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CEOs must balance digital transformation with economic concern and cost efficiency

PwC PERSPECTIVE

Zubin Randeria
PwC UK's cost-based transformation lead

Through the disruption of the past 12 months some clear trends have emerged which will shape the way businesses operate from now on.

Firstly, organisations had to scramble to transform their digital capabilities in response to the pandemic, from getting their people working remotely to moving sales and service online. And now, organisations must embed changes made in haste and progress those transformations, because the rapid adoption of digital services across society is here to stay. 

This is clearly acknowledged by respondents to our 24th Annual CEO Survey. More than three quarters (77%) say they plan to increase their investment in digital transformation in response to the pandemic. 

Economic uncertainty

A second trend is the fact the pandemic has caused huge economic damage and uncertainty. 

Again, our CEO Survey shows 86% of UK CEOs are concerned about uncertain economic growth. In response, many are showing understandable caution – organic growth (84%) and operational efficiencies (70%) are the most commonly planned routes to growth.

Put together, these two trends create a dynamic some may assume to be counterintuitive. Investment in digital transformation is soaring, yet CEOs are cautious about the economy and looking for savings.

One answer to this apparent conflict is that digital transformations bring with them the potential for significant efficiency gains and long-term return on investment.

Another answer is that CEOs are interrogating their cost base and finding efficiencies to fund critical investments such as digital transformation which cannot be put off – even if budgets are under pressure. 

Cost-based transformation

This isn’t about ‘making cuts’, it is about being able to identify areas of the business where you can dial-down investment, or raise money, in order to ensure critical, highly topical or strategically important parts of the business can flourish. 

Extreme examples of such activity in response to the pandemic may include high street banks, restaurant groups or retailers raising money by offloading physical premises in order to invest in their digital operations. Similarly, businesses may look to shed underperforming businesses or assets in order to focus on their core business. Our CEO survey shows 24% of CEOs planning to divest will do so in order to refocus on their core business, while 21% will do so to raise cash for investment opportunities.

In less straitened times, organisations may not have been so cost-sensitive. But as businesses seek greater agility, whether in response to other significant disruptions or because the pace of change will likely remain high, it should become more natural - and a healthy habit - to interrogate the cost-base for savings that can fund transformation and growth, before taking on more debt, or seeking external investment.

“CEOs are finding efficiencies to fund critical investments such as digital transformation which cannot be put off even if budgets are under pressure.”

Investment opportunities

Ironically however, such behaviour will help attract investment. As investors seek greater certainty in a turbulent economy, businesses with ambitions to grow, but with an approach based on taking on less debt and remaining agile, will always be an attractive opportunity. 

Rather than presenting an unwelcome temptation to frugal CEOs, this will enable organisations to plan more strategically about which priorities they fund, how and to what extent. Because it will never work out that you can always save enough in one part of the business to fund ambitions in another. Nor should it need to, assuming there is a planned return on investment behind your ambitions.

But the ability to shape and reshape an organisation, to adapt to changing needs, will remain vital. As will the ability to move at speed and think creatively about the most effective ways to fund every transformation and drive growth.

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Marco Amitrano

Marco Amitrano

Head of Clients and Markets, PwC United Kingdom

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