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The pandemic hastened the arrival of trends already on the leadership agenda. CEOs must seize this opportunity to transform or be left behind.
In brief
- This is a moment of truth for CEOs. With the pandemic, long-standing trends arrived together in force, shifting transformation from important to urgent.
- The trajectories of thriving and surviving companies are diverging rapidly. Now is the time to catch up, leap ahead or be outdistanced.
- CEOs are ready to pivot to investment in growth and transformation but must close key capability gaps and acquire the DNA of the future enterprise.
Before the pandemic, many companies delayed responding decisively to new value drivers and imperatives. That’s no longer an option. The COVID-19 pandemic hastened the full-force arrival of trends already on the CEO agenda. The stakes are now existential: the latest global EY CEO Imperative survey shows the pandemic has accelerated the trajectory of organizations, and CEOs must seize this opportunity to transform and leap ahead or risk being left behind.
That’s because companies are quickly being divided into what we call “thrivers” and “survivors.” Thrivers are leaning into this pivotal moment, and outdistancing survivors in growth.
So, how do you become a thriver or get even stronger? The EY CEO Imperative Series is designed to provide critical answers and actions to reframe the future of your organization, with the CEO Imperative Study, a survey of 305 chief executives of Forbes Global 2000 companies, focused on insights to achieve sustainable growth in the long term. We believe a new DNA for successful enterprises is emerging, built around human-centered transformations that break down silos, increase agility, improve innovation, and drive toward long-term value.
What kind of CEO are you?
Our CEO Imperative and Capital Confidence Barometer studies look at now, next, and beyond the pandemic to how leaders can reframe the future of their organizations.
Where was your company when COVID-19 struck? It’s tempting to assume strategy, in the broadest sense, mattered little in the past 12 months. After all, extraordinarily well-run organizations overnight found markets had disappeared, while a rising tide in other sectors lifted all boats. Yet our research into how companies weathered the short-term impact of the pandemic, are now navigating the medium-term, and where that leaves them in the long-term reveals a universal truth: leadership matters.
This CEO Imperative study finds the performance of companies is highly correlated with their trajectory before the pandemic. Thrivers (34% of organizations surveyed) were growing before the crisis and are leaning into this pivotal moment, accelerating their existing transformation agenda. Survivors (32%) were already experiencing declining revenue, will keep seeing flat or declining growth over the next three years, and are slowing their transformation priorities. Between them are maintainers (34%), which are companies more likely to have had low or flat growth before the pandemic and whose growth will remain flat or grow moderately over the next three years.
Does that mean companies are trapped on their current trajectory? No. But for survivors to narrow the gap to thrivers, CEOs must urgently accelerate their transformation efforts. The CEO cut of our latest EY Global Capital Confidence Barometer provides a window into that effort. It finds 13% of CEOs – what we call “value visionaries” – have embraced new practices to reframe their enterprises. They view COVID-19 as a wake-up call to fuel their bold growth ambitions, which will yield value for a broader range of stakeholders, not just shareholders. The remaining 87% – “pragmatists” – are leaders who recognize the need to re-orient for a post-pandemic business landscape but have not fully committed to action plans.
So, where’s your company? And which kind of CEO are you? Where you are today isn’t necessarily where you’ll be tomorrow. But our research shows the importance of moving from intention to execution, and closing the key capability gaps to acquire the DNA of the future enterprise: one built around human-centered transformations that increase ability and innovation while driving long-term value.
Diverging thrivers and survivors
The imperatives of the pandemic accentuated the upward or downward trajectories companies were already on. The paths of thrivers and survivors are set to diverge even further: 79% of thrivers are projecting growth in three years; only 7% of survivors are.
Over half (58%) of thrivers accelerated their existing transformation in response to the pandemic, likely benefiting from the right strategy going into the pandemic, less disruption and easier access to capital. As a result, thrivers are already pursuing a growth agenda. Thrivers were growing before the pandemic and will continue growing steadily.
In contrast, most survivors (54%) slowed their existing transformation priorities and are focused on cost reduction. Where thrivers are moving quickly ahead, survivors are still retooling.
CEOs are ready to pivot to new risk-taking and growth
Looking across the broader study population, it’s evident CEOs are ready to pivot from stabilization to new investments in growth and transformation:
- 61% plan to undertake a major new transformation initiative
- 68% plan a major investment in data and technology
CEOs also plan to spend more on transformation over the next three years. These investments are not going to be offset by cost reductions for the most part, with nearly half citing investor support to invest in these initiatives even if near-term financial performance is diminished.
Newly urgent trends drive transformation
The trends driving company transformation are not new, but they are newly urgent. The market shear caused by the pandemic, as business shifted to digital and virtual and consumer preferences shifted abruptly, underscores the peril of delaying action on long-standing trends and the benefits of a proactive strategy.
Transformation priorities: agility, customer connections, long-term value
In response, CEOs are focused on transforming the human dimensions of the enterprise, such as talent, leadership, organizational structure, and culture and purpose. Objectives of upskilling/reskilling, better collaboration, agile decisions and transformative mindset indicate the important role of human factors in catalyzing transformation. 68% of CEOs have at least one people-related transformation priority, and 15% have two or more people priorities.
As single categories, CEOs are prioritizing transformation in risk management, innovation processes, capital allocation decision-making, the business model and supply chain. Human factors underlie them all.
Gaps between intention and execution
But while CEOs have the appetite for transformation, they face significant capability gaps that must be closed to move from intention to successful execution:
Closing the long-term value “say-do” gap / a climate blind spot
Creating long-term value emerged as an important cross-cutting priority. However, a pronounced “say-do” gap suggests CEOs are unclear about the definition of long-term value and how to achieve this objective. Significant work remains to reorient companies toward long-term value creation.
Only 26% of CEOs identify the growing climate imperative as one of the trends having the most impact on their companies. This lack of awareness of the broad-based risks posed by climate change likely contributes to the long-term value “say-do” gap.
Bridging the data chasm
Relatedly, CEOs indicate significant gaps in their organization’s ability to generate value from data. The most pronounced gap – call it a chasm – is related to data and trust: Only 34% of CEOs say customers trust them with their data. This data chasm stands in the way of many priorities, from business model reimagination to supply chain visibility and new customer propositions.
Overcoming culture barriers
While agility, innovation, and diversity are critical to thriving, culture shortcomings are key barriers to these objectives: only 44% of CEOs affirm having an innovation mindset across the organization, while 32% say mid-level leadership personally models shared purpose and vision. A meager 28% say they create diverse and inclusive teams at all levels.
These shortcomings are pronounced when it comes to C-suite change: CEOs prioritize more efficient decision-making over diversity or bringing in outside perspectives.
Investing in ecosystems
While companies increasingly say they are focused on developing and orchestrating ecosystems, only 47% of CEOs affirm making significant investments to do so. And ecosystems are still driven from the
bottom up: just 31% of CEOs say external ecosystem partnerships are a part of business strategy.
DNA of the future enterprise
CEOs of some of the largest companies are accelerating transformations designed to break down silos, increase agility, improve innovation, and leverage data to become closer to the customer in a world oriented toward long-term value.
To thrive, organizations must acquire or evolve a new DNA:
- Committed to human-centered leadership. Leading with compassion, setting an example of experimentation and risk-taking, and fostering stakeholder trust will drive core value.
- Organized for long-term value. The future enterprise will be organized for generating long-term value and rewarded by the market.
- Embedded in ecosystems. The future enterprise will be embedded in external ecosystems, and consist of internal ones, making ecosystem orchestration a key leadership capability.
- Designed for agility. Both leadership decision-making and the organization will be structured to act more nimbly.
Reframing the future enterprise
Closing the gap between intention and execution in moving to the future enterprise requires pursuing three interconnected value drivers: putting humans at the center, adopting technology at speed, and driving innovation at scale.
Weaving these value drivers into every aspect of the continuous cross-functional transformation demanded will also allow CEOs to drive long-term stakeholder value creation and ultimately to maximize their growth potential along four fundamental axes – financial, customers, people, and stakeholders.
Here are some concrete steps CEOs can take:
- Assessing your status as thriver or survivor as well as the opportunity to “level up” or leap ahead.
- Asking uncomfortable questions across the organization to challenge the status quo.
- Developing a leadership action plan and an enterprise transformation plan to address your key strategic, operational, financial and cultural gaps.
- Securing board and investor buy-in on transformation investments now which will pay off only in the future.
- Catalyzing a successful transformation by putting humans (e.g., customers, employees) at the center of innovation and decision-making.
Summary
Delaying a decisive response to new value drivers and imperatives is no longer an option. Thriving companies are outpacing surviving ones in growth and transformation, and CEOs must rise to this moment to avoid falling behind. CEOs are ready to reframe their enterprise but need to bridge key capability gaps. To thrive, organizations must acquire a new DNA by putting humans at the center of decision-making, adopting technology at speed, and driving innovation at scale. Weaving these value drivers into every aspect of transformation will allow CEOs to drive long-term value creation and ultimately maximize growth potential.
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