Pandemic compels US execs to accelerate investment in transformation

How often has “the future is digital” come up in our EY Capital Confidence Barometer over the decade-plus that we’ve been surveying corporate executives? This principle has become so commonplace it has bordered on cliché. For some time, the Barometer has chronicled a steady increase in businesses adopting a digital-first mindset.

It turns out we hadn’t seen anything yet. Leave it to a global pandemic, and a year when the word "zoom" took on new meaning, to test corporate leaders’ digital preparedness — and catapulting some businesses into a true digital transformation. This past year was like a live-market beta test of business models, supply chains and portfolio holdings, as well as the fruits of a prior decade of tech-fueled investment and M&A. When asked in our survey whether their digital investments performed well in 2020, US executives overwhelmingly (79%) said yes … and simultaneously said the pandemic had increased their investment in digital transformation (76%). In short, many executives already thought they were in fifth gear, innovating to meet customer demand — and many now realize there’s a sixth gear.

We see themes like this throughout the 23rd edition of our Barometer, which returns after an unusually long gap. While we normally survey executives on a semi-yearly schedule, the extraordinary circumstances of 2020 — not just the pandemic but the unsettled geopolitical environment — led us to wait about 10 months, until just after the US presidential election, to measure sentiment in the C-suite. The wait was worth it, not only because it provided a more settled moment for our survey, but also because it permits a longer view, maintaining the predictive power of our study over the years.

Take dealmaking, for example. M&A in 2020 was essentially several deal market cycles rolled into one: a strong open to the year; a steep drop-off due to COVID-19 before the first quarter was even over; a spring bottoming-out followed by a summer rally; and fourth-quarter deal volumes that topped the best moments of the first. So what does all this turbulence mean for forward-looking M&A intentions? Our snapshot finds 45% of US executives planning a deal in the next 12 months — slightly below the average we’ve seen over the Barometer’s history, but a remarkably sturdy number after the turmoil of the last cycle(s). We also note that more than half of respondents (55%) accelerated portfolio reviews in the wake of the pandemic, which will likely produce both more investment and divestment. This all suggests a busy 2021 for corporate strategy, as businesses apply the lessons learned in 2020 to both organic and inorganic growth.