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Irish CEOs’ growth ambitions are undimmed by global disruptions as they reset their strategies to adapt to a changed environment.
In brief
- M&A will remain a key tool for companies with ambitious growth strategies.
- Irish CEOs said they were adjusting their supply chains to reduce logistics costs and increase resilience.
- Irish organisations need to align their sustainability strategies and ambitions with the expectations of their stakeholders and investors.
The impact of two years of intense global disruption due to the COVID-19 pandemic and other geopolitical issues are being felt globally, with escalating energy prices, commodity shortages, and supply chains getting upended.
In this edition of the CEO Imperative Series, we explore how Irish CEOs are responding to the pandemic recovery and suggest actions to help them fuel growth in the year ahead. The CEO Outlook Survey, which is part of the CEO Imperative Series, is based on a total global sample of more than 2,000 CEOs across 51 countries¹.
Research for this edition of the CEO Imperative Series was completed at the end of 2021 before the current global disruptions. However, the results remain valuable and relevant as they reveal a future-facing mindset amongst CEOs of leading Irish organisations who are looking beyond short-term pressures to invest in long-term value creation. They are focused on transformation, while resetting their risk radar and reframing their investment strategy for growth in a changing business landscape.
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Chapter 1
Changed for the better and ready to meet fresh challenges
Irish organisations are ready to seize new opportunities.
Almost all Irish CEOs surveyed (97%) said the pandemic has had some impact on their industry with 37% saying it had fundamentally reshaped it for the better.
Ireland’s economic structure skews towards sectors that performed relatively strongly during the pandemic, namely Information and Communications Technology (ICT), life sciences and agri-food. Irish growth was amongst the strongest in the world and that helped businesses to feel more confident and embrace the positive changes that the pandemic brought about in terms of ways of working, technology adoption and flexibility. The level of confidence was also helped by swift and significant government support to protect incomes and preserve businesses which helped to cushion adverse impacts.
In a constantly disruptive world, being agile and seeking opportunities is an imperative.
Even before the current global disruptions, Irish CEOs were mindful of geopolitical risks when considering their future growth strategies. Indeed, increasing geopolitical tensions, trade conflicts, and protectionism was cited by 28% of CEOs as representing the most critical risk to their future growth. This was followed by changing demographics and economic growth trajectories which was mentioned by 21% of respondents. 73% of Irish CEOs said geopolitical challenges were forcing them to adjust their strategic investments. Of those, 45% said they were accelerating cross-border investments.
In our survey, 94% of the Irish CEOs said they were already reconfiguring their supply chains, primarily to manage geopolitical risks. To a lesser extent, Irish CEOs said they were adjusting their supply chains to reduce logistics costs and uncertainty as well as increase resilience. Those moves saw nearly a quarter (24%) of the Irish respondents increasing supplier numbers to boost resilience.
“While supply chain strategy has been of significant importance for successful businesses for decades, recent global developments have thrust supply chain security and resilience into the spotlight. Supply chain disruptions are likely to intensify even further and have a ripple effect across the world as China doubles down on its zero-COVID strategy. Businesses need to undertake a root and branch analysis of their supply landscape, including second and third tier, to ensure that the strategy in place still holds true,” said Alan Dickson, EY Ireland Director, Consulting and Procurement and Supply Chain.
In addition to the pandemic and geopolitical issues, the threat of inflation too looms. At the time this study was conducted, every Irish CEO we surveyed said that they had seen a significant increase in input prices, with 41% saying they had seen the largest increases in transportation and logistics. This is unsurprising given that freight rates have jumped more than 400% from their 2019 levels². Add mounting warehousing costs and sales lost due to delays, and it all adds up to an increased cost of doing business across the board for Irish organisations.
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Chapter 2
M&A to remain key driver of sustainable growth in 2022
Bolt-on acquisitions, assets that increase operational capability to be in focus.
In 2021, M&A was the CEO accelerant of choice for strategic ambition as activity reached record-breaking levels, with 690 M&A deals with an Irish connection announced in the year³. Global mergers and acquisitions activity hit an all-time high in the first six months of 2021, with deals worth more than US$2.6t, up from US$926b year-on-year. They surged past the pre-pandemic five-year average (H1 2015-2019) of US$1.6t, according to new analysis by EY⁴.
Based on the findings of our survey, M&A will remain a fundamental growth driver for Irish organisations in 2022. More than half (56%) of Irish CEOs expect their company to pursue acquisitions in the next 12 months. Of these, half (52%) indicate they will be looking for assets that either increase operational capabilities or making bolt-on acquisitions that grow market share.
“For corporates, structural changes and investor activism have driven large scale M&A. The pandemic has brought about some changes that are here to stay in the medium to long term, in particular with regards to the way many of us work, shop and live. Businesses need to react to maintain and gain market share. Post pandemic our world is facing many other challenges such as rising geopolitical tensions and climate change. Often, corporates need to react quickly and where time is of the essence, inorganic growth through M&A is essential,” said Grit Young, M&A partner at EY Ireland.
Despite the record-breaking year for transactions in 2021, 97% of Irish CEOs in our survey said that they either failed to complete or cancelled a planned deal during the year, primarily because of the pandemic, or regulatory or government intervention. Additionally, while M&A may be a favoured tool for accelerating growth, 42% of Irish CEOs indicate that they plan on reshaping their businesses through organic investment.
The environmental, social and governance (ESG) agenda will be a key driver of future change. For CEO dealmakers across all sectors, ESG and sustainability concerns are becoming increasingly important (see chart below).
There are two key reasons for this. First, businesses need to address changing customer needs and sentiments around ESG. Second, they increasingly need to report to investors how they are aiming to address and measure ESG targets. Not addressing investor concerns, at a time when about 40% of the world’s funds have vouched to stop investment in polluting industries⁵, is likely to lead to a higher cost of capital and may also impact funds for future investments.
Despite their enthusiasm to explore the full potential that a sustainability agenda offers, a surprising 83% of Irish CEOs have experienced resistance from investors. Of these, 40% say that their investors and shareholders would prefer to wait until they see competitor strategies in their sector before bounding ahead, while more than half (52%) say they had pushback from either a minority or majority of investors who are not yet convinced about the cost and potential benefits.
“We know investors are taking sustainability seriously. We also know CEOs and businesses are committed to advancing. Aligning the expectations of both around how to implement the sustainability agenda at pace is critical to advancing the agenda,” said Stephen Prendiville, EY Ireland Head of Sustainability.
While 22% of the Irish respondents said improving the environmental impact of their companies’ activities⁶ was one of the top objectives, 18% said they were contributing to societal goals by improving diversity and inclusion in their companies.
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Chapter 3
Stepping up the investment game
Rapidly emerging trends are propelling Irish CEOs to invest now for the future.
According to our survey, Irish CEOs are placing slightly more emphasis on investing in existing businesses to accelerate organic growth, followed by investing in digital transformation to position them for the future.
Over the past three years, Irish CEOs allocated 41% of investment capital on the current core business (Horizon 1 below), 34% on scaling fast-growing and sizable growth engines that the company has been working on (Horizon 2 below), and 25% on new growth opportunities (Horizon 3 below). Over the next five years, Irish CEOs indicate they are investing more heavily in Horizon 1 (47%), about the same (33%) in Horizon 2 and less (20%) in longer-term Horizon 3.
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Chapter 4
Five key considerations for Irish CEOs
While they change from the inside out, organisations need to strategise for the long haul.
We can see that personal attributes of the CEO that go beyond strategy and the operational running of the business are increasingly important. Vision and determination are ranked highest, followed by emotional quotient to engage, showing us that softer skills are widely acknowledged as having great importance in the post-pandemic environment.
As Irish CEOs look ahead to 2022, they must contend with navigating through the unfolding global uncertainty.
About the survey
The new CEO Outlook Survey captures perspectives from leading CEOs across the globe. It aims to understand their views on critical, strategic issues and provides a realistic picture of risks and opportunities as well as emerging trends.
Between November and December 2021, Thought Leadership Consulting – a Euromoney Institutional Investor company – surveyed a panel of more than 2,000 CEOs in 51 countries and across 13 sectors. There were 30 Irish respondents.
The EY 2022 CEO Outlook Survey is the benchmark of CEOs’ sentiment on global challenges, growth and sustainability strategy, portfolio optimisation and M&A. The analysis discusses what it means for CEOs to reset the risk radar, reframe their future strategy, and thrive in a radically different environment.
The CEO Outlook Survey is part of the CEO Imperative Series, which provides critical answers and actions to help CEOs reframe the future of their organisation.
How EY can Help
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EY-Parthenon professionals recognize that CEOs and business leaders are tasked with achieving maximum value for their organizations’ stakeholders in this transformative age. We challenge assumptions to design and deliver strategies that help improve profitability and long-term value.
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Summary
The Irish economy performed exceptionally well during the pandemic as a result of well targeted government supports and the strong base of pharma, medtech, ICT, and food enterprises in the country. That gives Irish businesses a strong platform to build on. Our survey reveals that Irish CEOs are ready to take advantage of that performance and are prepared for the headwinds coming their way in the form of geopolitical tensions, supply chain disruptions, and rising inflation. However, they must be mindful of the rapidly changing environment and constantly review their own businesses to drive efficiencies and strengthen resilience.