Chief executives heading U.S. multinational companies are confident about the overall economy and their business prospects in the next three years and anticipate a peak profit period from 2016 to 2017. Yet, in sharp contrast to that optimism, they are also expressing a range of concerns for the same three-year outlook — from questions about maintaining the relevance of their products and services, to their ability to innovate, to the challenges in adapting to government regulation, according to a study released today by KPMG.
“Recent years have seen a slow moving recovery coupled with fast moving innovation and global market shifts, presenting today’s chief executives with an unprecedented landscape in which to set a course for growth,” said John Veihmeyer, global chairman of KPMG and chairman and CEO of KPMG in the U.S. “While confidence is growing in the fundamental strength of the economy and business prospects, CEOs face mounting concerns over managing risks and regulatory burdens and ensuring the continued relevance of their products.”
In the KPMG CEO study of 400 CEOs in the U.S., 62% are more confident about their growth prospects over the next three years than a year ago. In addition, 55% of the CEOs across several industries expect further improvement in the economy and 78% intend to increase head count. The CEOs also expect greater profits ahead. In looking at the next five years, 28% tabbed 2016 to be their greatest year for profits and 29% said 2017.
Despite the optimism ahead, a key KPMG study finding revealed that 72% of U.S. CEOs are concerned about whether their products and services will be relevant three years from now. In addition, 90% expressed concern about their competitors’ ability to take business away from them.
Disruptive and constantly evolving technologies and changing customer expectations continue to challenge chief executives across a range of industries and sectors. The result, according to Veihmeyer, is that “a majority of businesses are transforming their operations, and leaders are focused on driving efficient growth, building their brands, and enhancing their product offerings.”
When asked to identify issues that can have the most impact on their companies, the CEOs identified the regulatory environment first, followed by corporate tax reform. In fact, 34% of the CEOs are spending more time with regulators or government officials or considering doing so. “The pace of regulatory change is accelerating around the world,” said KPMG’s Veihmeyer. “CEOs will be spending increased time on the regulatory front over a number of priorities competing for attention.”
Faced with many challenges, the KPMG study found CEOs less than certain about the course and speed to take their growth strategies. Study results show that CEOs are evenly split in categorizing their overall growth strategy as either aggressive or conservative.
The Need to Innovate
The KPMG study identified innovation — with an emphasis on improving existing products over delivering new ones — as the key differentiating factor to improve year-over-year growth and profitability.
When asked to identify barriers to innovation, 43% of the CEOs noted rapidly changing customer dynamics, followed by 35% who said budget constraints and 19% who said conflicting visions among executive leadership. Indicating a key challenge to successful innovation in the years ahead, only 17% of the CEOs said they have a fully developed process for innovation implemented across all units. However, many more of the CEOs (47%) from companies with revenues exceeding $10 billion said they have a formal, company-wide innovation process.
Focus on Operational Excellence, Clients
When asked to review a list of factors influencing their target operating model, the CEOs identified the need to implement greater efficiencies and cost reductions. “Driving efficient growth is a key priority and they see great possibilities leveraging new technology to enhance client services and streamline processes,” said Veihmeyer. “They will also be devoting significant time to image building and increasing client touch points.”
Another key strategy in the years ahead for CEOs is to become more acquisitive. Today, two-thirds of the CEOs say their current growth strategy is built around organic growth, with one-third saying it is combination of organic and inorganic growth through acquisitions. When asked to look at their growth strategy over the next three years, 53 percent expect their priority will be organic growth, with 42 percent indicating that it will be an even split between organic and inorganic growth through acquisitions.
“The largest organizations are more acquisitive today but the results of our study indicate a coming shift to inorganic growth from businesses across size and industry in the next three years,” said KPMG’s Veihmeyer.