Of Changing Risk Landscape

Keeping Prime Minister Narendra Modi-led NDA government’s optimism on economy revival aside, let’s look at what’s India Inc thinking of growth prospects amid fears over second wave of Covid-19 looming large over the nation? Majority of the industry players are not inclined to what the government assures, but believe in exploring new business plans to stay afloat in the current turbulent times of coronavirus epidemic. One-third of the CEOs in India have confidence in the country’s economic growth and 62 per cent of them altered their own compensation, as part of the broader objective of cost optimisation and cost management to sail through the pandemic. And challenges such as supply chain risk and digital disruption top the list of concerns for the India Inc, observes a latest study carried out by KPMG. 

Arun M Kumar, chairman and CEO, KPMG India, said: “The significant shift in CEOs priorities that we have witnessed over the last six months reflect the agility with which CEOs had to deal with the challenges of the pandemic. Looking forward, similar to their global counterparts, CEOs in India are less confident about global and domestic economic growth than they were at the onset of the year. Their earnings outlook is clearly challenged.”

CEOs in India witnessed accelerated progress in digital transformation during the pandemic and are likely to prioritise investments in new technologies to become future ready. As a result of Covid-19, CEOs in India have identified ‘lack of skills and capabilities in IT’ as one of the most significant challenges to growth, and are examining their wider societal contributions and company purpose. In the first study of its kind to measure how CEOs priorities and concerns have changed during the global pandemic, KPMG conducted two surveys, one at the onset of the pandemic in January and another in August 2020.

The KPMG in India 2020- India CEO Outlook: Covid-19 Special Edition report observed that the agenda of leaders has radically shifted since the beginning of the year, as existing trends like cost optimisation strategies, rethinking of supply chain strategy, enhancing ESG programs and aligning with the new work realties have accelerated.

To bring context and clarity to this new normal, KPMG interviewed 100 CEOs of leading business houses in India, first in January 2020 and then in August 2020, to understand their perspectives and gauge how strategic priorities have changed over the last six months. 

The sixth annual India CEO Outlook focuses on how business leaders in India are navigating through the current once-in-a-generation crisis and adapting to a new and a very different way of leading, managing and working. They are constantly reassessing their strategies to combat the damage caused by the pandemic.

“Against this global crisis, business leaders in India have a less-than-optimistic outlook towards a future that feels uncertain. Similar to their global counterparts, CEOs in India, we interviewed are less confident about the global and domestic economic growth than they were at the onset of the year. Their earnings outlook is clearly challenged,” said Kumar.

Accelerated Transition

Overall, three key themes emerged from this year’s survey, which KPMG refers to as ‘Propelled by purpose’, ‘Realignment of strategies’ and ‘Accelerated digital transformation’. The report said that crisis is redefining the standards for corporate leadership. Societal impact is high on the agenda; Environmental, Social and Corporate Governance (ESG) has come into focus. 

Kumar added “In the context of the pandemic, CEOs in India have recognised the importance of accelerated transition to digital business models. They believe that digital technologies are imperative to maintain customer trust and keep remote workforces connected. Consequently, they are prioritizing investments in new technologies to pave the way for a more sustainable and resilient future.”

Vikram Hosangady, partner and head (clients and markets), KPMG India, adds: “Whilst we are still sometime away from normalcy, there are some permanent changes to the way businesses will function going forward. The pandemic is another instance of how the new normal is a VUCA world and companies need to be nimble and innovate constantly to succeed.  If anything, Covid-19 has only acted as a catalyst to accelerate digital transformation with companies today spending more than what they originally planned for on digitisation in spite of uncertainty in earnings.”

Only 33 per cent CEOs in India are confident of the growth in their domestic economy and only 42 per cent are optimistic about growth prospects of their company, vis-à-vis 78 per cent and 84 per cent at the beginning of the year, respectively. This weakened view on the growth prospects is in line with that of CEOs globally. CEOs in India are also less confident of their companies’ earnings. About 19 per cent CEOs in India expect the earnings of their companies to either remain flat or decline. However, CEOs in India seemed to be better positioned than their global counterparts in terms of growth prospects of their companies’ earnings with 23 per cent CEOs globally foreseeing their companies’ earnings, stagnating or declining. CEOs globally feel a greater need to re-evaluate their purpose amidst Covid-19, than CEOs in India. 79 per cent of CEOs globally have had to re-evaluate their purpose, as compared to only 37 per cent of CEOs in India, highlighting the confidence that CEOs in India are placing on their current leadership approach and purpose. 

“Companies will resort to Zero-based budgeting on all discretionary spends for the next two- three years and question the very need for some of these spends. This is likely to make them leaner, meaner and significantly more profitable when growth returns. The importance of liquidity and the need to be moderately leveraged is also a key learning from this pandemic, something that companies should look at etching in their business plans for the future.” Remarked Hosangady.

Realignment of Strategies   

In India, Covid-19 has led to a dramatic shift in how business leaders are assessing potential risks now, compared to the pre-pandemic times. CEOs in India, while ensuring short-term survival of their companies, are likely to delve deeper into the impact of this crisis to realign strategies for long-term growth. One-third of CEOs in India highlight digital disruption as an imminent risk, a three-fold increase since January 2020. CEOs in India also view supply chain risk as a major threat. The number of CEOs highlighting this as a critical risk rose five-fold since the onset of the pandemic. About 89 per cent CEOs in India would continue to build on use of digital collaboration and communication tools. With remote working becoming the norm, 77 per cent CEOs in India believe they have access to wider talent pools and 48 per cent will consider downsizing their office spaces. Also 67 per cent CEOs in India want to realise climate change gains made during the pandemic. 

Focus On Digital Channels

CEOs have invested heavily in technology during the lockdown period and they are betting on major dimensions of digital transformation to make their companies more operationally resilient, agile and customer-focused. CEOs in India strongly believe that digital transformation will continue to be a central pillar in defining their company’s future prospects. As a result, companies are likely to strengthen their digital channels to enhance customer outreach. Given the pressing need to adopt technology across business functions, tackling threats such as cyber security and data privacy will be inevitable.

About 125 CEOs from India participated in a survey conducted by KPMG International in January-February 2020, before many key markets were beginning to feel the full impact of the pandemic. In August- Sep 2020, KPMG in India conducted a follow-up pulse survey of 100 CEOs across the country to understand how CEOs’ priorities have changed since the onset of the crisis.

The global economy slipped into a severe contraction thanks to the massive shock of the Covid-19 pandemic and related shutdown measures. The pace and extent to which economies and businesses are able to weather this slowdown is also uncertain. Hence, this is a matter of grave concern for business leaders. This is evident from the steep decline in the optimism of CEOs in India as well as globally around the economic outlook.

At the beginning of the year, 66 per cent CEOs in India were optimistic about the growth prospects of the global economy. This figure dropped to 18 per cent when we interviewed them in August 2020. While this loss of confidence appears to be more dramatic for the global economy, CEOs in India are not oblivious to the instability and turbulence in the Indian economy. Historically, CEOs in India have been confident on the domestic economy (79 per cent in 2019) as well as their companies’ growth prospects (94 per cent in 2019). However, with weakening consumption demand, lockdown measures, and uncertainty around vaccine development and deployment, their confidence in the growth prospects for the domestic economy as well as in their own companies has dropped significantly.

With businesses hit hard by Covid-19, CEOs in India are also less confident of their companies’ earnings. About 19 per cent CEOs in India expect the earnings of their companies to either remain flat or decline. However, CEOs in India seemed to be better positioned than their global counterparts in terms of growth prospects of their companies’ earnings with 23 per cent CEOs globally foreseeing their companies’ earnings, stagnating or declining. CEOs in India also mentioned that they are considering a partial reduction in salary for the rest of the year. Also, companies intend to consider other strategies such as recalibration of the workforce and adoption of digital technologies to gain long-term efficiencies.

The pandemic has not only impacted the confidence of CEOs in India, it has also had a bearing on their companies’ future earnings. Additionally, it has had a profound consequence on people’s health and society in general, challenging CEOs in India with a formidable test of their leadership abilities and personal resilience. Consequently, business leaders are using this time to reflect and drive their organisations with humility and empathy.

Cost Optimisation

Hosangady further elaborated that “we believe companies will resort to zero-based budgeting on all discretionary spends for the next two- three years and question the very need for some of these spends. This is likely to make them leaner, meaner and significantly more profitable when growth returns. The importance of liquidity and the need to be reasonably leveraged is also a large learning from this pandemic, something that companies would etch in their business plans for the future.”

Hosangady further said that the pandemic has also decidedly reminded companies on their need to create redundancies in their supply chain and India Inc could be a big beneficiary of even a small shift. We have already seen signs in chemicals, pharmaceuticals and industrial goods and if we see momentum on the ‘Make in India’ theme, this could be a huge lever for GDP growth and employment in the next decade. Additionally, to combat the current slowdown in earnings, CEOs in India are focusing on cost optimisation and cash management initiatives, taking necessary measures to cut their companies’ overheads. “There can be no denying that the human cost of the pandemic has been catastrophic, both in terms of lives and livelihoods that have been lost, but we think some of the trends that are emerging could actually reshape a better and sustainable future for several companies as they shift through the recovery phase,” stated Hosangady.

The writer is a business journalist with 27 years of experience

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