ACCA - The global body for professional accountants

While CEOs are turning their attention to technological innovation, the benefits will not be realised unless the right talent is in place. Easier said than done, says Robert Bruce

This article was first published in the March 2014 UK edition of Accounting and Business magazine.

The life of a CEO can be a bewildering one. Worries crowd in from all sides, and not all are simple business worries. External threats also pile in. Between 1970 and 2011 the number of man-made disasters nearly tripled, as did the number of natural ones. Putting together a chart of major disruptions makes it clear that these are not one-offs.

The survey which provided these observations was last year’s annual Global CEO Survey from PwC. The report summed it all up in a snappy conclusion: ‘In short, improbable risks aren’t so improbable now; they’re becoming the norm in a more uncertain world.’ Ask any business dependent on a reliable distribution system across the south west of England in the early weeks of this year if they have had their troubles, and you’ll get confirmation of this.

CEOs could be forgiven for seeking out a quiet place where they could retreat and restore their spirits. And this year’s Global CEO Survey suggests they have. However, they are not likely to find too much solace in the demands of the future. CEOs, says the survey, are focusing on innovation. Some 86% are aiming to shake up their R&D functions, 88% are exploring better ways of using and managing big data, and 90% are changing their technology investments. These statistics suggest that CEOs have their brains operating in the clear air of the ideas of the future. But there is a sticking point. Ideas are fine; it is the practicalities that always lag behind.

Only 27% of CEOs, the survey suggests, have started or completed the changes that could power their companies into a more innovative space. Only 28% have made any headway with big data. And only 35% have altered their technology investments. But they are trying hard: 44% of them say they are developing an ‘innovation ecosystem’ to support growth over the next three years.

Not surprisingly, CEOs are apprehensive at the prospect of all this new stuff. Accelerating into the future can involve companies in more car crashes than speed records. So it comes as no surprise that 47% of them are concerned about the speed of technological change as a threat to their organisation’s prospects.

But this is as nothing compared to their real problem. All brilliant ideas and innovative thoughts require people to manage them and carry them out. And that is where the real shortage, the real impediment to future progress, lies. It all requires a growing number of really bright and extremely well-qualified people right across an organisation’s skillbase. And the people, in the numbers needed and in the right geographical place, are not necessarily there.

Partly it’s demographics. As the PwC survey points out, the working age population is undergoing major shifts. ‘It’s still growing rapidly in India,’ it says, ‘where nearly a million workers will swell the labour force every month for the next 20 years. But it’s already peaked in China and South Korea, and has been falling for more than a decade in Germany.’ Small wonder that 63% of CEOs are worried about the availability of key skills.

It is the same right across business. James Dyson, one of the most innovative engineers in the UK, made this clear recently. His business wants to add 3,000 engineers to its R&D centre but has no idea where they are going to come from. Over the last three years the business has tripled the engineer headcount at its UK HQ, says Dyson, but last year it still had 120 engineering positions unfilled. Education, he argues, is where the solution lies.

Businesses are working at this. Crossrail, the company building the new eponymous rail line in London, set up a tunnelling academy not only to develop the skills it needed for its project but also for future projects such as another Crossrail line or the proposed new London sewage network. It all helps but the scale of the need is immense.

The figures in the PwC survey bear this out. ‘Half of CEOs want to hire more people in the coming year and nearly two-thirds are concerned about finding the right skills,’ it reports. While a sizeable 46% of CEOs saw the lack of key skills as a serious threat to their growth prospects in 2009, the figure has now risen to 63%.

Social and geographical change compounds the worry. Not only are working-age populations in advanced economies contracting, but the industrialisation of emerging economies has triggered a reverse brain drain, as highly educated foreigners return home, and inflated wages in the manufacturing sector.

There is a disconnect here. Every company you ever talk to is proud of its strategy for attracting and enhancing talent. But the PwC survey is sceptical: ‘CEOs have routinely told us they’re revising their talent strategies without appearing to make much progress from one year to the next.’

It is all very well for 81% of CEOs to believe technological advances will transform their business over the next five years and for 60% to believe demographic shifts will have a similar effect. Highly skilled people are still needed to make it happen and they are not necessarily there in the right place at the right time. It is no surprise that the survey reports that talent strategy is the main discipline where companies are making changes, way ahead of such traditional areas as customer growth, supply chain or investment in production capacity. What is not clear is how successful all these efforts are.

Little of this is communicated to stakeholders in the annual report and accounts. Sharing problems with the outside world is a way of breaking down the social and cultural blocks to the growth of talent. Perhaps future surveys should ask CEOs just how frustrated they are with the lack of progress in the world around them.

The need to provide explanations

‘There are three pieces of paper which ultimately determine how healthy a company is today in the eyes of the financial market: a balance sheet, a profit and loss account, and a cashflow statement,’ says Badr Jafar, managing director of Crescent Group, in the UAE. ‘But these are three documents which don’t tell you very much about the overall impact of that business. So we desperately need to develop a system to try and measure and quantify and communicate the wider stakeholder engagement.’

Robert Bruce is an accountancy commentator and journalist

Last updated: 16 Jun 2014