Ernst & Young outlines new approach to growth in post-crisis world
LONDON -- Post-crisis, companies will find themselves needing to listen and engage with a wider field of stakeholders than their shareholders alone, if they want to secure growth, especially in the emerging markets, according to a new report by Ernst & Young.
Based on a survey of senior executives from 641 companies in 21 countries; Business Pulse: Exploring the dual perspectives of the top 10 risks and opportunities in 2013 and beyond is the latest report in a series started in 2008 to track the risks and opportunities facing businesses globally.
The increasing role played by governments in business is now cited as the sixth biggest risk faced by companies (up from seventh place in 2011). This is driven in part by tightening regulation, but also because governments, especially in rapid-growth markets, are playing an increasingly active role in a host of sectors. As a result, government policy and maintaining good relations with government, is increasingly important for business.
Leveraging CSR and public confidence is a new entry to the list with expectations for its significance to rise over the coming years. Demonstrating such activity in rapid-growth markets can be an integral part of receiving a license to operate. Excellence in investor relations is also seen as a top 10 opportunity. This highlights the importance of a broad funding base in today’s tight-credit world. Institutional investors now demand greater transparency in areas such as environmental and social issues, which can impact a long-term investment’s viability.
Commenting on the report’s findings, Gerard Gallagher, Markets Leader for Ernst and Young’s Advisory business, says: “On the ground, we see the public questioning the role of corporations in society, in particular for emphasising short term results over the wider economic good, and governments asking how they can avoid a repeat of the financial crisis, as well as dealing with the fallout from the first one. Companies are increasingly being held accountable not just by their shareholders, who themselves are called to look beyond their investments’ short term results, but also by other relevant stakeholders, who especially through their use of social media have become society’s new spokespeople.
“Our survey shows a shift in thinking. Businesses are increasingly concerned with the risks and opportunities posed by answering to a wider audience and demonstrating that they are part of society. Companies are now coming to terms with a new status quo where measuring their performance by financial return alone is not going to be enough. Alongside their focus on growing economies, businesses now need to prove their determination to make a greater contribution alongside their commercial goals.
“With anaemic developed market growth, and fierce price competition, the world has long looked to new markets for expansion opportunities. But, to exploit these rapid-growth markets and win in them companies must adapt and plan for the risks and opportunities that they impose, as many of these major economies are reshaping the nature of competition.”
Operational agility: tuning for greater performance
Pricing pressure is the biggest risk highlighted by companies in 2013, with the C-suite now accepting that they must find new ways to be profitable in response to shrinking developed markets. This contrasts with 2011 when companies were focused on the risks associated with regulation and compliance.
High wages and input costs, as well as significant new regulatory burdens on various sectors, mean that cost cutting and the related pressure on profits is cited by respondents as the second-biggest risk they face, with companies needing to make tough decisions on how to cut costs without damaging product and service standards.
For multinational organisations trying to balance the desire for cost competitiveness in key markets, as well as growth in new markets, rethinking the cost and location of operations from a global perspective can create opportunities. As a result, operational agility is crucial to surviving and flourishing in a volatile world economy, with executives in developed markets citing this as their second-biggest opportunity.
The number one opportunity is innovation, especially within the rapid-growth markets, both in terms of new products or services and within operations. This is reflected in research and development spending in rapid-growth markets growing four times as fast versus developed markets.
Customer reach: in search of the new
Companies are also embracing the emergence of new marketing channels, such as social media, which is ranked as the fourth-greatest opportunity for business, up from eighth overall in 2011. This was especially true of companies operating in rapid-growth markets, but inevitably, there are risks too, and emerging technologies are still considered a top 10 risk in ninth place, although this is down from fifth place in 2011.
Stakeholder confidence: broader considerations emerging
Looking at a macro-level, the increasing role played by government in business is now cited as the sixth-biggest risk faced by companies, up from seventh place in 2011. This is driven in part by tightening regulation, notably in the financial sector, but it is also prevalent in rapid-growth markets where governments are playing an increasingly active role.
Following on from government involvement, regulation and compliance is listed as the seventh-biggest risk facing companies, down from first place in 2011. However, companies’ broader sense of accountability in the post-crisis world is also reflected in the opportunity to leverage CSR and public confidence. It is a new entry to the list, ranked eighth, with many institutional investors now demanding greater transparency in areas such as environmental and social issues, which can impact on the viability of long-term investments.