For CEOs at Davos, efficient, profitable operations take center stage
Chatter at World Economic Forum is about renewed discipline in investment decisions
Results. It is the outcome executives say they are seeking, demanding—and selling.
Companies say they are giving priority to profitability and efficiency amid concerns about macroeconomic conditions, whether it is to reach their strategic goals, slim down their workforces or streamline operations. In many cases, executives say they are looking to deploy new technology to help cut costs, offering a potential boon for sellers of such software.
"We have to be much tougher on costs and achieve the same growth plans with a lot less investment," Uber Technologies Inc. Chief Executive Dara Khosrowshahi said Thursday. "Performance that was defined as excellent in the past—lots of growth, who cares about profit—is performance that is described as not good enough or middling in our new world."
For many companies in recent years, the allure of high-growth opportunities underpinned decisions to spend big on staff additions, expanding business lines or projects that were years away from being profitable. The conversations at the World Economic Forum in Davos this week highlight a renewed discipline that is guiding investment decisions.
HOME DEPOT CO-FOUNDER WARNS THE ‘WOKE GENERATION’ IS IGNORING THE ECONOMY’S ‘BOTTOM LINE’
"When money was free with 0% interest rates, a lot of companies did invest in crazy pet projects that weren’t core to their mission or core to what they did," said David Glazer, finance chief for Palantir Technologies Inc. "Now, money is not free and they’re forced to really think about where they’re investing."
|UBER||UBER TECHNOLOGIES INC.||39.73||+1.25||+3.25%|
|PLTR||PALANTIR TECHNOLOGIES INC.||14.52||-0.02||-0.14%|
He said Palantir has been focused on its same core products over the past few years.
Still, the tech industry must prepare for tougher times, said Satya Nadella, chief executive of Microsoft Corp., speaking in Davos this week. The company said Wednesday it would shed about 10,000 jobs.
"We in the tech industry will have to get more efficient—it’s not about everyone else doing more with less, we will have to do more with less. We will have to show our own productivity gains," he said.
BANK OF AMERICA'S BRIAN MOYNIHAN WARNS AGAINST 'WEALTH EFFECT' THAT COULD FEEL LIKE 2007-08
Even companies that expanded in the pandemic say they are focused on efficiency. At Thermo Fisher Scientific Inc., CEO Marc Casper said employees throughout the life-sciences company must look for ways to make practical improvements to operations.
|TMO||THERMO FISHER SCIENTIFIC INC.||520.14||+0.32||+0.06%|
Some employees, for example, tweaked a process to shorten the time it takes to change products on a manufacturing line. "Every colleague is responsible for making us more effective and more efficient," he said. "It’s not a slogan. It’s how we operate, and that’s how we drive productivity."
As companies focus on profitability, many must also continue to manage higher costs for raw materials. "There’s no big change yet in inflation," said Ilham Kadri, CEO of Belgian chemical company Solvay SA.
Executives are trying to set strategies that play "offense and defense at the same time," says Bob Sternfels, global managing partner at McKinsey & Co.
Technology could help companies figure out how to manage through a slowdown and come out of it in a better position, said Tom Sweet, chief financial officer of computer and services provider Dell Technologies Inc. Company executives who sell products and services that can help automate, interpret, or even pinpoint inefficiencies say they see opportunity, despite the macroeconomic headwinds businesses are facing.
|DELL||DELL TECHNOLOGIES INC.||47.27||+1.81||+3.98%|
"Everybody is looking at efficiency, productivity," he said. "Companies are adjusting cost structures, but they’re also continuing to allocate capital towards growth opportunities or productivity opportunities."
LARRY SUMMERS SAYS HE’S ‘STILL CAUTIOUS’ BUT HAS A ‘LITTLE BIT MORE HOPE’ ABOUT ECONOMY
Part of ServiceNow Inc.’s pitch to clients is that its software can simplify and automate some company processes, and consolidate multiple systems into one. Businesses are receptive, and ServiceNow hasn’t seen a decline in tech spending, said CEO Bill McDermott. "I’m not fighting those headwinds," he said.
Alexander Rinke, co-CEO of Celonis, a firm he co-founded in 2011 that uses technology to help identify and resolve operational inefficiencies, said executives are focusing on efforts with a quick and clear return. "Clearly, we are seeing customers scrutinize their investments more."
In an effort to cut costs, some companies say they are slowing hiring or eliminating projects, executives said. Others are stressing to teams that they must stay disciplined.
Stephen MacMillan, CEO of medical-technology company Hologic Inc., has been urging caution when it comes to hiring, asking managers to consider whether each new role is necessary. "What I always tell my team is everybody can always justify another head," Mr. MacMillan said. "But are they being productive against what you really need?"
ELON MUSK HASN'T BEEN INVITED TO WORLD ECONOMIC FORUM IN YEARS, ORGANIZERS CLAIM
At real-estate company Jones Lang LaSalle Inc., CEO Christian Ulbrich said the firm now considers where to backfill some positions—with lower-cost markets gaining an edge in some cases. If an employee leaves a finance position in a city with high labor costs, for example, the company could potentially replace that role in Mumbai, India, or in the Philippines, he said.
|JLL||JONES LANG LASALLE INC.||147.94||+5.97||+4.21%|
Creating long-term value and efficiency is key to any organizational transformation, said Ernst & Young CEO Carmine Di Sibio. "We’re working on over 30 projects globally to help companies transform their business," he said. "We’re also making sure they’re operating as efficiently as possible."
CLICK HERE TO GET THE FOX BUSINESS APP
Boards are amplifying the pressure on CEOs. "We did the Kumbaya" during the pandemic, said Constantine Alexandrakis, CEO of executive-search and leadership-advisory firm Russell Reynolds Associates. "Now is time to deliver."
Kimberly S. Johnson, Bowdeya Tweh and Sam Schechner contributed to this article.