11/01/2017

General Secretary Xi sets out his blueprint for China

Author: Richard Oldfield, Global Markets Leader  Richard-oldfield

Whichever way you look at it, last week’s 19th National Congress of the Communist Party in China was a triumph for General Secretary Xi. From the beginnings of his days in office it was pretty clear that Xi was a different type of leader for China. A leader with a clear vision who was prepared to move quickly to marshal the resources and consolidate the powers necessary to put his vision into action. The 19th Party Congress has reinforced this, cementing Xi’s grip on power. And with no successor in the wings, he looks likely to be leading China for the next 10 to 15 years. 

While we clearly got the message that we will be dealing with General Secretary Xi for the foreseeable future, what were the messages for business and investors?

In the General Secretary’s words, the Chinese economy–having gone through “deep and fundamental changes”–now stands at a crossroads. On the one hand, between 2013 and 2016 it achieved an average GDP growth rate of 7.2%–but on the other, it faces many challenges and risks. Among them, rising levels of debt, high cost of production, low returns on investment, persistent industrial overcapacity and high levels of pollution. None is easy to fix. But by setting out priorities to pursue supply-side structural reform and a commitment to work harder for better quality, higher efficiency and more robust drivers of economic growth through new industrialisation, better use of technology, urbanisation, and agricultural modernisation, then we can at least now see a clearer direction for future economic growth.

Preventing systemic financial risks has been the focus of attention of the Chinese leadership and many investors around the world. At the National Financial Work Conference in July 2017, General Secretary Xi stressed that China should treat the deleveraging of state-owned enterprises (SOE)–the major beneficiaries of the banks’ easy credit and main source of bad debt–as “the priority of priorities,” adequately deal with the “zombie enterprises”, and hold officials accountable for a lifetime for building up debt at their respective regions.

To address the problems, the 19th Party Congress report calls for “deepening Institutional reform in the financial sector, increasing the proportion of direct financing, and promoting the healthy development of a multilevel capital market”. There are also plans to step up supervision of the financial markets. All encouraging moves.

State-owned enterprise reform has become the centrepiece of China’s economic policy. China has given priority to enhancing SOE competitiveness and efficiency through market-oriented reforms and reducing excessive production capacity. There are signs that SOE reform has gathered pace, starting in August with a partial privatisation deal at China Unicom and with over 68% of central SOEs now involved in mixed ownership reform.

The 19th Party Congress stated that the Party will support state capital in “becoming stronger, doing better, and growing bigger”, and turn Chinese enterprises into “world-class, globally competitive firms”. It also said that the Party will work to consolidate and develop the public sector while encouraging, supporting, and guiding the development of the non-public sector. This is encouraging, however it remains to be seen how SOE expansions will not crowd-out private investment, how to improve SOEs’ returns on investment, and through what mechanisms entrepreneurship and innovation in SOEs are encouraged.

China’s private sector contributes 60% of total GDP, 50% of tax revenues and 80% of employment opportunities. Yet the sector’s growth peaked in 2011 and plunged in 2016 to a low level. The 19th Party Congress report calls for “supporting the growth of private businesses”, and doing away with regulations and practices that impede the development of a unified market and fair competition. While all these measures are in the right direction, time will tell how effective they are.

After rapid growth for over two decades, foreign direct investment (FDI) into China has stalled recently, standing at US$126 billion in 2016. In the first nine months this year, FDI fell by 3.16% year-on-year, according the Ministry of Commerce. There are many reasons for the decline, such as labour-intensive manufacturing companies moving to other low-cost neighbouring countries, but a key reason is the accumulated “promise fatigue”, where many government commitments to further open up to the world and level the playing field are not followed through.

The 19th Party Congress report reaffirms that China will not close its door to the world and will only “become more and more open”. It commits to adopt policies to promote high-standard liberalisation and facilitation of trade and investment, significantly “ease market access”, and “protect the legitimate rights and interests” of foreign investors. “All businesses registered in China will be treated equally”, the report declares. Now that these issues have been given such high political prominence, hopefully the situation will significantly improve in the coming years.

The report also calls for “developing new ways of making outbound investments”, promoting international cooperation on production capacity, and forming globally-oriented networks of trade, investment, financing, production and services. It clearly states that the Belt and Road Initiative will be pursued “as a priority” and investment in these regions is likely to grow further.

So while there were perhaps no real surprises coming out of the 19th Congress, there were for business some encouraging noises and initiatives–the gathering pace of SOE reform, improved market access and fairer treatment for foreign companies, commitment to the Belt and Road Initiative and an increased focus on environmental protection and improving people’s livelihood. Only time will tell which of these initiatives will bear fruit first and when…but time is something that General Secretary Xi does appear to have on his side.

Richard Oldfield leads all market-facing activities, initiatives, and strategy. Prior to his current role, Richard was a member of the UK Executive Board for five years during which he was Head of Clients and Markets and latterly Head of Strategy and Communications.  Richard also led the UK firm’s Banking and Capital Markets Assurance practice and sat on the Assurance Leadership team. Read more

10/16/2017

Why the eyes of global business leaders will be on Beijing this week

Author: Richard Oldfield, Global Markets Leader  Richard-oldfield

As the leaders of the Communist party in China gather this week in Beijing for the 19th National Party Congress, business leaders around the world will be focused on President Xi and his colleagues, watching and waiting for any indication of the future direction for the Chinese economy and the climate for investment.


In a world of rapid change, political shocks and fluctuating economies, many have come to view China as a steady ship and a reliable engine for economic growth. While the Congress is not known for setting out detailed policy announcements, there is an expectation that President Xi will, when he addresses the meeting, set out his agenda for the next five years and cement some of the key policies and reforms that he has put in place since becoming leader of China in 2012. Policies that have fostered an environment that has allowed businesses to grow and thrive As China forms its political leadership for the next five years, the key questions on the minds of business leaders around the world will be:

  • Will China remain committed to opening its markets and economic reform?
  • What are the possible future policies on investment both by foreign companies in China and outbound investment by Chinese companies?
  • What direction will future Chinese monetary policy take?
  • And what policies will be put in place to boost infrastructure, urbanisation and sustainable development - in particular the Belt and Road initiative.

How many of these questions will be answered by the end of the session remains to be seen. But as we prepare to listen to President Xi’s thoughts on the future direction of China, I would encourage you to take a look at our thoughts on:

The other big question for business is what future role China will play in world affairs and in particular on trade, given the more domestic focus of the Trump administration. While we may not learn much detail this month, based on previous speeches by President Xi the expectation is that China will remain very positive on the benefits of global trade.


While this month the world will be looking at Beijing, next month the world’s gaze will turn to Vietnam where heads of state from the Pacific region, including both President Xi and President Trump will gather to attend the annual meeting of Asia-Pacific Economic Cooperation (APEC) leaders and give us their views on regional and world trade. It’s going to be an interesting couple of weeks.


For PwC’s views on the upcoming APEC meeting please take a look here.

Richard Oldfield leads all market-facing activities, initiatives, and strategy. Prior to his current role, Richard was a member of the UK Executive Board for five years during which he was Head of Clients and Markets and latterly Head of Strategy and Communications.  Richard also led the UK firm’s Banking and Capital Markets Assurance practice and sat on the Assurance Leadership team. Read more

09/14/2017

Tomorrow’s world: a revolution begins

Author: Richard Sexton, Global  Assurance Leader, PwC

A fluid, inclusive information system is taking shape Richard-sexton

Before any revolution, a tipping-point arrives: an inflexion point where a set of apparently separate developments come together and align to make radical change inevitable. In my view, we’re now at such a point in the world of corporate reporting and assurance.

Why do I say this? To explain, let me begin by looking at the current landscape of company information – and then at where today’s developments are taking it.

As we all know, we’re living and working in an increasingly complex and fast-moving world of decisions, risks and opportunities. It’s also a world in which management teams have more and better data and information than ever before with which to manage their businesses and respond to stakeholders’ interests. They’re accessing data from an expanding array of internal and external sources, and synthesising it to develop fresh insight for decision-making.

A growing proportion of the data that management teams are using is now generated outside their company and beyond its control. And this same information is also available to people outside the company including customers, investors, suppliers, owners and society as a whole.  They are also drawing on this information to make their own decisions and put management teams under intensifying scrutiny, about issues ranging from strategy to ethics, and from environmental impacts to what factors really drive their decision-making.

Management teams are responding to this scrutiny by using a broader range of data in managing their businesses. The reporting of this information combined with the growing availability of company-related data generated by sources from outside of the company, is putting today’s system of reporting and assurance under increasing strain, pulling it in directions undreamt of when it was developed over 100 years ago.

In my view, all these shifts are now combining to create one irresistible force for change. Because what companies and their stakeholders need today is a new solution to the information challenge: one that provides management teams with information to manage their businesses more effectively and responsibly, while also enabling stakeholders to access the right types of credible information to make decisions with confidence.

What’s more, such a solution is starting to take shape. What we at PwC can see emerging from today’s state of flux is an interdependent network of systems – an “ecosystem” of information and trust – that will be broader, more fluid and more inclusive than any before.

The ecosystem will be powered by technology and fuelled by data. It will be capable of adapting to future advances in technology, managing and sharing multiple sources and types of data and information, and fostering more balanced decision-making that benefits the system as a whole. And – as the image shows – it will include an optimised form of today’s system of financial reporting and assurance.

The evolution of the ecosystem

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The transition to the ecosystem is already underway, with many of the required components in place and various participants taking steps to accelerate its development. To find out more about what it’ll mean for your business, download our new point of view paper. I’m sure you’ll find it a riveting read.

Whatever role your business may ultimately play in the ecosystem, its emergence sounds a call to action that you cannot afford to ignore. We think all companies and stakeholders should prepare now by taking steps to plan and secure their future position in it.

  • What relationships are important for you to establish or grow?  Do you need to establish more permanent bonds?
  • Who else is generating data on you and how reliable is it? Can you work to improve the quality of the data and help people put it in context?
  • How can you help people to use all the data available on you and your company’s impact more effectively in decision-making?

And there’s no time to lose: early adopters will gain a competitive edge – while laggards will face a battle to catch up. The choice is yours.


Contact Richard

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Richard Sexton is Vice Chairman; Global Assurance, an appointment he took up on 1 July 2013. In this role, he focuses on further building the PwC network’s global assurance practice with particular emphasis of quality and regulatory matters, trust in the profession, and broader financial markets. Read Richard's full biography.

 

08/10/2017

Untangle the perils from the promises of Agile Project Delivery

Authors: Chris Oxborough, Partner and Dr Andrew Schuster, Director, PwC UK’s Technology Risk practice

Organisations are having to cope with the need to adapt or radically change operating models to meet the demands of a rapidly changing market place. More than ever before, they need to be increasingly flexible to succeed in today’s evolving landscape of digital change.  As a result, many project managers are turning to Agile Project Delivery (APD) methods as a way to deliver the technology-enabled changes that are needed to help their organisations thrive.

What is unique about Agile Project Delivery?
Agile Project Delivery strives to deliver products through disciplined, proven practices and allows for adjustments based on continuous stakeholder and customer feedback, thereby increasing speed to market. It is a value-driven approach that can give organisations the capacity to deliver high-priority, high-quality work and create lasting meaningful relationships with stakeholders. APD differs from traditional project delivery in four fundamental ways (see table). Four values WEB
Embedded into every facet of APD, these four values set the tone for a successful result through a change in cultural mindset, incremental working prototypes, stakeholder collaboration and readiness to respond to change. They shift the emphasis away from delivering the project by following a detailed pre-established plan to working with people to deliver meaningful outputs more gradually.  This approach tends to lower risk as it provides the opportunity to respond early in the delivery lifecycle. Traditional project delivery has high visibility at the beginning and end of a project. Agile, on the other hand, aims to reduce and mitigate risks through its ongoing visibility and continuous improvement approach.

Is Agile right for you? Its perils can outweigh the promises
Although APD can introduce possibilities for improving successful delivery, it can also introduce perils for your organisation. For example:

  • there must be consistently high levels of senior decision maker involvement throughout delivery, which can take time away from other priorities
  • team resources must be highly engaged and available, which may divert resources and funding from other work
  • the APD environment must operate within a mature and stable governance context, otherwise it loses its flexibility and cannot operate as intended.

If your organisation is not able to create an environment where Agile can operate well, you may want to consider alternative project management methodologies. If, however, the promises are compelling and the perils are managed, APD may be right for you. 

Assuring Agile Project Delivery
Achieving the full value from Agile Project Delivery requires continuous planning and a commitment to proactive and embedded assurance as part of an Agile transformation.

Organisations that successfully employ ADP methods ensure they have the right governance and controls in place. You must make your organisation ready before you embark on APD. To do this, leading organisations develop a framework to take into account a number of factors that consider the principles of good project management and Agile methodology practices. This includes:

  • Assurance to management, sponsors, IT, risk teams, and internal audit on Agile governance, controls, culture and change management
  • Safeguards to the delivery team and internal audit so that they can be effective and enable Agile
  • Guidelines for building a corporate Agile Centre of Excellence that reinforces the governance and culture around the methodology
  • Confidence that the fundamentals of Agile are embedded into ways of working such as risk management and training.

Our Agile Delivery Confidence Framework can help organisations make assessments against these essential elements of project management, governance, cost, and measurement of value delivery. Find out more in Agile Project Delivery Confidence: Mitigate project risks and deliver value to your business. The paper explores how you can create value for your organisation by building the right capabilities, unleashing your potential and gaining confidence to deliver the best product to market, while minimising delivery risks.

  Chris OxboroughChris Oxborough is a partner in PwC UK’s Technology Risk practice. In this capacity, he brings together a broad set of technology risk capabilities including data and analytics, cyber, strategy and transformation, technology operations and integration and emerging technology capabilities.

Connect with Chris on LinkedIn

 

 


AndrewDr Andrew Schuster is a Director in PwC UK’s Technology Risk practice, a role in which he focuses on providing strategy and transformation assurance to a range of clients. He also drives the development of global and national propositions and capabilities.


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07/19/2017

Data – are you maximising one of your most valuable assets?

Author: Jennifer Ho, Global Data & Analytics Risk Assurance Leader, PwC Jennifer Ho_9908

Decision-makers today are faced with an ever-evolving inventory of risks and there is an increasing need for better data information so organisations can take action.  But, what data is needed to do a better job at identifying emerging risks and how can business leaders tackle this head on?

The results of our 20th Annual Global CEO survey tell us that CEOs are ploughing investment into innovation – and are focusing on boosting talent in the digital and technology space to capitalise on new opportunities. The next generation of cognitive computing and programming applications will fundamentally transform the ability of users to correlate and connect data in ways never before imagined.  With big data, cloud computing, governance, compliance and Artificial Intelligence, risk managers will be able to gain advantages from capturing, extracting and transforming data to perform risk assessments, stress tests and risk scenario analyses.

The need for good data has never been greater

Companies in all sectors are seeking consistent, credible and trustworthy data to make faster and well-informed decisions.  The demands of big data and data analytics are creating a world where data needs to be shared in new ways.   As a result, data is one of the most valuable assets a company possesses.  Yet many companies fail to unlock the full value of their data because they manage it in a fragmented fashion.  Often, organisations lack a standardised and coordinated approach to data governance, management and analytics.

Future risk technologies will use this evolution in computing to enhance the automation of traditionally controlled activities, such as the financial statement audit. This will form the basis for effective information, communication, monitoring and related processes - critical for an organisation to effectively manage risk management.

Advanced technological platforms that can address complex situations are currently characterised by ambiguity and uncertainty. Cognitive capabilities including data mining, language processing and machine learning are supplementing traditional analytics and being applied against massive data sets to help find indicators of known and unknown risks.

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What’s in it for executives? 

Many companies are getting into the action on big data with existing resources and making the investments in technological platforms, business intelligence, data mining and others.  But the essential first step is to think about the critical business issues first.  For example, is it to improve product profitability, customer segmentation/analysis, supply chain optimisation, financial performance management, workforce performance and alignment, or for regulatory compliance?  Whilst big data means different things to different people in a company, the focus of big data should be all about making faster, smarter and more confident business decisions.   

There is an infinite amount of data out there, but organisations often suffer from time and resource deficits to perform comprehensive data analytics. Therefore, once the executive team agrees on the critical business issues, then – and only then – should they consider and analyse the data sources that will be most appropriate to help them solve these key issues.  This focused approach to data analytics should help to get better actionable insights.

Jennifer is the Global Data & Analytics Risk Assurance Leader based in Hong Kong. She also leads PwC China's Data and Analytics team. She has extensive experience in providing data analytics to clients to enhance their management and compliance reporting; improve business processes and internal controls; and gain operational efficiencies. She graduated from University of Waterloo in Canada with a first class honours degree in Master of Accounting and is a member of the CICA and HKICPA. She is also a CISA and CRISC and has attended Executive Leadership program at INSEAD Business School.

07/07/2017

Thinking Strategically about Policy

Author: David Sapin, PwC US Risk and Regulatory Consulting Leader David Sapin

What is a policy and why is it important?  Policies - for the purposes of this blog - are principles or plans that define the approach that a government wants to pursue to achieve a desired outcome. Policies are brought to life through legislation, regulations, guidelines, industry self regulation, or some other formalised approach directing how the policy objective will be met.  These are the rules that industry must live by. 

Companies around the world are dealing with an increasingly complex and rapidly changing policy environment. Some of the changes are driven by politics, such as the growing isolationist policies in Europe and the US withdrawal from the Paris climate accord. Others are driven by a changing business environment, like the global financial regulatory reforms enacted in the wake of the last financial crisis.  Technological innovation will almost certainly spur more regulatory change.. Adding to the complexity, there is often little consistency in how policies evolve and are implemented in different jurisdictions.

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PwC’s 20th CEO Survey found that 80% of the CEOs interviewed see over-regulation as one of the top threats to their organization’s growth objectives. What can CEOs do? To start, they can take a more proactive and strategic approach to addressing emerging policies before they are formalized through legislation and regulation. Emerging technology stakeholders, for instance, can seize the opportunity to consider how key innovations designed to benefit consumers and society might also pose unintended risks - and how the private sector might address those challenges in ways that better anticipates regulators’ likely concerns.

Companies that successfully navigate the policy maze will be those that have positioned themselves to spot trends in the changing landscape.  Monitoring, analysing and planning for policy and regulatory issues combined with taking a coordinated approach across jurisdictions will allow companies to best anticipate and influence the outcome.  Whether it is deciding what markets are the best opportunities for expansion, how to design products for the future, or what types of companies to acquire, it is critical for companies to integrate a strategic view of potential policy and regulatory impact into the analysis.

Every major global organisation has a government relations or public policy team. Unfortunately, many focus myopically on interacting with governmental bodies in their local markets. The companies that will most likely succeed in the rapidly changing policy environment will be those that effectively integrate a policy perspective into their strategic business planning process and successfully execute that strategy. 

 David leads PwC's U.S. Risk and Regulatory consulting business, advising his clients on the risks and regulatory issues impacting their business, strategy and operations.

05/25/2017

Banking on disruption: how the BCM sector can turn change into a competitive advantage

Author: Kevin Burrowes, Clients and Markets Leader, PwC UK Kevin Burrowes

The banking and capital markets (BCM) sector is being rocked by some of the biggest disruptive challenges that exist today. Its growth is under threat from over-regulation, rapid technological change, shifting customer behaviour and the arrival of ambitious market entrants that are contesting its hegemony. No surprise, then, that our 20th CEO Survey revealed that BCM was one of the three sectors most affected by disruption and change – surpassed by only insurance, and entertainment and the media.

Of course, disruption and change are not necessarily bad news. I know that BCM leaders are conscious that today’s marketplace presents as many opportunities for their organisations as it does threats. In particular, they have the opportunity to reinvent themselves as leaner and nimbler operations that can form more personal relationships with their customers and better respond to their needs.

To reach this place, however, BCM organisations need to be more proactive about boosting innovation and customer intimacy, while driving down costs. They also need to look at how they can build the workforce and develop the technological capabilities that will get them to where they need to be in future.

Understandably, given its far-reaching impact on both our economy and society, technology is a major preoccupation for BCM leaders. The vast majority (84%) of BCM CEOs who responded to our survey believe that technology will completely reshape, or at least have a significant impact on, competition within their industry over the next five years. This presents them with a major challenge in terms of living up to customer expectations. Banking is a notoriously complex business where security is of paramount concern, yet customers still expect banks to provide the same easy and intuitive online experience as retailers and tech companies.

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RegTech is another important driver of change. Global demand for regulatory, compliance and governance software is expected to reach US$118.7 billion by 2020, according to fintech insights provider Let’s Talk Payments. With a plethora of RegTech products to choose from, BCM leaders must work out how they can best boost their organisation’s competitiveness by using technology to cut the cost of regulatory compliance.

CEOs recognise that they need to make changes – this comes through very clearly in the discussions that I have with them. In practice, however, they are holding back from taking the decisive action that is needed to harness the power of disruption for their organisation.

Our survey found that BCM CEOs cite digital and technological capabilities as the area they would most like to strengthen so that they can exploit new opportunities. Yet, puzzlingly, just 40% of BCM CEOs are considering the impact of artificial intelligence (AI) on their future skills needs, with a mere 6% doing to a great extent. This is despite AI already having a big impact on trading desks through the automated switching of algorithms and it being set to transform the way in which organisations interact with their customers in future.

On a final note, data is undoubtedly one of the greatest assets that BCM organisations typically have at their disposal – and it is the envy of most other sectors. In my experience, however, they are not using this data to their advantage. Most are not investing in predictive modelling, machine learning and other advanced analytical capabilities that could help them to sharpen their customer targeting and create more personalised and relevant services. Since they are only capitalising on a fraction of their data’s potential, they risk being overtaken by competitors that are more adept at exploiting customer intelligence.

BCM faces the same stark choice as virtually every industry sector right now – disrupt or be disrupted. CEOs must make sure that their organisation chooses the former option and there is no better time to start than today.

Kevin is a partner in PwC, the world’s largest professional services firm.  He is PwC's Clients and Markets Leader in the UK and the Global Banking & Capital Markets Leader.

During his career he has primarily focused on advising, leading and delivering projects for Investment Banks across a broad agenda from strategy to process efficiency, Front Office to HR, globally and locally.  His clients have included JP Morgan, UBS, Deutsche Bank, Barclays, HSBC and HM Government.   He has previously worked at IBM, Credit Suisse and The Royal Bank of Scotland and has been based in London, New York and Frankfurt.  He is a member of the Institute of Chartered Accountants in England and Wales.

05/16/2017

Tomorrow’s world isn’t too far away: Investors expect a technological transformation

Author: Hilary Eastman, Head of Global Investor Engagement at PwC Hilary

“From every angle, it comes back to data and technology.”

So said one investment professional interviewed as part of our 2017 Global Investor Survey. I have to admit I agree with him. And it’s clearly not just him – this year 75% of investors surveyed said they think technology will either have a significant impact or completely reshape the industry they’re covering over the next 5 years (perhaps not surprisingly, the highest are in technology (90%) and financials (82%)).

So it’s not rare to hold this opinion; over the course of history there have been many revolutions. Agricultural, industrial – the information age is only the latest. And yet, as with those that preceded it, we’re facing a titanic shift in the way companies operate and in the way management make decisions. Automation, software robotics, artificial intelligence – all offer the power to enable or disrupt companies in a big way.

Yet some companies don’t seem to have grasped that this disruption has already begun – and that they need to plan now for how technology will change not only how they do business, but also how they interact with stakeholders.

Communication with stakeholders is fundamental, and in a world of increasing connectivity it’s becoming more vital that companies do it well (or at least not mess it up). So I’ve laid out below two big areas where I think technology will change how companies interact with stakeholders, including their investors, and what steps they need to take for a smooth transition.

Acknowledging the benefits and costs of automation

There are many benefits to automation: lower labour costs, less wastage, more efficiency, greater scale. So it’s not surprising that companies would want to take advantage of implementing a robotic workforce, and many investors believe they will, with 85% of them saying they believe automation will reduce headcount in the companies they follow.

Yet there’s a risk with how automation is perceived, both internally and externally. In a world focusing primarily on maximising shareholder value, a company making thousands of employees redundant may be seen as benefitting shareholders and therefore would be accepted, even applauded. But does it really benefit shareholders? Taken to its logical conclusion, shareholders only gain when the business is operating efficiently and effectively – and sustainably. Over time, the short-term benefits of fewer staff may wear off. Investors are increasingly pushing companies to behave responsibly, with companies equally wanting to be seen to do the right thing. So perhaps instead of a straight replacement, companies should be thinking of finding a balance between human and machine, investing in training programmes for employees now to move them into new roles created as new technologies are implemented.

After all, until we develop AI that can duplicate our very human soft skills like leadership and emotional intelligence, we’ll still very much be in the picture. Communicating the rationale for moving towards more automation in an open and clear way will be needed to remove uncertainties and help stakeholders (employees, investors, customers and others) see the benefits that management see.

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Focusing on the need for cyber governance

In our increasingly digital world, it’s no surprise to find that investment professionals see cyber security breaches, data privacy breaches and IT outages and disruptions as having the most negative effect on levels of stakeholder trust – not to mention the risk of social media. Trust is hard to build and keep when everything the company does can be broadcast around the globe within seconds, and it can be lost in a single breach. So it’s crucial for companies to know what data they hold, what systems it’s held on, and how secure they are.

But looking a bit further ahead, in the future as we explore technologies like AI we’re also going to have to think about how we can ensure technology is doing what it’s intended to do, and that those intentions are good. Companies are responsible for ensuring that any technology they create is doing the ‘right thing’, and that there are safeguards in place to prevent misuse. I think governance for technology, especially AI, will become a more important issue going forward, as even a minor change to an AI algorithm could potentially cause chaos. No-one needs a self-learning AI going rogue, especially one with access to vast amounts of personal and financial (read: confidential) data.

As with all other aspects of running a company, a proper governance structure needs to be in place, and building this from the ground up as technology evolves will save companies a headache in the long run.

There is clearly a lot for companies to think about, and that’s just for the two topics above. There are a raft of new technologies being developed that will disrupt traditional ways of working. One thing that won’t be disrupted? The need for clear and timely communication. And, I think success for companies will always come down to this: they need to be sure that if (or more likely, when) something happens, positive or negative, they explain the situation openly and quickly – and adapt.

To see more CEO and investor views from this year’s survey, visit our website.

Hilary Eastman is PwC’s Director of Investor Engagement, with responsibility for managing the firm’s relationships with the investment community in the UK and globally. In her role, Hilary works with investors and analysts to get their views on a variety of corporate reporting and governance matters to help companies improve their reporting to the capital markets. She also seeks their views on matters that affect the accounting profession. 

05/09/2017

How to build trust in a digital age

Authors: Olivier Sueur, PwC Advisory, Netherlands and  Helene Katz, Banking and Capital Markets , US

The writing on the wall has never been clearer: There is a real crisis of public trust in business, institutions, government and non-governmental organisations. In PwC’s 2017 Global CEO Survey, 69% of CEOs noted it’s harder for businesses to gain and retain people’s trust in an increasingly digitalised world. Technology today amplifies errors and makes misdeeds more visible, fanning cynicism and eroding public confidence in the ability of organisations to behave reputably to achieve their strategy. In an age of instantaneous public judgement, companies that have actively built consumer – and employee – trust perform better in general and in times of crisis.

It has become routine to see brands elevated or broken by a single 10-second video or 140-character tweet. Rolling out corporate statements after the fact has little impact. The 2017 Edelman Trust Barometer — a study of 30,000+ people across 28 countries — reveals confidence in CEOs is at rock bottom. Only 37% surveyed agreed that CEOs are credible as spokespeople, a 12-percentage point drop from 2016 and an all-time low since the survey began in 2001.

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Peer-to-peer influence wields the most trust power today. Consumer-generated messages about company activities have greater velocity, persistence and reach. Now, more than ever, organisations must harness that power to accumulate savings in the bank of public trust and goodwill. Organisations with a credit balance — earned through affirmations of its good works — are better positioned to weather a crisis than organisations with no trust equity.

How do businesses build up their balance? High-trust organisations are rigorous at six levels, and consider risks at each of them:

First, they have a strong corporate purpose and are clear about their values and accepted behaviours — whether in the boardroom or online. Since trust is the expectation of consistent, positive actions and outcomes, there must be a shared understanding, commitment and projections of purpose, core values and strategy. Fostering a clear organisational culture enables consistent decision-making, enhancing trust both internally and externally. 

Second, their leaders promote alignment between the core values, strategy, business model and risk appetite of the organisation. The CEO’s short-term decisions align with a longer-term vision, and actions today are consistent with those of yesterday and tomorrow. In a digital age, it takes only a few clicks to point out inconsistencies between past and present messages.

Third, highly trusted organisations understand who their direct and indirect stakeholders are, as well as their needs. Technology can be a significant tool to cultivate these relationships.

Next, they manage risk by embedding purpose, values and stakeholder orientation in all processes. To do so doesn’t require a whole-scale culture shift. Companies that successfully build a currency of trust identify specific behaviours that demonstrate the organisation’s purpose, values, and ethics, and create specific goals and incentives in key areas to help achieve them.

High-trust organisations also have robust risk monitoring frameworks to assess whether the way they are working actually leads to the desired outcomes. Sophisticated technologies are available to support monitoring to meet compliance obligations. It is worth noting, however, that risk culture must look beyond the goal of regulatory compliance if it is going to achieve lasting transformation and public trust.

Finally, high-trust organisations demonstrate accountability to all stakeholders and show they are committed to wider social values in addition to the bottom line.

There is no question that technological change has increased business complexity. But it can build or erode trust; ultimately, it is up to business leaders to decide how to leverage technologies to have a beneficial impact on their organisation. An organisational culture that adheres to clear values, is underpinned by a strong risk framework, and successfully leverages digital advancements will achieve greater public trust and ultimately better business.

Olivier Sueur_002

Olivier is a director within PwC Advisory in the Netherlands, based at the Amsterdam office. He focuses on aligning compliance, integrity and culture to enhance the performance of organisations and has extensive experience in working with financial institutions, regulators, organisations in transport & logistics and professional services firms. Olivier has held several management positions with both financial regulators in The Netherlands: the Dutch Central Bank (DNB) and the Authority  for the Financial Markets (AFM). He started his career as a lawyer at the Amsterdam bar. 

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Helene Katz.pptx

Helene is a Director in the PwC Banking and Capital Markets team based in New York, specialising in helping organisations develop, implement and execute their enterprise risk management frameworks. Working with her clients, she has focused on developing material risk identification and assessment programs, risk appetite frameworks, scenario analysis and regulatory stress testing programs as well as risk reporting. Helene is currently a member of the PwC project team responsible for updating the 2004 COSO Enterprise Risk Management – Integrated Framework.

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05/04/2017

Bringing digitisation to the factory floor and beyond

Author: Reinhard Geissbauer, Head of PwC’s Industry 4.0 Practice, EMEA Reinhard Geissbauer

Last week the world’s largest industrial trade show, the Hannover Messe, took place in Germany. With 6,500 exhibitors from 70 countries, every industrial technology you can imagine was on display, and there was real energy and optimism.

I lead up our European Industry 4.0 practice for PwC, so for me the Hannover Messe – and especially the Executive Lunch and Think Tank events we host there -- is a great time to find out more about what my clients and other companies are thinking and doing, share some research that we’ve done recently and have some intense discussions about the future of manufacturing.

This year, many executives have confirmed that their companies have made some real progress with regard to digitisation. With that comes increased realism.

Making digitisation a priority for the long-haul

For our recent study, Digital Factories 2020: Shaping the future of Manufacturing, we interviewed decision-makers in Europe and found that digitisation is high on their agenda -- nearly all of them are making investments in digitising production. Overall they are quite bullish on the prospects for Industry 4.0 to drive growth and are willing to wait for it. While in past years, many survey respondents were expecting payback times measured in months, that’s no longer true. Most respondents this year expect to see a return on investments over the next 2-5 years. Companies are in it for the long-haul: they want to increase their long-term competitiveness, not look for a quick fix.

Choosing the right technologies

The biggest motivation for further investments in digital factories is efficiency – 98% expect it to improve. Some of the technologies they are relying on to get there include connectivity technologies, using sensors and Manufacturing Execution Systems, and a whole range of data-driven approaches, including predictive maintenance and process improvement, visualisation and optimisation. For these technologies, usage is expected to double over the next 5 years.

Grafik_12                         Source PwC, Digital Factories 2020: shaping the future of manufacturing

Building digital savvy one step at a time

Still, with so many different technologies out there, I often hear from clients (especially middle market companies with fewer resources) that they are reluctant to chase after every new technology trend. That makes sense – implementing individual technologies for their own sake can fall far short of generating the value that you can gain from developing a comprehensive digital strategy, including an understanding of how different technologies can help you achieve your business goals. But sitting back and waiting too long can mean falling behind, which is why I often encourage executives to begin small, with a clearly defined pilot project. One good example is predictive maintenance, where sensors and data analysis can help companies understand in advance when to take machines out of production for maintenance. These types of systems can often bring clear results that help encourage companies to think more broadly about the value they can gain from digitisation of their production process.

Bringing your people on board

When we spoke to executives for our study, and also during my conversations in Hanover, another topic kept coming up again and again: people. We believe any digitisation programme can only succeed if companies engage with their employees throughout the process and support them in managing change. And I have seen many companies that have already taken that message to heart. In our research, we found that companies are already anticipating the need for more training, including lifelong learning for employees. Encouraging was that most also believe the extra costs will be covered by the increases in efficiency.

And while some jobs – particularly those that can be easily automated – will certainly disappear, entirely new types of work will take their place. I believe that the net impact – especially here in Europe’s heartland – looks set to be positive. Our study suggests that survey respondents agree: 90% told us that they believe digitisation offers more opportunities than risks for their company.

Dr. Reinhard Geissbauer is the Head of PwC’s Industry 4.0 Practice in EMEA and a member of our Global Operations Leadership team. As a partner in our Munich office, he specialises in Industry 4.0, Procurement 4.0, Smart Supply Chain and Smart Manufacturing projects for leading industrial companies. Besides Industry 4.0 strategy development, he advises his clients on implementing digitisation pilots ranging from supplier data analytics to logistics digitisation or automating key purchasing processes. Read more