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BCG Global Chairman on recession: Companies are taking a ‘resilience focus’

Boston Consulting Group Global Chairman Rich Lesser joins Yahoo Finance Live to discuss tech layoffs, how tech companies are planning to restructure in 2023, bringing more of AI to companies, the economy, and the outlook for the labor market.

Video transcript

[AUDIO LOGO]

- All right, layoffs have hit the tech industry hard as companies look to counteract economic headwinds. How is this going to affect restructuring heading into 2023? Boston Consulting Group Global Chairman Rich Lesser is joining us now. Rich, it's been a while. It's good to see you. Thanks for being with us this morning.

RICH LESSER: Great to see you.

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- So, indeed, we've been talking about a lot of layoffs, a lot of restructuring, a lot of expense cutting within the tech industry. What are you hearing from your clients about their worry level going into the next year?

RICH LESSER: I think it's so important to distinguish between the tech industry, which, of course, built exceptionally aggressively with the low interest rates and the high stock prices in recent years, and how most other CEOs in other industries view the role of technology and digital. And I understand that there have been some layoffs in the tech sector itself. I actually think for many other companies, that will be viewed as a helpful thing because they're desperately trying to build digital and software and analytic talent in their organizations.

And we just finished a huge survey. And despite whatever the constant negative economic projections are, 60% of companies are looking to accelerate their progress on digital and analytic transformations. And virtually all the rest are at least looking to sustain where they are today.

It's a very different picture than if you just look at the job cuts in the tech industry itself. And I think it reflects how most CEOs see this as absolutely fundamental to their future success. That's certainly what we're hearing from our clients.

- Well, Rich, if they are picking up their investments in technology, in a lot of cases automation, what does that mean to the broader employment outlook?

RICH LESSER: I'm actually encouraged. I think what we see over and over is when you automate a lot of routine tasks, when you allow front-line people to be more personalized in the value they bring to their customers, that you create opportunities to create different kind of jobs that make jobs more fulfilling.

I mean, we see the robustness in hiring. I mean, these digital transformations have been underway for many years in a lot of cases. And the employment outlook is retaining a lot of strength, even despite constant negative news headlines about how bad the world is going to be.

We don't see preemptive job cuts from companies, as we've seen in other times when it looks like we're heading into a tough economy. I actually think that's going to moderate-- I'm not saying-- I'm not going to project there will be a recession, there won't be a recession. But I think the odds of going through a recession with a relatively mild impact on employment are quite encouraging for next year.

And we're seeing it ourselves. I mean, we created this BGC X unit to put all our digital build and AI talent under one roof, with about 3,000 people almost, because we see those capabilities as being incredibly important to our clients alongside the strategy and transformation capabilities that are in the core consulting business. And I think we'll see it in reasonable employment prospects. And we're already seeing it in the jobs reports that continue to come out.

- So in that case, Rich, because cutting is happening, even at nontech companies, so is that cutting now and is it going to continue to be in nondigital areas, right? Is it just middle management that is going to be at risk in this downturn?

RICH LESSER: So first, I mean, we have to be pretty encouraged that after, I'd say, eight months of exceptionally negative news about where the economy is going at the robustness of the job market and how it's held up. If anything, people worry it's held up too well. And that means the Fed needs to take rates up higher. But overall, I think it's a more encouraging thing.

Yes, absolutely. Some of what will happen in digital transformations and bringing more AI and intelligence is traditional jobs and often middle management jobs will go away. But other jobs-- the ability to engage with customers differently, the ability to have deeper relationships, the ability for those who can adapt and learn and build new digital skills, the opportunities will be substantial. And then I think the fact that companies are so focused on adding to these skill sets in their organizations is a very encouraging sign.

But yes, the economy will reshape itself. The job market will. It has in the past. It will in the future. It will be at an even somewhat faster rate. That will create more emphasis on people, on companies to upskill their talent at all levels, to get people focused on bringing new kinds of value to customers or inside their operations. That's what we want to see.

- Rich, have you seen a pickup in your business from those companies looking to restructure their operations?

RICH LESSER: Yes. I mean, I think that there is a theme right now around resilience. And I think we see that from a number of different angles-- the amount of volatility in the world and uncertainty, the need to be more adaptive. Obviously, companies are preparing for a tougher economic landscape, I'd say first and foremost in Europe and the concerns about what's happening there, but also in the US. And we do see the negative news about what next year might bring.

So I do think what we would describe as this resilience focus, which is this intersection of productivity, adaptiveness, continued learning, and in some cases restructuring, I think those elements will be top of mind for CEOs. And we see it in the dialogues they're having.

But we have to distinguish between in the past, where resilience was just equated with cutting cost. You go back to 2008, '9, go back to other recessions, you talk about resilience and it's all about cost cutting. There will be an element of productivity. Companies have spent a lot on expenses. And there'll be ways to be more efficient.

But it will also be about this digitization, analytics, about sustainability, about the ability to be more adaptive in a world of very high uncertainty geopolitically, the energy landscape, macroeconomics, and so forth. I think resilience is taking on a broader and more sophisticated meaning in many companies. And that's a very healthy thing right now.

- At the same time, Rich, the public rhetoric from a lot of CEOs has been pretty negative. It hasn't necessarily expressed-- there's been some nuance of resilience, but in general it's been relatively gloomy. Do you think, particularly after, say, the financial crisis, that CEOs tend to opt for more gloomy public-facing speech than they do more optimistic? Because the downside is worse if you're-- in other words, you'd rather have the upside if you're too pessimistic than have the downside if you're too optimistic.

RICH LESSER: I think in worlds of very high uncertainty, and particularly when so much of the broader news-- I mean, if you read the press every day, you'd be shocked we're not already in a deep recession, given the conversations and the headlines that we often read. And I think if you're a CEO and you're staring at that much uncertainty, it is far better in your interest-- more in your interest to be conservative in your outlook and talking about the downsides you might need to navigate than being overly optimistic and risk looking like you've missed expectations, looking like you've misled people. I think it's hard to be overly optimistic.

But actions speak along with words. And if you look at the broader economy and the amount of layoffs that have been announced, the continued job growth we see, I think that, yes, we need to listen to the words. And I do think there's downside risk next year. I don't want to be naive about that.

But I actually think for many companies, they see how hard it is to hire talent. They don't want to overreact, to get ahead of it on the job side too fast. They realize they need to build digital and analytic capabilities. They realize they need to be prepared for uncertainty at both ends, the upsides and the downsides.

And so they are being very cautious externally in what they say. But they are trying to be balanced in the actions that they take. And that's a tough road to be in right now because the uncertainty is very high right now.