The 2023 planning season is underway, and CEOs and CFOs are facing a lot of unknowns—inflation, recession and supply chain issues—but one thing is certain: Efficiency and agility will be the constant no matter what scenario plays out.
As enterprises report third quarter earnings, CEOs are repeatedly asked questions about the economy, recession, inflation, supply chain and the hit to operating margins. The main takeaway is that CEOs don't have a crystal ball for the economy so they are planning to become more efficient to offset volatility in costs and demand.
These themes are going to be front and center at Celosphere 2022. Celonis co-CEO Alex Rinke said in a recent interview with Acceleration Economy Network:
"We have fears of recession. We have supply chain issues. We have the energy crisis in Europe. We have all these issues that really can be addressed by optimizing business processes, by optimizing how you run your business. It's one of the ways we have to be more resourceful as organizations and to help us fight and outrun some of these challenges."
One big challenge is that CEOs aren't quite sure what challenge will be most critical. Some CEOs, like Jamie Dimon of JPMorgan Chase, see turbulence ahead. Speaking on the bank's third quarter earnings conference call, Dimon said:
"We're just getting closer to what you and I might consider bad events. I've been very consistent looking at probabilities and possibilities."
Jane Fraser, Citigroup CEO, said the 2023 outlook depends on where in the world you reside. She said:
"The severity and timing of these recessions depend where in the world you are. Although persistently high inflation is driving a global softening of consumer demand for goods. In the Eurozone in the U.K., the supply shocks are most severe. The U.S. economy, however, remains relatively resilient."
Most CEOs are preparing for a bit of everything and plan to wring out inefficiency in everything from procurement to financial processes to supply chain to offset whatever lies ahead.
UPS CEO Carol Tome on the company's earnings conference call said it's time to be agile. "This is a very interesting time to be building a financial plan because there is so much uncertainty," said Tome. "We're going to build more agility into our plan than we've seen before. We have to be able to turn on a dime."
Southwest CEO Robert Jordan is seeing his airline's operations normalize following the COVID-19 pandemic, but there's a lot of efficiency gains ahead. "It's also going to take modernization of some of our tools and processes," said Jordan. "Using new tools and processes, taking paper out of the turn so that it takes less labor in some areas to perform the same tasks."
3M's Monish Patolawala, Chief Financial and Transformation Officer, said the company is in the early stages of working through its 2023 plan, but manufacturing and supply chain operations are key areas to increase productivity.
More from McKinsey: Webinar: Process Transformation in Supply Chain |These 8 characteristics of resilient supply chains can give your business a competitive advantage
"Raw material, logistics and labor inflation are starting to show some signs of moderation, and we are starting to see some evidence of global supply chain stabilization," said Patolawala. "We believe manufacturing and supply chain operations are our greatest opportunity to reduce costs and increase productivity to drive improvement in operating margin performance."
James Umpleby, CEO of Caterpillar, said supply chain resilience is a big topic as is inflation, but noted "there is no single magic button that we can push to make these issues go away."
Whirlpool CEO March Bitzer said the company is looking to reduce fixed and variable costs by another $500 million to reduce its breakeven point and structurally improve long-term margins.
According to Bill McDermott, CEO of Celonis partner ServiceNow, these companies are going to look to automate business processes across a wide range of functions to cope with whatever 2023 brings. "There's quite a bit that has to be done in the back office to automate business processes for a new world order of things in the macro," he said.
Rinke agreed. "These moments tend to be inflection points, where you discover a way to run things differently in the future," he said.