In 2017, CEOs in the UAE and Oman were excited about the future: they saw technology-driven change as a significant opportunity to disrupt their sector. That optimism continues in 2018, with business leaders showing great faith in the economic environment, both nationally and globally.
That optimism, however, is tempered by a clear recognition that, in order to grow their businesses, they need to respond to an ever-expanding spectrum of complex challenges. CEOs still predict their businesses will grow in the coming year, though forecasts are slightly lower than last year. And in a further demonstration of optimism, unlike global counterparts, the majority say they do not need to hit growth targets before they start hiring new people.
It is not surprising in the current environment to see geopolitical issues taking on more importance to CEOs. Technology continues to command considerable attention – as an enabler, a disruptor and, with the threat of cyber-attacks, a significant risk.
Data privacy is also understandably high on the CEO’s agenda. And even with greater reliance on data-driven models and analytics to make decisions, most of the CEOs still rely on the value of their experience and intuition to make strategic calls for the future of their firms. Being a CEO in this period of profound disruption and opportunity poses immense personal and professional challenges.
The 2017 CEO Outlook found chief executives excited about the future: they saw technology-driven change as an opportunity to disrupt their industry. That optimism prevails in 2018, with CEOs showing great faith in the economic environment to grow their organisations. CEOs’ optimism is now tempered, however, by concern regarding their potential exposure to three primary headwinds: geopolitical volatility, cyber security risk and demographic shifts.
The UAE and Oman are key to both the Gulf Cooperation Council and the global economy, both in terms of trade and foreign direct investment. There are, however, a number of challenges in the short term. The strengthening of the dollar during 2018 by 6% in Q2, after a weaker Q1 has created headwinds for the UAE and Oman, particularly for their non-oil sectors. The impact on the external competitiveness of the UAE economy will likely pose some challenges, particularly in the aviation and tourism industries, which are directly impacted by foreign spending. It could at the same time, however, offer advantages to residents in terms of remittances overseas and travel abroad.
The hospitality industry has been impacted, with average daily rates falling by 9.7%, although a 7.2% increase in demand was also recorded. This may also be due to a significant increase in competition in recent years. It is possible that oversupply could be affecting ADRs. Similarly, in the food and beverage industry, supply is outpacing demand, at least in the short to medium term. This could lead to declines in profitability, even though consumers are generally eating out and spending more than the previous year.
In the construction industry, subsidies for international companies such as export-guarantee schemes, particularly in China and Britain, may mean that it is more cost effective to hire foreign rather than UAE Omani contractors. The introduction of value-added tax VAT in the UAE on 1 January 2018 has also had an impact on the UAE economy. Inflation has risen to an estimated 4.8%, year-on-year, following implementation, although in the long-term VAT is expected to have a more positive impact on the overall economy.
In the short term, however, companies may be experiencing tighter margins and a squeeze on working capital, causing cash-flow and liquidity problems.
On the positive side, government reforms are set to ease the cost of doing business and attract new investors to the UAE. FDI continues to be important to the economy and showed an increase of 8% last year. It is expected that new laws allowing 100% foreign ownership of companies outside of free zones as opposed to 49%, previously may further encourage new investors. Visa reforms which may permit foreigners seeking work in the UAE to hold ten-year visas could also offer a further boost.
CEOs are optimistic about the sweeping changes that digital brings. The vast majority in the UAE, Oman, 98%, see technological disruption as more of an opportunity than a threat. Many consider it a personal responsibility to seize the competitive edge it offers. Over half, 54% the same figure globally, are actively disrupting the sector in which they operate, rather than waiting to be disrupted by competitors. That said, 54% versus 36% globally, say their organisation is struggling to keep pace with innovation, and nearly nine in ten, 88% versus 65% globally, believe the lead times for transformation often seem overwhelming.
To win the digital race, CEOs are taking close personal ownership of driving digital transformation. They recognise the power of data to personalise the customer experience, with eight out of ten 80%, versus 75% globally stating they are meeting or exceeding their customer
expectations. They are embracing AI and the Internet of Things to reshape their businesses. They are taking on, as a personal responsibility, the obligation to protect data and earn the public’s trust. And, as automation and AI have a reconfiguring effect on the workforce, CEOs are planning how to prepare their people for the age of the smart machine.
CEOs are increasingly keen on taking the digital reins to fundamentally transform their organisations: they recognise the need to be creative and agile in order to succeed in a business environment that is more and more digital, with an ever-increasing focus on enhancing customer experience to remain relevant and to grow.
Digital is integral to transformation today. The challenge will be to retain a human touch. When you talk about transformation, the assumption is that it is only digital. It is true that the current landscape is driving businesses to invest in technology and automation however the transformation of any business to evolve is not confined to digital. You need to create business value and ensure the human touch is not lost in the sphere of Big Data and AI.
In the digital age, CEOs are prepared to lead their organisation through a radical transformation of its operating model. In fact, over half of UAE 57% and 47% of Omani CEOs versus 71% globally, say this. As in so many areas of business today, American CEOs are most prepared to drive this transformative change, with nine in ten saying they are ready to step up to the plate, compared with over half, 54%, of UAE Omani CEOs. They are keen to be first movers, too: 86% of CEOs in the US and 54% in the UAE Oman, which is the same as the global average of 54% feel their organisation is actively disrupting the sector in which they operate.
Acting as champions of change, UAE, Omani CEOs are under the spotlight in terms of delivering results on technology investments – and expectations can be challenging. Over half, 58% versus 51% globally say their board of directors has an unreasonable expectation of returns on digital transformation investment. The largest challenge with getting a return on technology investment is the adoption of it. Once you have the technology, your people and processes have to evolve to leverage it. There is usually a lag effect, so adoption tends to be slower than planned.
Setting clear expectations will be critical, as CEOs recognise that a degree of patience is required. The lead times to achieve significant progress on transformation can seem overwhelming, as mentioned by one in nine local CEOs, 88% versus 65% globally. Leaders need to challenge return on investment conventions by fundamentally rethinking how they view digital investments and how returns are measured. You cannot look at investments and returns as you did in the past. If you approach transformation by just digitising existing processes, you will only get marginal benefits. Leading organisations must completely rethink analogue system workflows, and even their entire business model, in order to get the most out of digital solutions.
When a business commits to digital transformation, it means making investments that in the short term may yield low ROI but pay off in the long run. It is important that a company invest in acquiring the right data to build its digital transformation upon. With the right data points, a relevant and engaging customer journey can be achieved and in return revenues increased.
A combination of quantitative and qualitative measures is needed to gauge the benefits. Quantitative measures have obvious value, but the competitive advantage of qualitative measures should not be underestimated. Although the direct benefit of putting investment dollars into AI for supply chain may only be visible in time, it would be shortsighted not to invest now. This is also important when attracting high-performance talent. The most attractive talent wants to be part of an innovative culture where cutting-edge approaches and technologies are being implemented.
CEOs recognise that customer data should be their most valuable asset, transforming their ability to personalise products and services. CEOs also know, however, that customer data comes with significant obligation: 51% in the UAE versus the 59% global average say protecting customers’ data is one of their most important responsibilities. It appears less of an issue in Oman 27%, although that is still a higher proportion than in the Netherlands or Spain. If customer data is threatened by misuse or a security breach, the consequences for the company can be devastating and very public. CEOs in the US are particularly conscious of how difficult it is to earn trust in a digital world, with 89% saying that protecting customer data is a personal priority.
CEOs who ensure solid data-handling procedures will be rewarded by customers. It is critical that companies implement rigorous data protection measures to ensure that information is used transparently and for explicit, lawful purposes. Robust security systems could be put in place to guard against leakage, misrepresentation or destruction.
As well as driving digital transformation and protecting customer data, CEOs are reconfiguring their workforces for a future where smart machines and people work together. Humans will continue to do jobs in high-touch segments such as the arts, social enterprises and entertainment, selling and marketing, where humans pull on people’s heartstrings. But almost all blue-collar workers will be replaced by metal-collar workers, that is robots equipped with intelligence and super intelligence. They are no longer robots without brains, as they were in the past, they have become smart-robots.
For many CEOs, the long-term implications are positive: nearly nine in ten, 86%, CEOs in the UAE Oman say that AI will create more jobs than it eliminates. They are more optimistic than their global counterparts, 62%. Positives are likely to include greater job satisfaction through reducing the number of humdrum or complex chores and permitting more creativity.
AI and automation will drive significant efficiency improvements. New technologies are going to allow people to do a lot more with less. They will be able to focus on the important parts of our business, which are serving the customers, analysing the data and making good decisions. Much of the mundane work will be taken care of by automation, AI and the use of data and digitisation. That should play a big role in making jobs a lot more interesting.
Positive or negative, AI demands a communications strategy and the need for personal reinvention and development. Business leaders need to arm the workforce for a new machine age of artificial intelligence and increased automation. AI and automation will have a significant impact on the way we work, so let us develop our workforces. With customer demands changing continually, and the technology landscape in constant flux, CEOs now see agility as the dominant currency of business.
But the quest for ever-greater agility does not mean they simply have to embrace data and intelligent technologies, at the expense of human qualities. CEOs are bringing their own acumen to bear, combining their experience and intuition with data-driven, predictive intelligence to spot new growth opportunities.
In a digital economy, where new technologies are constantly reshaping industries and business models, the ability to innovate quickly is a strategic imperative. In the survey, 68% of CEOs in the UAE and Oman versus 59% globally say that acting with agility is the new currency of business and that if they are too slow, they will go bankrupt. They are more likely to agree that growth over the next three years will be harder to earn, 44% compared with 28% globally, and half, 52% versus 39%, say they need to improve how they monitor market disruption. As customer demands change, it has become important for companies to act with agility. Agile actions mean that you can succeed or fail faster, both of which add to the health of the business.
Cyber security is now an unavoidable topic in the boardroom, as increasing scrutiny is coming from governments and regulatory bodies. Digital innovation can create significant value across business models, customer experience and operations. But with greater connectivity comes increasing cyber vulnerability, and over half of UAE and Omani CEOs, 56%, believe that a cyber-attack is now a case of when not if.
While the seeming inevitability of a cyber event crosses all borders, the threat is perceived to be greatest by American CEOs, with 68% versus the global average of 49% saying it is just a matter of time.
Cyber risk is a very big issue because as the technology changes, it opens up more loopholes. Many CEOs are concerned about the robustness of their defenses. Only about a third 36% of CEOs in the UAE Oman say they are prepared for a cyber-attack, compared with half 51% globally. They tend also to be less well prepared to identify new threats, 38% compared with 60% globally, or to manage stakeholders after an attack, 34%, versus nearly three-quarters 73%.
It is perhaps not surprising that almost three-quarters of UAE Omani CEOs, 72% compared with 55% globally, believe that cyber security specialists will be important in supporting their organisation’s future growth plans. Data scientists are also seen as important by half of respondents, 52%, compared with 67% globally. Nearly half of CEOs surveyed, 48%, compared with 53% globally rank specialists in their existing workforce as being effective, while only a third 34%, compared with over half 55% globally say their data scientists are effective.
Cyber vigilance has become much more of an issue in the last year. Smart leaders are already making cyber preparedness a priority, from stress-testing the resilience of their systems to making sure they have the right people to handle an attack. Furthermore, they recognise the competitive edge this investment can bring: data is the currency of modern business and effective cyber security can unlock new business opportunities and enable digital transformation.
Cyber security threat is regarded as a cause of several risk factors, with four in ten CEOs, 38% compared with 22% globally, regarding operational risk as the most significant, followed by talent risk, 33% 19% globally and supply chain risk, 30% 31% globally. Robust cyber defenses are also critical to building confidence. Almost seven in ten, 68% compared with more than half globally, 55%, said that a strong cyber strategy is critical to secure trust with their stakeholders.
- Being a CEO in this period of disruption and opportunity poses immense personal and professional challenges.
- CEO optimism is now tempered by concern regarding their exposure to three primary headwinds: geopolitical volatility, cyber security risk and demographic shifts.
- CEOs are optimistic about the sweeping changes that digital brings.
- AI and automation will drive significant efficiency improvements.
- CEOs are taking the digital reins to fundamentally transform their organisations.
- CEOs recognise the need to be creative and agile in order to succeed.
- Digital is integral to transformation; the challenge will be to retain a human touch.
- You need to create business value and ensure the human touch is not lost in the sphere of Big Data and AI.
- If you approach transformation by just digitising existing processes, you will only get marginal benefits.
- Organisations must rethink analogue system workflows and their entire business model in order to get the most out of digital solutions.
Excerpted from, Growth in the digital age, 2018 CEO Outlook, UAE and Oman, by KPMG.