Four business trends CEOs should pay attention to in the second half of 2018

Over the last few months, I’ve been fortunate to speak to many CEOs and C-Suite leaders from the US, Europe and China. While there are concerns about tariffs, trade wars, rising interest rates, and the possible end of the bull market, the CEOs I’ve spoken to, for the most part, remain optimistic about what we can achieve. Here's what I have been sharing with them about what to watch out for in business in the second half of 2018.

The Reality of the Short- and Long-term Debate

The age-old debate of curbing corporate “short-termism” and investing for the long term has recently gained traction again with the Business Roundtable announcing its support for moving away from the expectation of providing quarterly guidance and potentially getting rid of it altogether.

In my opinion, the reality is that investing for both the short term and the long term are critical for most companies. And like it or not, most CEOs are charged with both delivering on short-term profits for investors and changing their business model to secure their company’s future. Unfortunately, doing just one or the other can often lead to the unemployment line for a CEO.

With that stark but pragmatic observation, my biggest takeaway is that rather than focusing on the short-term vs. long-term debate, we as CEOs need to focus on where we are spending our time. This is especially the case in today’s fiercely competitive marketplace, where businesses are facing new challenges every day. To take these challenges head on, CEOs must drive near flawless execution; we can’t just set strategy, we need to execute it quickly and at scale. This involves securing investment dollars, getting the right resources in place, and inspiring our employees to understand that change is worthwhile; it will not only lead to better shareholder value, but also a better future for our employees.

So as you focus on both setting strategy and executing against it, here are a few things to keep in mind:

1. Competition continues to be fierce - The war for the customer’s wallet is increasingly competitive and pricing, quality, and product differentiation are more important than ever. With almost every company in a war for greater market share, many have built up capacity and are now ready to fight. This intense competition is one of the reasons there is less worry about inflation. But at the same time there is also a risk that the benefits of tax reform may not be realized for some companies.

Companies that are going to win market share have to:

• Continuously reduce costs through simplification, leveraging technology and restructuring.
• Sell more effectively by lowering the cost of sales and focusing on the most profitable and highest potential customers.
• Changing and evolving products and services by embedding and using technology.

2. Invest in digitally upskilling your workforce. We’re seeing more and more companies invest in the tech upskilling of their employees as a way to evolve and create new products and services quickly and at scale. From data analytics and AI to robotics and sensor technology, we are seeing companies not only hire people with these skills from the outside, but more importantly we’re seeing companies train their existing workforce in these skills. Doing this will give you a workforce that is better equipped to reimagine basic processes to bring down costs and add value.

Having the right talent is one of the biggest worries for CEOs according to PwC’s Global CEO survey and with good reason. And if anything, you can’t just worry about the shortage of people with the right skill sets. You have to really think about how to integrate these people into your organization, which is often a much harder task.

3. M&A and deals continue to be hot. This is especially true on the sell side. Strategic assets are being sold to create investment capacity (at a time when asset pricing is high in the market) and to refocus management time in “areas that can move the dial.” Activist investors continue to be a force to be reckoned with as they are driving more discipline (real or perceived) in how companies deploy shareholder capital and management time.

On the buy side, cost savings achieved through scale, talent and technology acquisition, and geographic expansion are key factors in keeping pricing high. And it is this very high pricing that is mandating incredible discipline on integration to realize planned benefits and synergies.

4. Tax reform has created opportunities and inefficiencies. We are seeing more companies implement post-tax reform changes, capitalizing on opportunities created by tax reform such as capital structure, investments, supply chain, intellectual capital, etc. With increased investment capacity, many companies are modelling and analyzing the benefits of a range of options to increase competitiveness and enhance share value, including R&D, product development, PP&E, employee training, share buybacks, and pricing strategies.

Tax reform has changed the ROI analysis for many strategic and operating model decisions, including the location of a company’s tangible and intangible business assets. Companies are finding inefficiencies in longtime structures where post-tax reform change may be beneficial. Treasury functions, such as cash management and financial transactions, require new analysis. In addition, multinationals must consider tax changes occurring in other countries and the impact of global tax initiatives, such as new OECD tax treaty measures, the European Union’s Anti-Tax Avoidance Directive, and EU digital taxation proposals to name a few.

The impact of federal reform has also caused significant complexity and uncertainty at the state and local level as the states have been forced to analyze whether to adopt or decouple from the various international and domestic changes. And as many states struggle with budget deficits and underfunded pensions, they are grappling with increased competition for jobs and residents from low and no tax states.

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In today’s hyper competitive and fast-changing business environment, CEOs can’t just rely on striking a strong tone from the top. They have to spend their time wisely and focus on inspiring their employees to be leaders themselves. This way your employees become true catalysts for driving change within your organization.