One on One with EY's Liz Bolshaw

Today's global economy is anchored by plenty of massive companies with billion-dollar-plus revenue figures, but when it comes to raw economic growth,…

| December 14, 2018

Today's global economy is anchored by plenty of massive companies with billion-dollar-plus revenue figures, but when it comes to raw economic growth, the middle market is the reigning champ. In the second year of EY's Growth Barometer report, confidence is higher among middle market companies than it was a year ago. At the same time, priorities are shifting in those companies around everything from diversity to digitization. Consulting sat down with Liz Bolshaw, Lead Analyst for EY, to talk about the report.

Consulting: What were the prime factors behind the optimism you're seeing in the middle market?

Bolshaw: We're already seeing a substantial shift both in optimism and ambition in terms of middle market sentiment. I think there are several factors driving this. A number of economists have noted that in 2018 we have unusual synchronicity in economic growth across the Americas, Europe and Asia-Pacific, so three major economic areas all growing at the same time rather than at the expense of each other. But also in terms of the middle market what we're seeing is shifts in business models being driven by digitization in particular creating real opportunities for agile, smaller companies to grab market opportunities and to use what is increasingly a business advantage, agility and speed, to grab those opportunities fast.

Consulting: How sustainable is this middle market growth long term?

Bolshaw: Middle market is the big engine of growth for all companies. We have companies in the survey, some very young companies maybe a year or two old with just a million dollars in revenues right through to companies over 3 billion. If you look at that group of companies, the World Economic Forum suggests they represent about 47 percent of global GDP. In terms of growth, they represent almost all the growth. It's very hard as an enormous multinational to grow at 7 to 8 percent a year, but that's what typically the middle market is doing. I think the opportunities are still there, I think the growth is certainly something the companies believe is sustainable because they're on a hiring spree, and I don't think companies hire full time people if they're not fairly confident their growth can sustain it. It would be foolish to say there are no challenges or headwinds, economic growth, making sure the big economic areas of the world continue to grow, I think that's critical.

Consulting: Elaborate on the report's connection between regulation and increased innovation.

Bolshaw: It was a surprise to use as well. The prevailing wisdom, particularly in the Anglo-Saxon world, US, UK and Canada, would be that regulation strangles innovation. But actually what we're seeing particularly strongly in mainland Europe, Asia-Pacific, and really all around the world, except for those Anglo-Saxon countries, is 1 in 4 respondents said regulation is the key driver of innovation. We've really tried to get under the skin of that. I think what we're seeing is government leaders using policy levers to drive change. For example, the development of electric vehicles, clean electric cars. I don't think we'd have seen such a strong leap into those technologies had it not been for governments setting emissions standards. We've seen mayors across the world come out and say they're banning diesel vehicles from the center of town as early as 2022, which is right around the corner. I think we're seeing more and more around the world how government is perhaps partnering, particularly with entrepreneurial companies and tech companies, to drive big changes in society. That's a big change from last year and a big recognition in the part government is playing. I think it's a shift and a trend we will see grow.

Consulting: What are some big consulting opportunities you're seeing?

Bolshaw: I think as a Big 4 firm, we do think there are some opportunities, we think it's the kind of thing we can help companies with to give them better transparency on their cash flow needs. In particular looking at AI and algorithms to really improve their data capture and the speed at which they can see the data is something we can help with. The other thing that's perhaps driving consulting is the overall speed of change, the overall picture that all companies are having to deal with now of what a digital world really looks like, where the competition is coming from, how they can implement AI strategies that will deliver not just process efficiencies, but a better user experience for their customers. All of these are difficult things on a strategy level and quite difficult to implement, and I hope we can help many of these companies create opportunities and growth out of them.

Consulting: What about the report did you find particularly surprising?

Bolshaw: There were a number of things that really leapt out at us. Last year, we asked about RPA, robotic process automation, so a slightly different question because that was the term mainly being used for machine intelligence of all kinds. Last year, 74 percent of respondents said they'd never adopt RPA, that it wasn't relevant to them. Twelve months later, 73 percent, almost the exact same percentage, were either already adopting AI or had a plan to do so within two years. I think we would all have expected a shift towards AI, but nothing this dramatic. Another one was on the talent agenda. To have over 4 in 10 CEOs cite diversity as their number one recruitment priority this year was an extraordinary shift, one that I think shows how companies now are so keen to see teams include different kinds of thinking. This idea of getting away from groupthink is now a real business priority. Eleven percent of CEOs last year cited diversity as a recruitment priority, this year 41 percent.

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