Summary of McKinsey Surveys
Highlights
While many minor changes have occurred in the past year, the most significant trend consistent through all McKinsey reports is the decrease in executive confidence in their own economies. Despite the sentiments of optimism overall, confidence has decreased at a steady rate since the March 2004 report.
[And, watch for the positive reference to family firms]
Source
McKinsey Global Surveys [March, July and November 2004, and April and July 2005]
Results of the McKinsey Quarterly Global Survey of Business executives show that confidence on the global economy has dropped considerably in the past year. This article will discuss most significant shifts in executive's sentiments on business and economic trends throughout the year, in addition to analyzing the discrepancies between responses from executives from companies in different stages of development and size.
The survey questioned executives from both large and small companies from various regions and industries around the world. The majority of respondents are from North America (40%) and Europe, however executives from developing markets (i.e. China, India) and the Asia-Pacific region (i.e. Australia, Japan etc) are significantly represented in the sample. Respondents represent all levels of executives from both large (annual revenues > $1 billion) and small companies (annual revenues< $1 billion).
Reports from the initial survey from March 2004 reveal that most executives believed the global economy to be healthier than it was six months prior and expected improvements to continue in the coming months. Although optimistic, executives across the board reported that their primary business concern was the economy itself. Secondary concerns differed, however, and executives from larger companies reported apprehension surrounding the sustainability of consumer spending and the competition for talent, whereas those from smaller companies focused on hiring and retaining talent within their organization.
All of the respondents believed that outsourcing is more beneficial for the global economy than for their own companies. Executives from developing markets in India and China most strongly believed in its positive impact on the world economy. Those from smaller companies were less enthusiastic about the benefits of outsourcing and are less likely to see the positive effects for their own companies.
Although all businesses must consider a country's policy on foreign direct investment when making investment decisions, this information was found to be considered more "critically important" to developing markets. On the contrary, the survey found that a number of executives from smaller companies reported that foreign direct investment policies are of little significance.
Executives of all levels and from all regions and company sizes agreed that Asia would have the most growth in 2004.
Representatives from both large and small companies predicted that there would be as many mergers, if not more, in the months following the survey as in the six months prior to being questioned. However, fewer executives from developing markets expected this increase than representatives from developed countries.
While overall confidence in the global economy remained, the most notable change in the second McKinsey quarterly (July 2004) was a decrease in executive enthusiasm surrounding their respective economies. Non-developed economies showed the greatest decline in optimism.
More specific responses worth noting, were the plans of over half of the executives surveyed to increase IT spending in the following months. More economically discouraging was the finding that very few were planning to increase prices in the near future, a sign that was not encouraging to the economy. Plans for the workforce were promising, however, as 43% said that their companies were planning to recruit more employees – specifically in smaller businesses and in Chinese and Indian companies.
The second quarterly put a particular focus on respondent's sentiments surrounding the development of India and China. At the time of the survey, Indian executives expressed their optimism towards the planned efforts of the new government in terms of liberalizing the economy and managing growth. On a global scale, India is viewed as a prime region for R + D investments and most executives of large companies planned to invest here instead of China. Despite the focus on India, most executives in China remain optimistic that the trend of rapid growth in their country will continue. Although foreign investors were weary, China remained the most significant area of foreign direct investments at this time, and more than half of the executives from large companies planned increased future investments in this country. Given these trends, it is not surprising that both China and India plan the most IT spending in the near future.
The third quarterly of the McKinsey survey (November 2004) demonstrated another drop in confidence. The Confidence Index had fallen 12% since January 2004, although more respondents remained hopeful than not. Executives amongst the least confident were those from the developed Asian markets, and the most confident were those involved in Telecommunications. This drop could be a result of a number of strains to the economy including price pressure, high energy costs, and the war in Iraq. As noted in earlier surveys, executives continue to plan to increase their workforce in the upcoming months. However, the largest companies reported being just as likely to hire new employees as to lay off others.
An interesting shift demonstrated by this quarterly report was in executives reported primary business concerns. The top 3 concerns were pricing pressure, hiring and retaining talent, and operational effectiveness – which differed from the central worry of the overall economic climate in January 2004. In addition, an increase in pressure surrounding the level of competition occurred for all executives, specifically for those of large companies.
It was also found that executives prefer to focus on organic growth over M&A. Developing markets prefer expanding to new regions, but smaller companies prefer to focus on those that already exist. The survey found that the size and growth of markets was the primary factor when considering investing in emerging economies and 60% had plans to invest in such markets. Lastly, the survey found that more than half said that their focus was more on short term than long term goals, especially by executives in IT and telecommunications due to pricing and innovation pressures. Developing markets, however, place more focus on long-term goals and planning.
There were several notable changes in the April 2005 survey. The results reveal a marked reduction in confidence in Asia's developed economies. These executives had lost confidence in the short-term plans of their industries because of a slowing in growth and the increase competition from China and India. India showed the most confidence in their own economy, most reporting optimism surrounding continued growth, and looking towards the US as the most important external market. Most executives expected their company's workforce to remain stable, with twice as many planning to hire than release employees.
The most recent section of the McKinsey quarterly (July 2005) has shown a continued decrease in confidence over the past year. Europeans seem to be the most pessimistic – more believing that the economy has dropped than improved in the past months, and many expect this trend to continue. Executives have more confidence in their own industries compared to the economy of their own country. A large drop in confidence occurred from executives in India and China, however they remain the most confident overall. IT and telecommunications remain the most confident, but less than in the initial survey because of new competition.
One of the largest shifts in the past year has been the outlook on the changing workforce. This survey found that there are fewer executives planning to increase their company's workface in the next 6 months compared to the initial survey. In addition, more are planning to decrease the size of their workforce. IT and telecommunications are most likely to change their workforce in either direction. Shifts in this area are likely due to competitive intensity and unpredictability, in addition to reports of a lack of ability to match up talent to opportunity.
This survey focused significantly on sentiments surrounding effective communication and teamwork within one's organization. Many individuals noted a dramatic increase in the amount of meetings, emails and voicemails and expressed their concerns with wasting time on communication with no value, rather than focusing on key priorities. In addition, many believe that effective collaboration across the organization is essential for future growth, specifically in larger companies. Many reported difficulties obtaining necessary knowledge because of ineffective communication within the business, and differing structures within different business units – such as different definitions to represent similar structures. Other issues include inability to measure collaboration, ineffectively matching talent with opportunities, and over focusing on short-term results at the expense of the long term.
A significant finding within this survey is its discussion of the discrepancies between the responses of low level executives and top bosses (CEOs, CFOs and C-level executives). C level executives reported more emphasis on size and complexity of a company in contributing positively to seizing growth opportunities. Other lower-level executives reported placing more emphasis on extensive coordination across business units for opportunities in addition to reporting the detrimental effects and complications as consequence of poor unity. One can conclude that the top bosses are unaware of the difficulties and obstacles facing other executives within their companies.
While all executives reported an increase in the volume of communication, North American respondents appear to be most overwhelmed. This is likely a result of the business culture and technological infrastructure within which they operate. Executives in India felt the most confident about the effectiveness of their organization with less need to improve their ability to collaborate. This might be due to the abundance of family owned businesses within this economy that contributes to a cooperative atmosphere.
While many minor changes have occurred in the past year, the most significant trend consistent through all McKinsey reports is the decrease in executive confidence in their own economies. Despite the sentiments of optimism overall, confidence has decreased at a steady rate since the March 2004 report.
Print Article
EMAIL
