How disruption is changing the East Africa corner office

Equity Group CEO James Mwangi (left) and his KCB Group counterpart, Joshua Oigara, at the launch of the 2019 KPMG East Africa CEO Outlook report at the Capital Club, Nairobi on Thursday. PHOTO | DIANA NGILA | NMG 

By Ng'ang'a Mbugua
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Summary

• CEOs must face uncertainty and tackle it head-on

CEOs, when they speak as a club, hold up a mirror through which a country can closely examine its economic outlook. So, when they say, as they did in the KPMG report released last week, that they
expect their companies to grow by only two per cent over the next three years, this should make policy makers and the government sit up and take notice.

That CEOs are now more focused on building resilience in their organisations, rather than looking for new ways to grow profits, sends a strong message about the state of the economy considering that as a club, CEOs are generally more optimistic in their outlook compared to other segments of the economy, say the working class and the self-employed.

Slow growth, however, is not the only challenge that the CEOs have to grapple with. In his foreword to the latest report, Josphat Mwaura, CEO and Senior Partner of KPMG East Africa, observes that 62 per cent of CEOs now consider it critically important to improve their innovation processes, a steep jump from only 20 per cent the previous year.

This underlies the disruption that traditional businesses are experiencing, making it all the harder for the chief executives to steer their organisations in the face of the headwinds.

“In this year’s findings, we see that to be a CEO today is not what it was yesterday,” Mr Mwaura observes. “There have been significant changes in the breadth of their responsibilities (and) the skills they therefore need.”

Despite these daunting challenges, there is a silver lining in the dark clouds, with CEOs in East Africa saying that they view disruption as an opportunity rather than a challenge and a significant number saying that they are seeking to disrupt their own industries rather than sit on their hands and wait to be disrupted.

According to the KPMG report titled “Agile or Irrelevant: Redefining Resilience”, 58 per cent of the chief executives surveyed in the region said they were willing to allow mistakes to be made in the pursuit of innovation. This represents a significant shift in companies’ tolerance for failure in the quest for better products and services in a culture that traditionally emphasised getting it right the first time.

Experimentation

Like Einstein, who once observed that he learnt over a thousand ways in which a light bulb does not work, CEOs are willing to allow experimentation.

But, for this to succeed, top executives ought to loosen the purse strings and strengthen their research and development (R&D) departments where they already exist. And where they do not, the question should be about when they will be set up, not whether.

The second step that they need to take is to equip their core teams, as well as their staff generally, with the skills that will position them to face disruption head-on and find new ways to survive the turbulence. Although this is a reality that a significant numbers of the CEOs are already alive to, in East Africa, there are not many enough who see the need to respond with speed to emerging challenges.

According to the KPMG report, only 46 per cent of those interviewed in East Africa said that acting with agility “is the new currency of business” compared to 67 per cent globally. Worse, only eight per cent of executives in the region are already using Artificial Intelligence (AI) in the automation of their processes, yet global experience has demonstrated the capabilities of AI to cut costs, improve processes and deploy targeted responses to customer needs.

It is also worrying that only four per cent of regional CEOs have any plans to ensure that more than half of their employees are trained to enhance their digital capabilities against a global average of 44 per cent.

This could be a pointer that CEOs are already hedging their risks, but it could also mean that they do not see the need to train workers that they might not be needing in a few years. This is especially stark in Kenya’s banking sector where banks have invested heavily in automation and business process outsourcing, which have in turn reduced the need for tellers or for banks to manage their own ATMs and deposit-taking.

Long-term strategies

This is also happening against the backdrop of shortening tenures for CEOs. According to the report, the average tenure of a CEO now is five years. This has the effect of reducing incentives for CEOs to adopt long-term strategies since they are more often than not judged by the results they achieve in the short- and medium terms as companies worry more about whether 10 years hence, they will be doing the same things they are now. It also means that top executives have a shorter time to achieve their legacies and groom their successors.

The report, for which 1,300 CEOs were interviewed globally, also observes that chief executives now have to be involved in areas that were not their province only a few years ago.

Of those interviewed in East Africa, 66 per cent said they were responsible for connecting the front, middle and back offices in a way that their predecessors were not. This is a significant proportion and points to the ever-changing role of CEOs in the dynamic work environment.

What do all these trends mean for the future of the corner offices? First, the CEOs have to achieve more with less. Secondly, they must constantly redefine their role. And third, they must be constantly alive to the changing market dynamics and the fact that customers are increasingly looking to patronise the businesses whose outlook mirrors their own. That is why, issues like sustainability and shared values are important for CEOs.

As the report says: “CEOs must face uncertainty and tackle it head-on.”