According to a new report by the Capgemini Research Institute, in the face of economic headwinds, organizations are taking a cautious approach to investment. Disruption in the supply chain is seen as the top risk to business growth for 89% of organizations, ahead of rising raw material prices and the energy crisis. Supply chain resilience is a key priority with 43% of businesses planning to increase investment here, while 39% intend to increase investment in technology to reduce costs and drive business transformation. Sustainability will be prioritized by organizations in the US and China, less so in Europe.
For this research, the Capgemini Research Institute surveyed 2,000 respondents from unique organizations with more than $1 billion in annual revenue, across 15 countries, in Nov and Dec 2022, and analyzed their investment strategies in areas such as digital transformation, supply chain, talent and skills, and sustainability for the next 12-18 months.
Capgemini CEO, Aiman Ezzat says: “Global business leaders are focusing their investments on the areas that will continue to drive their business transformation. They should seize the opportunity that technology offers, not only to make their business more efficient, sustainable, and resilient, but more importantly to enable long-term growth opportunities. It is also essential to invest in the talent that will be able to deliver on these business model and value chain transformations, without sacrificing overall employee experience. These areas of investment are vital for organizations to not only weather the uncertain environment but emerge stronger and more resilient in the future.”
Supply chain disruptions: investment in technologies and diversification are top priorities
Disruption in the supply chain is perceived by 89% of organizations as the top risk for business growth in the next 18 months, ahead of rising raw material prices (67%) and the energy crisis (64%). To minimize this, 43% of executives are planning to increase investments in their supply chain over the next year and beyond, by an average 10.4% compared with current levels. These executives are planning to direct investments at supply chain technologies (enabling agility, transparency, and visibility of supply chains) and diversification (of supplier bases, production, and transportation partners).
Priority actions to achieve supply chain diversification will include onshoring or near-shoring to boost production bases closer to demand, regionalizing supplier bases, and diversifying the manufacturing base (i.e., reducing reliance on a single geographic region). Western European countries plan to invest more in supply chain diversification, whereas APAC countries plan to invest more in supply chain technologies.
Technology investments: perceived as a lever to drive cost reductions and business transformation
To help weather the economic storm, businesses are considering ways technology can help to drive growth and create economic value quickly. The report found that 39% of them plan to increase investment in technology in the next 12-18 months, and a similar proportion is planning to maintain it. Executives plan on leveraging technology primarily to help reduce costs and to make faster decisions, leveraging cloud, data and analytics. To further protect their businesses in the next year, almost half of executives also plan to increase spend in cybersecurity.
Sustainability investments: increase in US and China, less so in Western Europe
According to the report, in the last 12-18 months, owing to adverse market conditions, more than half of organizations have already reduced their environmental sustainability spend, and only 33% are planning to increase their investments in the next 12-18 months, even though they represent a minor share of their overall investment. In this context, less than a third of organizations say they are on track to meet their set sustainability targets. However, businesses in the US and China plan to increase investments (41% and 53% of organizations respectively) over the next 18 months, remedying some of the observable decline over the past year.
The increased pressure on sustainability investment may be in part due to the fact that most business leaders see environmental sustainability as a costly obligation rather than an investment in the future. In addition, according to the report, 74% of executives say that customer demand for sustainable products and services has declined, as many customers are unwilling to pay a premium for ‘greener’ products, services, and solutions in the current macro-economic landscape.
Organizations need to prioritize sustainability investments and accelerate on their transition towards a less energy and resource-heavy economy, as an investment for the future. Empirical evidence suggests that sustainability and a healthy bottom line are far from mutually exclusive, and that frontrunners in sustainability perform better than the industry average.
Biggest talent spend: on hybrid and remote working policies
As hybrid work models become the norm and more employees expect flexibility and balance in their day-to-day, business leaders plan to put their biggest talent spend on such strategies and policies in 2023. In fact, 65% of executives plan to invest and implement hybrid-working options for employees, and 61% for permanent remote-work options for roles that require less supervision and teamwork.
However according to the report, organizations are planning to reduce investment in critical areas such as employee experience (39%), upskilling/reskilling (36%) and diversity (35%) in the next 12-18 months. As the competition for talent continues to limit organizations’ growth prospects, the brands that aim to remain attractive should double down on these aspects.
Read the full report here
