All companies need to trim costs smartly so they can reinvest in growth.
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About 75% of C-suite execs are worried about macro uncertainty, BCG’s CEO Outlook survey found.
But it isn’t like the 2008 financial crisis. It’s a “tune-up” not a “turnaround,” BCG told Insider.
Companies want to invest in areas like talent-retention and innovation, the survey found.
It’s a tricky time to be a CEO for many reasons. Yet leading through unpredictable economic times is one of the biggest challenges for leaders this year.
“There’s a great deal of concern about macroeconomic uncertainty from C-suite leaders,” Gideon Walter, managing director and senior partner at Boston Consulting Group, told Insider earlier this month. “It leads to a more defensive posture among management teams than what we’ve seen over the last couple of years,” and cost reductions are now a top priority.
About 75% of C-suite executives are worried about macro uncertainty — including regulatory and political risks, inflation, and rising interest rates, the war in Ukraine, supply-chain disruptions, labor-market changes, and economic anxieties, according to BCG’s CEO Outlook, which surveyed 759 global C-suite execs and was published last month.
But this isn’t like 2008 and 2009, Walter explained, alluding to the financial crisis that enveloped much of the global economy. “It does not feel like the bottom is falling out.” During the pandemic, companies took on a lot of costs, particularly due to supply-chain disruptions and increased demands for certain goods. “Now it’s time to shake things up a bit” because “there’s still a growth mindset” among executives. “It’s not a turnaround situation, it’s kind of a tune-up situation.”
Walter told Insider that all companies need to trim costs smartly so they can reinvest in growth, particularly in digital and in mergers. But cost cuts are “never an easy conversation, especially where personnel are impacted. No one wants to fire anyone.”
Of course, there have been industries or companies taking aggressive cost-cutting actions — including layoffs — but “we don’t see an intention to drive massive layoffs at the moment,” he said. Particularly seasoned management knows how and when to react, and how deeply to react, he added.
BCG advises clients to define their approach instead of a “slash-and-burn” mindset. “Come hell or high water, here are the functions where we’re going to go deepest, here are the places we’re going to preserve,” Walter said. “It’s not simply cost out,” but instead investing in efficiency — including digital technologies. “We need to invest in the future.”
Walter said some companies are “leapfrogging the competition in terms of their growth and shareholder return,” but others who are dabbling in digital and AI-driven transformations but “haven’t yet gotten to scale and yielded advantage — we’re advising them to really accelerate and to stop playing around with use cases and to double down on places they think are going to create a competitive advantage.”
Being in the C-suite right now is particularly challenging for executives because of competing ideas, which require a delicate balancing act, Walter said. “One being, there’s macro uncertainty, and we need to adjust our cost base in order to take a defensive posture against that macro uncertainty.
“Two is: We need to continue to innovate and grow because if we don’t, we’re not going to succeed as a company. It’s challenging for many leadership teams to execute.”
There’s a context BCG strives to help executives understand: how to fund the opportunities around growth, he added.
There are reasons to be excited, Walter said. Climate and sustainability are opportunities, as well as digital AI innovation. “We see a huge amount of opportunity for companies to innovate, capture new markets, but also drive efficiency,” Walter said.
Most C-suite leaders understand that amid difficult decisions like layoffs or reorganizations, companies still need to invest in their employees. Companies are showing a strong appetite to invest in many areas, and talent-retention and innovation at the top of the list, the survey found.
Survey respondents stressed the need for a balance. Growth and innovation around brand launches, employee training, and key investments in technology can’t take a backseat during uncertain times. While achieving this balance is always tricky, C-suite leaders believe the right investments will allow them to take advantage of any downturn and outpace the competition, the survey found.
“My mantra in this area is, ‘Don’t let perfect be the enemy of the good,'” one C-suite respondent said in the survey. “We have to go fast and we’ve got to put transparency at the heart of the effort.”
Finally, Walter said, through all of this, never discount consumer behavior. “We’ve seen massive swings over the last three, four years. And we expect to see increasingly massive swings moving forward in terms of behavior — appetite for goods versus services — that is going to continue to play out.” This will lead to new opportunities for how markets will evolve globally.