Letter from the Managing Director of the Global Business Policy Council

Letter from the Managing Director of the Global Business Policy Council

When we introduced Views from the C-Suite three years ago, we aimed to capture the aggregate knowledge of global executives about the broad array of issues they face every day. Technology—both the positives and negatives—and geopolitics have consistently been front of mind in recent years. However, this annual view from the C-suite is revealing not only in terms of the opportunities and challenges that executives see, but also those they do not see.

For example, we noticed a disconnect in executives’ outlook last year. They were very concerned about geopolitical instability, but at the same time, they were bullish about the macroeconomic outlook. At the time, we disagreed with this sanguine assessment that geopolitical tensions would not affect the global economy. And this contradiction appears to have been reconciled in this year’s results. There is growing doubt among the global C-suite that strong macroeconomic performance can coexist with rocky geopolitics. In fact, executives now point to a weakening global economy as one of the most profound challenges in the external environment in which they operate. And most are bearish about the economic outlook in North America, current strong US economic performance notwithstanding.

The results this year are less clear when it comes to the future course of globalization. Although almost two-thirds of executives believe globalization will decline over the next 12 months, fewer than one in four point to diminishing globalization as a top external challenge. Whether that is because they have a strategy to adjust to declining globalization or simply do not believe it will affect their business remains to be seen.

Cybersecurity risks are at the top of the list for the third year in a row when it comes to concerns regarding executives’ business operations. Given the continued prominence of this topic in our survey, we dedicate a section of this year’s report to what executives are thinking—and what they are doing—about cybersecurity risks. While an overwhelming majority of companies have experienced cyber breaches in recent years, our results indicate that most have not yet fully implemented cyber defense plans. This gap is troubling—especially as cybersecurity risks grow in complexity and scope.

The global C-suite no doubt has a great deal on its agenda, not least of which is improving the ability of companies to execute agile strategies. This agility will be more important in a world marked by geopolitical instability, uncertain macroeconomic prospects, diminishing globalization, and rising cybersecurity risks.

Erik R. Peterson
Managing Director, Global Business Policy Council, Partner, A.T. Kearney

Executive Summary

Executive Summary

Expanding corporate leadership expectations. As people around the world lose faith in their government leaders’ ability to affect necessary change, they are looking to business leaders to play a larger role. More than two-thirds of executives believe they will be expected to take on a more significant role in societal issues in the coming year. This responsibility is at once an enormous opportunity for companies to reshape the capitalist system in a more inclusive way and a tremendous challenge for them to pursue broader societal objectives in a way that simultaneously improves their commercial success.
The long shadow of geopolitics. For the second consecutive year, geopolitical instability is the most significant external challenge identified by the global executives we surveyed. No surprise. The imposition of tariffs, the intensification of sanctions, the rise of populism, and growing doubts about the resilience of the international framework for trade and investment all cast a shadow on positive short-term prospects for the global economy.
Dramatic shifts in the global economy. Executives this year indicate they have shifted their expectations regarding the global economic outlook and the major forces in globalization. On one hand, optimism for continued growth in the global economy has waned. In particular, respondents point to weak macroeconomic performance in North America as a top challenge. On the other, executives suggest that they expect China will play a more dominant role in leading globalization.
Technology cuts both ways. For the third consecutive year, executives point to technology as a top source of both opportunities and challenges. A plurality express confidence in their capacity to adopt and leverage new technologies—such as big data, cloud computing, and artificial intelligence—as well as their preparedness to adapt to the disruption that these new technologies will bring.
Looming cyber threats. More than 85 percent of executives say their company has been the victim of a cyberattack in recent years. Yet fewer than four in 10 have fully developed and implemented a cyber defense strategy. While executives have identified cybersecurity risk as their top operational challenge in each of our past three surveys—and are acutely aware of the operational and reputational damage such attacks can incur—there is a lack of consensus on how best to respond. The fog may be starting to lift, though, as the companies that are most advanced in their cyber defenses place greater emphasis on the human resources dimensions of cybersecurity.
Whistling past the graveyard. Challenges related to risk management rise to their highest levels ever in this year’s survey. This concern appears well-founded, as our results also reveal an array of potential blind spots facing the global C-suite. Executives continue to assign low probability to extreme weather events affecting their businesses, despite a sizable uptick in such events and their impact on business operations in recent years. Supply chain management also remains a low priority among executives, despite the significant shift occurring from globalization to localization strategies in procurement and supply chain management. And human resources ranks low on operational issues, despite broad agreement that recruiting and retaining a talented labor force is a substantial challenge to companies the world over.

Introduction

Our annual Views from the C-Suite study reflects the collective judgment of 400 C-level executives and board members from around the world on both the opportunities and the challenges in the global business operating environment over the course of the next 12 months (see Appendix: About the Study on the inside back cover). This report is based on results from a survey that is organized into four sections. The first asks executives to assess the likelihood of a variety of discrete potential global developments. The second focuses on the external environment, which we define as economic, political, social, and other external developments that afect businesses. The third concentrates on business operations, which we define as a firm’s internal processes, people, and systems. For both the external environment and business operations, we ask global executives about both the opportunities and the challenges they face. Finally, we include a topical thematic section. This year, we asked executives about their cybersecurity strategy, as this topic has consistently ranked as a top challenge among executives in past iterations of this survey. Because the time frame of most of the questions put to the executives is 12 months, this study emphasizes the constellation of issues absorbing the C-suite’s immediate attention.

This year’s Views from the C-Suite survey was conducted in June 2018. A variety of developments were in the headlines at the time. In the external environment, we saw the escalation of trade tensions between the United States and China, US plans to enact steel and aluminum tariffs on Canada, Mexico, and the European Union, the formation of a euro-skeptic government in Italy, a tense G7 summit that highlighted growing differences between the United States and its partners, the Singapore summit between US President Trump and North Korean leader Kim Jong-un, the end of the female driving ban and other important reforms in Saudi Arabia, and President Recep Tayyip Erdogan’s electoral victory in Turkey. In business news, Microsoft purchased online community GitHub for $7.5 billion, Audi chief executive Rupert Stadler was arrested as part of the company’s ongoing diesel scandal, Comcast and Disney competed to acquire 21st Century Fox, Starbucks shut down its US stores for an afternoon for anti-racial bias training, leading emerging market investor group Abraaj filed for provisional liquidation, and UK-based Dixons Carphone disclosed it had been hit by a massive cyberattack in which nearly 6 million credit card records were exposed. These developments were surely among the many competing priorities on the minds of the C-suite executives we surveyed.

Assessing the likelihood of global developments

Global Volatility Ahead

There is strong consensus among the global C-suite regarding all 10 of the potential developments we asked them to assess (see figure 1). From the rising dangers of fake news campaigns to the likelihood of a hard Brexit, executives see increased risks in the coming year. While executives also predict significant upsides, particularly those arising from artificial intelligence (AI) and the strengthening economic potential of Asia-Pacific markets, the overall outlook is sobering. Most notably, executives expect a shift away from globalization and toward increased protectionism and mercantilism—particularly as trade tensions between key markets continue to rise.

The development eliciting the highest level of agreement among executives, importantly, is that China will play a more dominant leadership role in globalization initiatives. This result clearly reflects Beijing’s rising political, economic, and military profile. In the context of a worsening trade conflict with the United States, Beijing’s rhetoric has shifted toward more unequivocal support for multilateralism and free trade. At the Shanghai Cooperation Organization summit in June 2018, for instance, Chinese President Xi Jinping urged the international community to “maintain the rules of the World Trade Organization, support the multilateral trade system and build an open global economy.” China is pushing for an expeditious conclusion of the Regional Comprehensive Economic Partnership (RCEP) free trade agreement, while its Belt and Road Initiative infrastructure projects are increasing political and economic linkages between China and Europe, Africa, and the rest of Asia.¹