Breaking Stories

CEOs across market, economy agree on one 2022 prediction: More volatility, no end to Covid

CEOs across the economy were optimistic in their 2022 outlook before the omicron variant of Covid emerged. Are they still now?

A recent survey from the Business Roundtable revealed confidence about the outlook into next year, but that was conducted before the first cases of omicron were reported. On Wednesday, as the first omicron case in the U.S. was revealed in California — a second case from a Minnesota resident who recent travelled to New York City was revealed on Thursday — CNBC Contributor Suzy Welch led a CNBC Leadership Exchange virtual roundtable with CEOs across various sectors of the economy to gauge their confidence now as Covid dominates the market.

The message from CEOs: Expect volatility to rule again in 2022.

“Almost a year ago, we’re all saying goodbye to 2020 … like good riddance,” Welch said. “The sort of the year ahead was going to give us back our visibility into the future, give us back some kind of feeling that the earth was not moving under our feet at every moment. And of course, it just didn’t happen. … You sort of get to a place where you think, ‘What can I know anymore?'”

A trader works on the floor of the New York Stock Exchange on March 18, 2020, as the Dow Jones Industrial Average sank by 1,338.46 points, over 6%.

Michael Nagle | Xinhua News Agency | Getty Images

Shane Grant, Danone North America CEO, said he is “very bullish going into 2022 on the core business,” but does expect volatility to be a major theme.

“As we go into 2022, I think it’s this theme of just volatility, and it’s not one particular type of volatility. It’s enormous volatility in our supply chain. It’s everything from input availability, capacity, transportation, labor, it’s Covid adaptations by ways of working adaptation. It’s this accordion economy of sort of stop-and-go and the adaptations required,” Grant said.

“The theme going forward is just volatility in everything,” Welch said.

Covid will not end

Many leaders, including Welch, had been hopeful of an end to Covid in 2022.

“I think we all had we all have employees and family members who say, ‘When’s it going to end?’ And it used to be that there were answers to that, like it was going to end, it’s going to end summer of 2021,” she said.

But Covid is not going to end at any point in 2022, according to Dr. Marlow Hernandez, CEO of Cano Health, a health-care service provider for seniors. “No, sorry,” he said. “Because it’s so transmissible, because it continues to vary.”

He said that looking at the levels of vaccination across industrialized nations and increasingly, across the world, and still seeing “the staggering caseload” leads him to the downbeat conclusion. That doesn’t mean new stay-at-home orders and lockdowns, but if there is a new normal it includes Covid. “We understand lots about the virus, but it’s a lot more like flu and hepatitis and measles and some others than it is like smallpox that we can simply eradicate from the earth,” Hernandez said.

Covid has been great for the logistics business, but for Mike Parra, CEO of global logistics company Deutsche Post DHL Group, the unknown of omicron is keeping him up at night.

“Covid-19, it started for us in China, and we could see it come towards the Americas. And now we’re starting to see the same thing and we know that it’s coming, we can anticipate that it’s happening. We had been planning for a summer relief in this area where we thought we would conquer Covid-19 through vaccination, through the increased awareness, through the deliveries that we’ve been doing,” he said.

Deutsche Post DHL has helped deliver 1.3 billion vaccines in 120 countries.

“And now we’re about to enter this new phase of the unknown,” Parra said. “And then we’re back into cycles in Europe of potential lockdowns, you have a very strict position in China where they want to eradicate Covid. … you’ve got restrictions from a flight perspective, you’ve got the impact on transportation.”

The fear of running out of inventory is now embedded in the supply chain, he said. “Companies going from ‘just in time,’ which is what it used to be before, to ‘just in case,’ which is what it is today.”

And an already stressed supply chain that has led to price spikes will remain subject to more volatility.

“Air freight is some way from returning to full capacity. Ocean freight, the ocean market is going to take longer, the piers are working 24/7, the ports are working 24/7, but there’s still a big backlog there,” Parra said. “And everybody is pressing towards air cargo, air cargo capacity, airline capacity. And depending on what happens with omicron … based on what we saw before … that is going to put incredible pressure back on air travel,” he said.

“The pandemic is far from over and omicron is, I believe, a real threat,” Dr. Hernandez said, citing the number of mutations on the spike protein, that may make it more transmissible and resistant to vaccines and treatments.

“I’m concerned for all my patients. I’m particularly concerned about the underserved,” he said, from which 80% of CANO’s patient base resides. “During Covid-19, we’ve observed how dysfunctional the U.S. health-care system is. We’ve had the worst drop in life expectancy since World War II,” he said.

Simplifying business models amid volatility

Some of the industries hardest hit by Covid do see opportunities to lean into the continued volatility as the closest thing to a norm.

“The volatility is likely to continue,” said Damola Adamolekun, CEO at restaurant company P.F. Chang’s.

He took over as CEO of the restaurant business in the middle of Covid, April 2020, transitioning from being an investor in the company.

“My life as a CEO has been entirely Covid,” Adamolekun said. One of his biggest moves, he said, was “to simplify as much of the business as we could.”

“With all the volatility and the change, and the constant adapting, you know, rules changing by location, by municipality, by state, with all that volatility in the environment, it was critical that we simplify what we could within our business to kind of balance that to the extent that we could.”

That led to menu simplification, among other changes, which is a strategy being used across restaurant companies.

“Do more with less,” he said. “We have a saying here now: do less better.”

Adamolekun said his outlook is still for growth, between the forced adoption on the technology side for both companies and consumers, such as QR codes for menus.

“If we’re able to keep the gains that we’ve achieved on the digital side of the business, while also welcoming guests back into our restaurants, it is a real opportunity to drive overall unit volumes,” a trend he said the company was seeing play out towards the end of the year.

Covid as an opportunity to reset a business also occurred for Judy Marks, CEO of Otis Worldwide, the elevator and escalator maker that was spun out of United Technologies during the middle of Covid.

“We explored every process and simplified everything from a 168-year-old history,” Marks said. “Everything we did was for a first time in a Covid environment. … Let’s view every day as precedents.”

“My concern is that people want to want to return to the status quo, they want to return to what’s safe and what they understand,” said Ellen Kullman, CEO of 3-D printing company Carbon.

Creating simplicity in the business also goes for work routines, Grant said. “What’s been important and will continue to be important is how we create more simplicity in our business and for our people, to deal with that volatility. … we can simplify all that’s within our control to allow people to deal with the volatility that’s just somehow baked into the macros at the moment.”

Volatility is placing greater demands on employees.

Fears about the Great Resignation

The Great Resignation and how to recruit and retain employees remains high on the list of fears among CEOs across the economy, and expected volatility will exacerbate this labor market challenge.

Labor has been the major concern in a lot of industries, and the restaurant industry is high on the list. The labor force is shrinking and employers need to be more competitive within that shrinking pool, and relative to competitors. “It is something that keeps us up at night in the restaurant business,” Adamolekun said.

But even in industries less sensitive to acute shortages, hiring and retaining workers is the top fear for many CEOs.

“What we’re all seeing and experiencing … are very varied levels of volatility fatigue among our teams, and actually ebbs and flows,” Welch said. “Because sometimes you’ve got your core team and everybody is let’s, ‘oh, yes, this volatility is the new normal, let’s just go, let’s go.’ And then other times you have key people who are decision fatigued because to be making decisions, when you have no visibility is draining.”

“The war on talent in 2022 is going to only intensify,” Grant said. “It’s about game-changing people policies, like gender neutral parental leave, for not only corporate workers, but frontline workers. It’s about institutionalized flexibility. It’s about true commitment to diversity actions. And I think those things are going to become true differentiators in this war for talent in 2022,” he said.

Jane Park, CEO of women-led special purpose acquisition entity Athena Consumer, said she remains concerned about women in the workforce as part of the Great Resignation. Citing McKinsey and Deloitte data showing three in five women today say that they will not be in their same role in two years, Park said, “Every company has got to think about retention very seriously. It’s not just that we lost five times the number of women from the workforce, over a million women. But it’s really that there’s possibly even more because of the challenges of being a working mom, in particular with kids,” she said.

Park is not hopeful that solutions to the workforce crisis are imminent. “The solutions, no matter what they are, aren’t coming fast enough. There’s nothing that is going to impact 2022 to make these women’s lives easier. … We’re at the lowest point of women in the workforce that we’ve been in 30 years,” she said.

“The No. 1 thing keeping me up is the Great Resignation,” Parra said. “What we’re seeing is that people want to be in control of their future, more than ever before, because so much is changing around them.”

That is correlated to the level of fatigue he is seeing in employees.

“The whole future of work, from which this Great Resignation is being triggered … we’re watching that space closely. “If we’re not flexible enough, you will have people then decide, ‘well, that organization is no longer the location that I want to spend the rest of my life or my career at, because they’re not thinking about what’s important to me.'” Parra said.

CEOs worry about striking the right balance for workers who had the ability to be productive on a remote basis, especially at firms that have both large front line and professional staffs.

Pedro Pizarro, CEO and President of Edison International, said utility companies are dealing with the long-term implications of climate change in business models, and for those based in California, the risks are occurring more often in real-time — a recent survey from the Yale School of Climate Change Communication found that for the first time a majority of Americans said climate change was affecting their personal lives — but utilities are also facing the same unchartered territory of workplace pressures amid Covid.

“We’ll hopefully getting back to some normalcy and how we work with our employees. Fingers crossed on that,” Pizarro said. For a CEO that had a significant portion of its workforce on the front lines, working on power lines, and a significant corporate staff that was work-from-home, he added, The hybrid model of employees is one thing that keeps me up at night.”

“They want that flexibility. They don’t want to commute,” Parra said. “They don’t want to spend two hours on public transportation, they don’t want to go in the traffic. And they’ve proven that over the last few years, they can do great things online, they can sell their products online.”

Carbon has instituted no meeting days and “random days off,” Kullman said, due to Carbon’s concerns about the exhaustion and the frustration in the workforce.

Staying ahead of crisis or falling behind

Even amid the Covid waves that have come, there have been surprise signs of resiliency and surprising ways in which companies have succeeded.

Cities are proving resilient, according to Marks.

“Urbanization has trumped infectious diseases over and over again. … Urbanization is continuing in the U.S., but especially globally,” she said.

In China alone, for the nation to reach its 65% urban population target, eight more New York Cities will need to be added.

“Cities are back, they’re not coming back, cities are back globally,” Marks said.

Otis Worldwide has seen a rapid shift to digital sales in key urbanization markets which the CEO would not have expected to be possible. “No one believed that we’d be able to actually sell a life safety device like an elevator online, in a totally digital mode and configure that, and we’re doing that now on our entry level line in India,” Marks said.

But there is significant risk for any company that expects a return to a former state of normal, said Hassane El-Khoury, CEO of chip company Onsemi.

His company supplies to the auto industry and he thinks 2022 is going to be a defining moment for autos.

“It is exactly the same moment that the photography industry went through with the digital cameras and mobile with the iPhone, and now the auto industry with the shift to electric vehicles,” El-Khoury said. “It’s not about the technology, it’s going to be defined by the willingness to choose a different path than the familiar one. … Some are waiting for the old normal to return so they can apply what they’ve always done, you know, the comfortable. Others have already accepted the present state, they’ve embraced that disruption as the new normal.”

He said the companies that will succeed are applying the disruption mindset as a way to approach problems and solve problems that “they don’t even know exist yet. But they know they will.”

Adamolekun sees a similar bifurcation in the restaurant business.

“There’s basically two camps of thought in the restaurant business, some folks who saw this as a temporary issue that they needed to get through so they can get back to the way things were … let’s figure out delivery for this period of time, so we can go back to not having to deal with it. And there’s folks who I think saw it as more of an acceleration of the way things were already going. And we just arrived at the future sooner.”

He said in the next year, the companies in the latter camp are going to outperform because the changes are permanent. The use of QR codes in its restaurants has proven successful even in areas where the consumer demographic is much older. And the companies “still hoping to go back to the way things were,” will find themselves in a losing position.

“I think that’s going to be a trend that you’re gonna see not just next year, but going forward here, as we continue to live with Covid rather than defeat it,” he said.

What's your reaction?

Excited
0
Happy
0
In Love
0
Not Sure
0
Silly
0

You may also like

Leave a reply

Your email address will not be published. Required fields are marked *