Top CEO Concerns

Dec. 21, 2004
Customers, shareholders, and information systems head the list, but Asia and skilled workers also are important issues.

Economists, the media, and government policymakers may be paying close attention to Asia's disruptive, destabilizing, and definitely continuing financial crisis. But a significant number of CEOs from around the world don't put it at the top of the list of issues that will most challenge their management skills and leadership capabilities in 1999. Rising customer expectations, rising shareholder expectations, and the quality of their companies' information systems will be more compelling issues in the year ahead, say the chief executive officers of 78 manufacturing firms, primarily in the U.S., Europe, and Japan. Among these respondents to IW's 1998 CEO Survey, dealing with the effects of Asia's financial turmoil places fourth, just ahead of searching for sufficient numbers of skilled workers. By The Numbers Only 11% of the CEOs responding regard the 17-month-old Asian situation as a very important challenge for the upcoming year. In contrast, 51% consider rising customer expectations to be very important. Some 45% put the same tag on meeting rising shareholder expectations. And 18% foresee assuring the quality of information systems being very important. A mere 10% believe that finding enough skilled workers will be very important to their companies' successes in 1999. A smattering of other issues -- including regulatory matters, employee teamwork, the quality of government, and a competitive market environment -- are each identified by at least one CEO as being very important. In contrast, however, 4% of the chief executives responding to the survey say dealing with the Asian financial crisis will be not important to their firms in 1999. The same percentage dismisses attending to an adequate supply of skilled workers as not important. Meanwhile, some 3% of the CEOs, presumably very confident about their firms' abilities to avoid any Year 2000 computer problems, rate assuring the quality of their companies' information systems as not important as a 1999 management and leadership issue. CEOs in Japan responding to the survey feel more intensely about each of the management issues than do their counterparts in other major regions of the globe. For example, although the ongoing Asian financial crisis ranks No. 4 on their list of concerns, in terms of very-important mentions, Japanese CEOs believe it will be a somewhat more important issue next year than do either U.S. or European chief executives. At the same time, Japanese chief executives rank meeting rising consumer expectations higher in importance than do U.S. or European CEOs -- but only slightly so. Both Japanese and U.S. CEOs expect responding to rising shareholder expectations will be a greater management challenge in 1999 than do European chief executives. Japanese CEOs are slightly more concerned about the quality of their companies' information systems than their U.S. or European counterparts. And Japanese CEOs, by a significant margin, expect securing an adequate supply of skilled workers to be a greater management challenge than do either U.S. or European chief executives. Asian Surprise? The Asian financial crisis is the only one of the top CEO issues for 1999 that really surprises R. Charles Moyer, dean of Wake Forest University's Babcock Graduate School of Management, Winston-Salem, N.C., not because it doesn't rank higher but because it's even on the list of issues that chief executives expect will most test their mettle in 1999. Despite "particularly bad management" in such places as Japan, "I believe we're close to the bottom of that [Asian financial] problem," judges Moyer. Asia has "a little bit of issue de jour about it," observes Bill O'Connell, partner and leader of the sales and marketing practice at Sibson & Co., a Princeton, N.J.-based global consulting group that focuses on strategic implementation matters. Another "topical pressure" will supplant it next year, he expects. In the meantime, believes O'Connell, Asia's troubles will continue to hit different companies differently, the impact depending upon "what manufacturing [that companies] have over there and what percentage of exports they have over there." Asia's turmoil "is probably No. 1 or No. 2 to some people and not even on the list for others," surmises O'Connell. Survey respondent Earnest W. Deavenport Jr., chairman and CEO of Eastman Chemical Co., Kingsport, Tenn., is one of the executives for whom the Asian situation will continue to be a critical concern. "The financial crisis in Asia [ranks] very important because of the implications of this crisis not only in Asia, but also now in Latin America and, indeed, the entire world," says Deavenport. The "slowdown of economic growth in Asia impacts many companies such as Eastman that have been a major exporter of goods from the U.S.," he explains. "In addition, with the reduction of demand in Asia, the excess goods on the world market result in significant price pressures and, thus, margin squeeze. The real fear of the Asian crisis is its spread to other regions of the world, slowing down economic growth and possibly resulting in a worldwide recession." Deavenport has an ally in Edward A. Snyder, dean of the University of Virginia's Darden Graduate School of Business Administration, Charlottesville. "The continuing financial crisis in Asia . . . is a major issue. And we don't yet . . . know the extent of this crisis," he says. "For most global businesses, that's got to be important, and, as the thing hits [businesses] domestically, it's got to be on their list" of key management concerns. Controversial Choices Nevertheless, rising customer expectations are the top management challenge for Darryl F. Allen, chairman, president, and CEO of Aeroquip-Vickers Inc., a Maumee, Ohio-based manufacturer of automotive, aerospace, and industrial products. Such large customers as Boeing Co. and Airbus Industrie are expected to demand the same kind of global attention that Ford Motor Co. and Volkswagen AG already do, Allen says. "Where we can work with the customer on reducing the overall cost of using our product, our margins go up and their costs go down," he explains. But sometimes, he says, that's a tough sell -- and not just to customers. "Not only do we have to convince the customer, not only do we have to protect our margins and improve our relations with [customers], we also have to convince our public shareholders and the analysts that it's doable, that we've done it, and that in fact we have far more pricing flexibility than historically companies have ever had," Allen stresses. "There's always this feeling about component suppliers that they don't control their destiny because of the large customers they sell to. And it really is just the opposite -- if you're smart." The Babcock School's Moyer acknowledges some surprise that CEOs rank rising customer expectations as their most important issue in the coming year. "But that's maybe because I'm a finance guy, and I always think that shareholder expectations ought to be No. 1," he quips. No doubt about it, says Eastman Chemical's Deavenport, shareholder expectations have been heightened during the last several years by the "tremendous growth" (until recently) in the Dow Jones Industrial Average. But "current economic pressures" will make it even more difficult to meet or exceed the expectations, he emphasizes. "The survival of a public enterprise, such as Eastman Chemical Co., is contingent upon rewarding our shareholders for their investment in the company. Therefore, creating superior value for our shareholders is a very important issue," says the firm's CEO. In contrast, Darden's Snyder wonders why rising customer expectations, rising shareholder expectations, and quality of information systems are on CEOs' list of most-important management challenges for 1999 -- and other issues, important to him, are not. "Of course, customer expectations are rising; of course, shareholders expect a lot; and the quality of [information systems]" is important, he acknowledges. "But what about the environment?" Snyder asks rhetorically. "Environmental management issues to me are extraordinarily complicated. And senior executives -- the ones I talk to -- are searching for a way to understand what their role is going to be in 1999 and beyond." Similarly, Snyder is surprised that managing innovation isn't on the list, saying that CEOs and other senior executives tell him that increasingly they're having to deal with short-timeline product cycles and must pay attention to a whole range of elements from R&D to marketing. Diversity is another issue Snyder expected to see on the list -- and is surprised and disappointed at its absence. "I realize that's maybe a North American issue more so than a European or Asian issue," he states. "But the CEOs I have been talking to recently say the diversity movement at the higher levels is stalled. And yet they're still in the mode of saying, 'We've got to become more diverse in terms of our overall staffing and leadership,' " Snyder relates. Jay W. Lorsch, a Harvard Business School professor of organizational behavior, notes that an adequate supply of skilled workers is No. 5 of five on the CEOs' ranking of very important management challenges for 1999. "I'm surprised that's not more important to them," states Lorsch. "If you assume the U.S. economy is going to continue to bop along -- we have a shortage of skilled workers already -- then there's probably going to be a need for more [people with skills]."

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