11/16/2016

Why a bigger boardroom can make for a better boardroom

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Auhtor: Richard Oldfield, Global Markets and Services Leader

We’ve been speaking to more than our fair share of CEOs across the globe this month in the run-up to the 20th anniversary of our Annual Global CEO Survey. It’s got me thinking about how the role of the CEO and their team have changed in that time. Over the years, I’ve been lucky to work with the boards of many companies. And I’ve been struck by the fact that, as time has passed, the shape of the board has changed entirely.

Whereas once the board executive team was an elite group consisting of the CEO, the CFO and the COO. It’s now expanded to include a number of other senior leaders with a diverse range of skill-sets. A typical board could now include a chief commercial officer, chief risk officer, chief marketing officer, chief technology officer, chief compliance officer and a chief sustainability officer. And I wouldn’t be at all surprised if a chief robotics officer and a chief purpose officer join them before too long.

Of course, it’s not just me who has noticed that the C-suite has expanded. Research from Harvard Business Review found that the size of the executive team (defined as the number of positions reporting directly to the CEO) “has doubled, rising from about five in the mid-1980s to almost 10 in the mid-2000s”. My guess that this proliferation of executives is a response to the rapidly shifting business environment, particularly the march of globalisation and the widespread industry disruption unleashed by advances in technology. As agile and innovative start-ups seek to overturn existing business models, corporate survival increasingly depends on a CEO’s ability to draw on an arsenal of skills.

20 years inside the mind of the CEO

Customers also are having a profound impact and businesses increasingly look for ways to use big data to access valuable insight into customer behaviours. Given the challenges associated with unlocking the power of data, in particular, it is unsurprising that the CEO’s partner of choice is fast becoming the ‘digital C-suite’, consisting of the chief data officer, chief digital officer and chief information officer. By 2019, 90 percent of major organisations will have a chief data officer (CDO), yet only half will be hailed a success according to Gartner. Experian has found that 70 percent of chief data officers already report directly to CEOs.

The rise of the digital C-suite helps to explain why COOs are set to become a rare breed. Research by executive search firm Crist Kolder Associates in 2016 found that just 30% of S&P and Fortune 500 companies employ a COO, down from a high of 48% in 2000. In the past the COO was often regarded as the second-in-line – and natural successor – to the CEO. Today, the increased complexity and digitalisation of operations has led to other leaders with more relevant skills taking on some of what were the COO’s traditional responsibilities.

So, what does the expansion of the C-suite ultimately mean for the CEO? It certainly makes the role an even bigger management job than it already was – there are significant challenges associated with leading a large group of ambitious and highly capable direct reports. Perhaps tomorrow’s CEO will need to become the Chief ‘enablement’ officer for a whole new (more fluid) ecosystem of CXOs ready to harness the power of the crowd.

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

 

11/07/2016

Innovation above all else

Author: Clifford Tompsett, Head of the Global IPO Centre Clifford Tompsett

The Top 100 is into its 4th year, and it continues to render valuable insights. This year again, those companies who feature in the rankings are, on the whole, companies with a truly global reach and consumer base. There are very few exclusively domestic companies present.

These top companies manage to transform themselves relentlessly to remain relevant, effective and resilient, even as the world transforms at what seems like an ever-quickening pace. The proof of this? This year, 91 companies remained in the top 100.

But there were some interesting changes. Overall market capitalisation decreased significantly for the first time since 2009 – arguably the height of the global financial crisis. China and Europe, the former so long an engine of growth, now appear to be driving the decrease, while the US grinds on, adding $314bn to the total market cap this year.

The Top 100 results come alive when you compare them with FutureBrand Index – a global perception ranking of the top 100 companies by market cap.

It seems that the companies driving value are the same that are at the leading edge of technological innovation: companies like Google/Alphabet, Apple and Samsung. Innovatio above all else

These companies continually demonstrate their resilience, responding to changing demands and leaping into buoyant, fast-developing sectors like wellbeing, tracking and education – a long reach from their original raison d’etre. And they are being followed by companies like Nike – a sportswear retailer that now has much broader ambitions. Many companies are eyeing this space as profitable.

And those companies are all looking towards one area in particular. Seamlessness. Research tells us that consumers are keen on seamlessness of experience – they want the technology they invest in to do and be more, and to connect previously different areas of their lives. The results of both indices bear this out.

Seamlessness has steadily grown as a future brand driver since 2014 and the technology sector as a whole is growing – it now leads the market in terms of capitalisation. Amazon’s entry into the FutureBrand top ten is also indicative of consumers’ desire for increased efficiencies.

Interestingly, two of the assessment criteria for companies (called future brand drivers) - ‘would work for them’ and ‘resource management’ – are the least important drivers now, but are growing. This, along with freezing or falling measures such as ‘purpose’ and ‘thought’ leadership suggests that whether companies’ are attractive employers (regardless of whether you intend to work for them) and whether they are clear about what resources they use and how they use them are becoming better measures for consumers.

Companies should pay close attention to analyses like this. We have seen a number of high-profile cases in the news recently about companies who are struggling with scrutiny of one kind or another. Ethical buying – previously thought of as a niche market – is becoming more widespread. Increasing numbers of customers are evaluating their investment on the basis of more than just direct buyer/seller interactions.

Similarly, clear explanations of resource management are becoming more desirable. This is a huge reporting challenge and it will be interesting to see whether companies themselves can come up with ways of painting a picture of their resource use.

A comparison of the Top 100 and FutureBrand Index provides a unique window into the present and possible futures of the market. What can we tell absolutely? That customers value innovation above all, and that for companies to move ahead, they will have to find new ways to meet consumer needs, while continuing to address widely held and solid values.

FutureBrand is an SEC-restricted entity. The FutureBrand Index data is publicly available. It is in the ordinary course of business for FutureBrand to publish the information on their website and in the ordinary course of business for PwC to have an interest in and analyse this kind of data. PwC has not paid a fee for their data and there is no joint business relationship.

Clifford leads PwC’s Global IPO Centre in London, which advises overseas companies, particularly with operations in the emerging markets, on capital market transactions.  Clifford joined PwC in 1979 and became a partner in 1991.  he has many years of experience of working on capital market transactions and has led the Reporting Accountant work on many large IPOs of both UK and overseas companies, many in the energy and mining sectors. Read more

 

11/02/2016

Success and succession: addressing strategic planning for family businesses

Authors: Stephanie Hyde, Global Entrepreneurial & Private Business Leader and Peter Bartels, Global Family Business Leader


We’re launching our eighth Family Business Survey today – with over 2,800 participants it’s a fascinating and truly global picture of one of the most important and vibrant business sectors. The ambition, resilience, and drive of family firms never fail to impress, and the world needs more of them. But it also needs more of them to succeed for the very long term. The number of family businesses that make it beyond the third generation is still stuck at around 12% - meaning that too many bright, ambitious and innovative firms aren’t turning all that great potential into a sustainable, successful business across the generations.

ST and PB FBS launch blog image

So why is this happening? Problems with the succession process are one obvious answer, and one we’ve focused on in both this, and previous, surveys. It’s a particular feature of the family business model, and often proves to be a serious fault-line too. But as this year’s report shows, it’s becoming more and more clear that succession is only one example (though a major one) of a much deeper issue.  The real problem is what we’re calling the ‘missing middle’: businesses that think in generations are not planning well enough for the medium term.  This means having a clear strategic plan that links where the business is now to the long-term and where it could be.

Two statistics from this year’s survey illustrate what this means in practice. For the last few surveys, family firms have been making about a quarter of their sales overseas, while confidently predicting that exports will be closer to a third of sales within five years. And yet the actual level of international sales is still stuck at around 25%. In 2012, 67% told us they were trading internationally, and 74% expected to be doing so in five years. But four years on, the numbers are almost the same. Something is holding these businesses back. It’s not determination or diligence they lack, but a robust and professional strategic plan.

We look at this in much more detail in the survey and at the ongoing professionalisation agenda which we focused on in 2014, which is still a work-in-progress for many family firms. But the big message this year is very clear: family businesses have the qualities they need to succeed, and they’re more than capable of carrying out a strategic plan once they have one. It’s the process of putting that plan together in the first place that’s the missing piece. The good news is that with the right tools and skills, and some discipline, the ‘missing middle’ gap is easily filled. In our experience, families often benefit from the help of non-family members, such as the professional CEO, to bridge the gap or indeed the next gen.  And outside advisers can also play a critical role. Increasingly family firms are thinking strategically about the skills they need in their boards and hiring truly independent board directors who will help provide the challenge and strategic perspective needed.

We want to see far more than 12% of family firms succeeding past their third generation, and with this survey we aim to shine a light on the opportunity family firms have to achieve this.


Stephanie HydeStephanie sits on the PwC Global Leadership Team as Entrepreneurial and Private Business Leader and is also a member of the PwC UK Executive Board, as Head of Regions. The Global Entrepreneurial and Private Business segment works with over 100,000 businesses, and contributes over 20% of PwC’s global revenues. Starting with the firm in 1995, Stephanie became a partner in 2006 and joined the Executive Board in 2011. Read more

Connect Stephanie on LinkedIn     Follow Stephanie on Twitter

 

  Peter BartelsPeter Bartels has been a Member of the Board of PwC Germany since 1 July 2010 and is in charge of the business units "Family Businesses and Middle Market" and "Public Services". Before being appointed to the Board, he headed the business unit "Valuation and Strategy". Read more

Connect Peter on LinkedIn

 

 

10/20/2016

Attracting and keeping the most talented millennials

Author: Partner & Global Information Leader, Global AIESEC ChampionPhilip Sladdin

There’s no doubt that CEOs and their organisations are facing a challenging cocktail of new business opportunities and disruptive change from technological developments as well as increasing economic woes in many developed and emerging markets. As one CEO put it recently: ‘The past is no longer a good predictor of the future…’, and success increasingly depends on an organisation’s ability to adapt, reskill and deploy people rapidly, to wherever the next opportunity might be. I believe strongly that the main focus and attention of organisations today should be to invest in people.

 PwC has partnered with AIESEC – the world’s largest youth-run organisation - for 43 years and we asked this key group of millennials earlier this year about their views of the future and key trends, using the same questions we asked CEOs in our 19th Annual Global CEO Survey. We compared and contrasted the perspectives of both millennials and CEOs, exploring the differences and gaps in the wider talent debate. The results, showcased in our Tomorrow’s leaders today piece, have prompted me to question whether organisations are really doing enough to respond to the needs of millennials and to be in an ideal position to attract, and keep, the most talented individuals.

It is predicted that Millennials will constitute roughly 55% of the workforce by 2020. Looking ahead, the challenge this will bring provides a “call to action” for us all. According to Tomorrow’s leaders today, this is what we need to know if we want to attract and retain these talented individuals: What do young leaders want

  1. They see their career as a portfolio of experiences rather than a ladder to be climbed in a single organisation. Only 18% plan to stay in their current role for the long term;
  2. Working culture and values are very important; millennials want to be proud of their employer and feel that their company’s values should match their own;
  3. It’s important to remember that millennials have been interacting with technology from a very young age;
  4. They put a much greater emphasis than CEOs on opportunities to work internationally (21% vs 7%);
  5. And, they are far less interested in pay and incentives than CEOs (10% versus 33%).

On the other hand, our 19th Annual CEO Survey People and Purpose cut showed that businesses and their leaders are facing pressing questions about their future talent pipelines and people strategy. The biggest challenge for CEOs is in understanding what their customers and employees value, how that’s changing over time, and how their organisation can meet those expectations. Our survey shows that they’ve realised that shared values and a sense of purpose are becoming critical to talent strategy. But where to start is the big question.

So, we should all be asking ourselves if our organisations have what it takes to be an employer of choice for the next generation. As Tomorrow’s leaders today highlights:

  • Are we in touch with what millennials and Gen Z want?
  • We may have the right values, but are we walking the talk? Authenticity is key.
  • Does our behaviour as a business match up to the claims in our environmental and social reports?
  • How is our business going to embrace the new model of leadership for the 21st century?

I hope my comments and reflections, based on my experience in working with young people through AIESEC, help you to reflect on your readiness to welcome the new generation and, more importantly, make changes to your approach that will set you on the right path towards reaping the rewards from what are going to be very interesting times ahead.

Philip Sladdin, a partner in PwC Germany, is responsible for the PwC network's internal reporting to client and leadership teams globally. He is also the PwC Global AIESEC Champion and the sponsor of the PwC - AIESEC Partnership, a member of the Supervisory Group of AIESEC International and the Chair of the Premium Partners Group, a role he took over in 2014. Qualifying as a Chartered Accountant in England and Wales in 1990, Philip's career has included auditing large and small clients in the UK and Germany, including those in the financial sector. Following a successful relocation to Frankfurt in 1998, he has held a number of pan-European finance and strategy roles in PwC as well as being globally responsible for data privacy and protection in the PwC network.

 

10/10/2016

Pay attention – the banks are getting it right

Author Richard Sexton, Vice Chairman, Global Assurance RS pic


The more research we undertake and the more research we read, the more we hear that transparency is increasingly important. We hear too that demonstrating trustworthiness is tricky and, as they work in new and increasingly varied ways, companies have to find new ways to meet high standards of trust.  

Responses to our 19th Global Annual CEO Survey echo those sentiments and so too does a new comparison of two reports, PwC’s Global Top 100 and the FutureBrand Index.

PwC’s report ranks global companies by market capitalisation and FutureBrand’s index by global public perception.

For me, the most important finding from a comparison of the two reports is that much-beleaguered financial services companies are finding their voice again. Despite continuing fiscal austerity in many western countries where the majority of these companies are headquartered, the attitude towards financials has distinctly softened.

30252 - Global top 100 social tile_3_v1

Of the 18 financials in the FutureBrand Index, only four dropped their position from 2015’s report. Most others rose. This remarkable and near-wholesale increase in perception may simply be linked to the ever-widening distance between the present day and the events of the financial crisis. But given ongoing economic instability and generally low levels of growth in these banks’ back yards, that seems unlikely. The increase in perception is more probably linked to a serious effort toward transparency and concurrent investment in PR and new products. As interest rates across many countries remain at record lows and previously stable products such as mortgages and government bonds prove more volatile, it looks like concerned consumers need banks’ expertise and guidance again.

The FutureBrand results showed that the drivers and measures of trust are changing. Consumers seem to be more sensitive to how companies demonstrate their trustworthiness and, wary of the gap between PR and actual behaviour, they demand a more convincing display. After a period of vilification, banks have found a way to meet that standard. Other companies should take note.

The other engaging finding is, I think, that perception isn’t everything for every company. Utility companies (like oil and gas) continue to do well financially, even in the face of considerable economic headwinds and low levels of consumer perception, because their work is currently essential. For example, Exxon Mobil is fifth largest company in terms of market capitalisation, but dead last in market perception.

Consumers may have high standards for transparency and trustworthiness, but they are also able to distinguish between those ‘lifestyle’ companies for whom it is perhaps more important to demonstrate such behaviours (because buying from them ‘says something about you’) and those ‘essentials’ companies for whom it is enough to keep providing fuel for your car and heat for your home.

But, as the banks could probably tell utility companies, it pays to constantly invest in pursuing truly held perceptions, as your market may change radically and the conditions you operate in may not always be so favourable.

FutureBrand is an SEC-restricted entity. The FutureBrand Index data is publicly available. It is in the ordinary course of business for FutureBrand to publish the information on their website and in the ordinary course of business for PwC to have an interest in and analyse this kind of data. PwC has not paid a fee for their data and there is no joint business relationship.

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.

10/05/2016

Logistics disrupted – four scenarios for the future of the industry

Authors: Julian Smith, PwC Global Transportation & Logistics Leader and Andrew Tipping, Strategy& US Transportation and Logistics Practice Leader

The global transportation & logistics (T&L) industry is facing dramatic realignment in an era of unprecedented change as new digital technologies, changing customer expectation and collaborative operating models reshape the marketplace. We decided to take closer look at these trends in our new report: Shifting Patterns – the future of the logistics industry. It points to digital, data analytics and platform technology as facilitating new entrants, new business models and new ‘sharing’ opportunities.

While 90% of T&L companies see data and analytics as the key drivers in redefining the sector over the next five years, 50% acknowledge that the absence of a digital culture in their own organisation is the single biggest challenges they face.

Yet, despite its seeming shortcomings, the industry is proving a magnet for investors. Since 2011, over $160m - $150m of which is private equity (PE) - has been invested in digital logistics alone. This alone suggests that investors see scope for new entrants disrupting established players and for strong returns from a $4.6 trillion market.

The global logistics sector is something of an enigma. When we talk to our T&L clients we see that technology is changing every aspect of how they operate and digital fitness will be a prerequisite for success. The winners in this race for transformation will be those who best understand and exploit a range of new technologies from data analytics to automation and platform solutions – those who don’t will be the losers and risk obsolescence.

What will the logistics marketplace look like in five to ten years? We took a closer look at how some of the key disruptions facing the industry may interact and have identified four logistics scenarios. In each, technology plays a pivotal role but affects the market differently. In two scenarios, new entrants are the primary driver, while in the remaining two, the incumbents remain dominant.

T&L

  1. Sharing the PI(e)

Incumbents increase their efficiency and reduce their environmental impact by collaborating more, and developing new business models, such as sharing networks. Research around the ‘Physical Internet‘ (PI) leads to shared standards for shipment sizes, greater modal connectivity, and IT requirements across carriers.

  1. Start-up, shake-up

New entrants become significant players and take market share from the incumbents through new business models based on data analytics, blockchain, or other technologies. One or two become dominant in specific segments. Last-mile delivery becomes more fragmented, with crowd-delivery solutions gaining ground. These start-ups collaborate with incumbents and complement their service offers.

  1. Complex competition

Big retail players expand their logistics offerings to fill their own needs and beyond, effectively moving from customers to competitors. They purchase small logistics players to help cover major markets, and draw on their deep understanding of customer behaviour to optimise supply chains. Technology firms who used to be suppliers to the industry enter the logistics arena too, offering logistics services and turning into competitors.

  1. Scale matters

Incumbents increase efficiency by streamlining their operations and taking full advantage of new technology. They fund promising new technologies with venture capital cash, and attract new staff with critical skills and expertise in competition to create a dominant market position. Major players merge to extend their geographical scale and enhance their cross-modal coverage. Access to capital to fund these investments becomes increasingly important.

We believe that the basis for competitive advantage in the logistics industry is changing fundamentally. An established network may become a hindrance rather than an advantage. New technologies will change the industry’s cost model and call existing business models into question. And there may well be new approaches to dynamic pricing that take capacity utilisation more fully into account. In the futures we have described, can a logistics company meet the growing expectations of customers, remain profitable and generate growth? The short answer is yes. But it’s not going to be simple or easy.

Interested in reading about what a different industry’s marketplace will look like in five to ten years? Explore further here.

Wondering how your industry will be disrupted in the next five years? Take the PwC disruption profiler test to find out.

 

 

Julian_smith_41Julian Smith is Global Transport & Logistics Leader at PwC and infrastructure finance adviser in PwC Indonesia. He is an experienced expert in corporate and project finance, strategy and policy in the transport sector who has advised on successful transactions totalling >$20bn. He leads PwC's business in the sector and also provides infrastructure advisory services to clients in Indonesia across all sectors. He has experience in many countries with both public and private sector clients.

Contact Julian or Connect with Julian on LinkedIn

 

Tipping, Andrew Dr. Andrew Tipping leads the U.S. transportation and logistics practice for PwC Strategy& and specializes in organization and change leadership.. His client base spans the public and private sector clients including airports, airlines, postal, and logistics companies. He is a recognized expert in operating model optimization, organizational design and implementation, customer centricity, change and organizational management, complexity management.

Contact Andrew or Connect with Andrew on LinkedIn

 

09/30/2016

It’s not elusive! – Three factors for better succession planning

Author: Stephanie Hyde, Global Entrepreneurial and Private Business LeaderStephanie Hyde

On 2 November we will be launching the 8th PwC Global Family Business Survey - the biggest we’ve ever done. It will showcase findings from more than 2,800 senior executives from family businesses across 50 countries. From retail to manufacturing, and finance to food – every sector is represented and the businesses we talked to have a total turnover in excess of half a trillion dollars. 

I think family firms are a fascinating sector – in tricky times, they have proven to be the bedrock of most economies, a mainstay of employment, and an outstanding example of ‘patient capital’. Yet again, this year’s survey demonstrates just how ambitious and resilient they are, with a clear focus on future growth. But there are challenges too, which go a long way to explaining why on average, family businesses only survive as far as a third generation.

As the results once again show, the succession process is the most obvious fault-line, and can bring down the whole enterprise if left to chance. ‘If you fail to plan, you plan to fail’ as the old saying goes. While some family firms are undoubtedly grappling with this issue, there has been a worrying lack of progress overall since the last survey, and our own experience of working with family firms suggests that this trend goes back a lot further than that.  PwC_PC_France_Marseilles_MB

There are however many shining examples of family businesses that I meet around the globe who plan succession meticulously, that have robust and documented plans as well as ambitious next gens who want to be more than just caretakers, who want to make a mark and move the business forward. 

So why is effective succession planning still such a challenge, and what can be done?  In my view there are three things family businesses can do to foster more effective succession:

  • Ensure that there is constructive family dialogue rather than sole decision making.
  • Plan ahead and set a clear timetable early on.
  • Equip the next generation with the skills they need to become effective owners.

Find out more in the results of our survey which also takes an in-depth look at key issues such as digital, innovation, the professionalisation of the business, the role of the Board and the ambitions of the next generation.

Don’t miss it!

Stephanie sits on the PwC Global Leadership Team as Entrepreneurial and Private Business Leader and is also a member of the PwC UK Executive Board, as Head of Regions. The Global Entrepreneurial and Private Business segment works with over 100,000 businesses, and contributes over 20% of PwC’s global revenues. Starting with the firm in 1995, Stephanie became a partner in 2006 and joined the Executive Board in 2011. She has worked in a diverse range of industries from energy and defence to pharmaceuticals and manufacturing. Read more

09/26/2016

Europe after Brexit: is this the calm before the storm?

Authors: John Hawksworth, UK chief economist, and Jan Willem Velthuijsen, Eurozone chief economist

The UK vote to leave the EU was a huge political and economic shock. But, three months on, the world seems to have stabilised itself surprisingly quickly.

First, there was no ‘Lehmans moment’ for financial markets, which bounced back quickly after the initial shock of the EU referendum vote, buoyed by a new round of monetary easing by the Bank of England in August.

Second, the UK had a new Prime Minister and Cabinet in place within three weeks of the referendum, much quicker than initially expected.

Third, both the Eurozone and UK economies still seem to be in reasonable shape. The UK economy is expected to be most affected, but retail sales were relatively strong in July and August, unemployment and house prices broadly stable, and business and consumer confidence rebounded in August after dropping sharply in July. The Eurozone economy seems largely unaffected, with modest but positive growth continuing through the summer based on the latest available data (see our Brexit monitor series for more details on this).

The general sense from our clients is that most have returned to ‘business as usual’, while planning as appropriate for the uncertainties ahead.

But is this just the calm before the storm? There are certainly some reasons for caution.

First, the main channel by which the Brexit vote is likely to affect the European economies in the short term is through increased economic uncertainty reducing business investment. There is some rather mixed anecdotal evidence on this from business surveys, but it will be late November before we get even preliminary official data on business investment.

Second, the relative resilience of the UK economy both before and after the EU referendum owes a lot to strong consumer spending, which in turn reflects strong jobs growth and low consumer price inflation. But the weak pound is already starting to push up import prices and this will feed through into consumer prices in due course, squeezing real household spending power. Furthermore, if businesses are less certain about the future, they are also likely to put hiring plans on hold, which will feed through into slower jobs growth and possibly an eventual rise in unemployment. All this is likely to dampen UK consumer spending growth as we move through into 2017.

On the other hand, the weaker pound should provide some boost for net exports, as is already evident in some manufacturing and tourism survey data, while the new Chancellor in the UK is generally expected to relax fiscal policy in his Autumn Statement on 23rd November. This could take the form of increased public sector investment in areas like transport and housing to offset weaker business investment.

Taking everything into account, our central view is that UK growth is likely to moderate from just under 2% this year to just under 1% in 2017, and then gradually recover (see chart below). Of course, there are many uncertainties around this and it would be prudent for businesses to look at a range of alternative scenarios as discussed in more detail in our latest UK Economic Outlook report. Even in our downside scenario, however, we only project a mild recession not the kind of deep depression seen after the global financial crisis in 2008-9.

For the Eurozone, the impacts are even more moderate, and since June we have therefore revised down our growth projection for the Eurozone in 2016 and 2017 only marginally as the chart below shows.

UK and Euroze GDP growth projections

Looking to the long term: conflict or compromise?

Negotiations between the UK and the EU on Brexit will not begin formally until next year, when Article 50 is expected to be triggered. There will then be a two year negotiation on the legal terms of Brexit, but probably also a much longer negotiation, perhaps lasting 5-10 years, on the detailed trading relations and immigration control arrangements between the UK and the EU. There will probably therefore be a need for transitional arrangements between the UK formally leaving the EU in, say, 2019 and the later agreement and ratification of some kind of free trade agreement.

The outcome of these negotiations will depend on whether the parties see this as a ‘zero sum game’ or not. If they do, then it may prove very difficult to reconcile the UK government’s political imperative to increase control of EU immigration and the EU’s fundamental belief that freedom of movement is an essential prerequisite for efficient functioning of the EU Single Market.

If this is the case, then we could be in for a long and acrimonious divorce, with the best case outcome being a limited free trade agreement covering goods but not most services, and the worst being a reversion to WTO rules (which modelling by PwC and many other economic experts has suggested would impose significant long term economic damage on the UK, but would also be bad for the 500 million citizens of the EU more generally as over 40 years of economic integration was unwound).

But a superior outcome could be possible if both sides are prepared to be more flexible. For the EU this would involve recognising that some labour mobility is essential to make the Single Market work but not complete free movement (at least on a temporary basis while Central and Eastern European countries catch up with income levels in other EU countries). For the UK, this would involve being prepared to accept such a compromise (and probably also some limited contributions to the EU budget) in return for retaining access to the Single Market. The recent proposal for a ‘Continental Partnership’ between the EU and the UK by five leading European economists is one example of how such a mutually beneficial compromise might be reached – but it remains to be seen how politically feasible this will be.

In summary, the Brexit vote was a major shock, but so far it looks like the global economy has been largely unaffected. The UK economy will likely suffer a slowdown rather than a recession in the short term. Beyond that, there are long and difficult negotiations ahead, but also the potential for a mutually beneficial compromise if both parties approach the talks with a flexible mindset. Business can also play a role here in contributing constructively to the debate on post-Brexit options, focusing on areas where the UK and the EU can continue to work together to boost growth and innovation across Europe.

John HawksworthJohn is Chief Economist for the UK and editor of the Economic Outlook publication, and many other reports and articles on macroeconomic and fiscal policy issues. He has over 20 years of experience as an economics consultant to leading public and private sector organisations, both in the UK and overseas. Read more

Contact John Hawksworth

 

 

Jan Willem-jpgJan Willem Velthuijsen is managing partner of PwC Strategy & Economics in Amsterdam since 1999 – specialised in macroeconomics, finance, strategy & risk, market and demand analysis, competition & regulation economics, econometrics, modelling and complex valuations. In 2013 he became Chief Economist of PwC Europe. In that function he is responsible for PwC’s thought leadership and research. 

Contact Jan Willem or Connect with Jan Willem on LinkedIn

 

09/12/2016

Global Software 100 Companies: Digital Intelligence Conquers All

Author: Raman Chitkara, Global Technology Leader   Raman-chitkaraPwC has just released its most recent PwC Global 100 Software Leaders ranking. Based on research conducted by venerable research firm IDC, it reveals which vendors are doing best at taking advantage of both the evolutionary and revolutionary changes afoot in technology. 

The fact that these changes are all coming at the same time doesn’t make dealing with them any easier. While the cloud continues to underpin massive change, other trends are building on its capabilities to create opportunities in digital innovation, industrial capabilities and convergence within vertical markets. The two most noteworthy trends for software companies, in my eyes: 

  • SaaS - Cloud is creating new SaaS business models
  • Connected devices and artificial intelligence are creating a rapid expansion of TAM (Total Available Market) with multiple new business opportunities 

  Global innovation100


Analyzing the delta between the current Global 100 Software Leaders and the previous ranking, published in 2014, indicates just how dynamic the market is, thanks to these shifts. Fourteen companies fell off the current list, which means 14 are new. A churn of 28 seems like quite a bit in just two years. Four of the 14 companies that fell off the list were acquired, and one (Compuware) split into two companies. Actually, it’s fairly easy to fall off the list. Of the bottom 12 in the previous list, 10 are gone, highlighting the need for rapidly achieving scale through a combination of organic growth and key acquisitions. 

What does this mean for the industry? Befitting an industry where cloud is rewriting the rules of how companies do business, software is experiencing a high level of turbulence. On the one hand, we see a lot of evolution. The cloud, in the form of SaaS, PaaS or infrastructure-as-a-service (IaaS), is becoming increasingly popular as enterprises recognize the flexibility it brings to applications and other deployments.  Subscription

Its adoption is creating new SaaS-based business models. In fact, Amy Konary, IDC Programme Vice President for SaaS, Business Models and Mobile Enterprise Apps, deems 2016 an “inflection point” in the relationship between software subscriptions and licenses. According to IDC calculations, subscriptions will grow 20% and licensing will decrease 1.7% in 2016.  

But there is clearly a revolution underway in software. With digital technology infusing so many industries and launching so many innovations, we’re seeing the dawn of what we call ‘software & … fill in the name of any industry you choose: aviation, logistics, automotive.’ Data is becoming an integral part of more and more products we buy and consume in our daily lives. Software companies need to re-evaluate whether new business models are needed to maximize their opportunities in emerging new markets and industries. As they pursue new business opportunities in a world hitherto ignored by the software world, they need to conclude whether new joint ventures or alliances are needed to better understand these markets and opportunities and to better compete against new entrants that have a deeper understanding of these markets. 

Think about how cars and homes are becoming connected. The revolution is even more pronounced in industrial software, where brand-name manufacturers have quickly figured out that there’s as much value, if not more, in the data from their equipment as there is from the equipment. 

  • General Electric has already dubbed itself a ‘digital industrial company’ and introduced its Predix Cloud, calling it “the world’s first and only cloud solution designed specifically for industrial data and analytics.” 
  • Honeywell claimed US$ 1.17 billion in stand-alone software sales in 2015, and forecasts that its aerospace and automation and control divisions’ software revenues will triple by 2020. 
  • Caterpillar CEO Doug Oberhelman wrote to shareholders in 2015, “We already have more than 350,000 Cat machines and 50,000 engines, turbines and locomotives actively connected worldwide, and a total installed base of three million machines and engines. We’re going to enhance telematics and data analytics offerings across our equipment—and across other brands, too …” 

For software vendors, this revolution represents a whole new set of challenges, not only in terms of how they run their business internally, but also in terms of new market opportunities and new competition. Billions of previously dumb devices cannot become “Connected Smart Devices” with built in artificial intelligence, without software. 

Additionally, on the talent front, what happens when everyone, not just software vendors, starts hiring programmers and network engineers? It’s already difficult to find talent in cutting-edge fields; this is only going to make it harder. 

The upshot: software vendors are going to have to get much, much better at not just creating software, but better understanding the new markets for software (e.g. industrial products), adapting to new delivery methods, enhancing customer engagement, and improving development cycles. The software world is rapidly transforming into the world of “artificial intelligence” wherein hardware, software, connectivity, data analysis and the resulting intelligence will be seamless. 

 

 

 

Raman Chitkara leads the global technology practice at PwC.  He has more than 30 years of experience working in the technology industry in the Silicon Valley. His clients have included technology companies with global operations ranging from start-ups to multibillion-dollar multinationals in semiconductor, software, internet, computing and networking sectors. Read his full biography here.

08/02/2016

A guide to the ‘Essential Eight’ emerging technologies

Author: Vicki Huff Eckert, PwC US and Global New Business Leader

VH Color CropIt’s clear that emerging technology strategy needs to be a core part of every company’s corporate strategy. However, C-suites are challenged to sort through the noise to make clear-headed decisions about the most pertinent technologies that will sustain revenue growth and enhance business operations. But with the torrent of technological breakthroughs affecting businesses of all types, how can executives even begin to make sense of the individual technologies?    

To help companies focus their efforts, PwC analyzed more than 150 emerging technologies to pinpoint the “Essential Eight” we feel organizations should consider. While the corresponding strategy will vary by company, these eight technologies will have the most significant global impact across sectors.

To arrive at the Essential Eight, we evaluated business impact and commercial viability over the next five to seven years (and as little as three to five years in developed economies). Specific criteria include: the technology’s relevance to companies and industries; global reach; technical viability, including the potential to become mainstream; market size and growth potential; and the pace of public and private investment in them.

  Essential 81. Artificial intelligence
Software algorithms are automating complex decision-making tasks to mimic the human thought processes and senses. AI is an “umbrella” for many subfields such as machine learning—where programs understand, reason, plan, and act when exposed to new data in the right quantities.

2. Augmented reality
Adding a visual or audio “overlay” of contextualized digital information to the physical world can improve user experience for many industries. AR-enabled glasses help warehouse workers fulfil orders with precision, airline manufacturers assemble planes, and electrical workers make repairs. When done well, the blending of physical and virtual worlds is seamless, opening a new realm for businesses across the board to explore.

3. Blockchain
A blockchain is a distributed electronic database or, more broadly, an electronic ledger that uses software algorithms to record and confirm transactions with reliability and anonymity. The record of events is shared between many parties and information once entered cannot be altered, as the downstream chain reinforces upstream transactions.

4. Drones
Drones vary greatly in their capacity based on their design. Some drones need wide spaces to take off while quadcopters can squeeze into a column of space. Some drones are water-based and they can vary in their level of autonomy. Companies are using drones for wide-ranging reasons, including surveillance, survey, sport, cinematography and delivery. (Note: Drones are distinct from autonomous land vehicles, which don’t impact all sectors.)

5. Internet of Things (IoT)
IoT embodies the notion that everything that can be connected will be connected to the Internet. Devices, vehicles and other physical objects are embedded with sensors, software and network connectivity, enabling them to collect, exchange, and act on data—usually without human intervention. IoT subset the Industrial IoT (IIoT) is adding sensors to people, places, processes and products across the value chain to ultimately advance an organization’s goals.

6. Robots
Machines with enhanced sensing, control, and intelligence used to automate, augment, or assist human activities are poised for radical growth in a broad range of services applications. Robots are transforming manufacturing and non-manufacturing operations alike. (Note: Drones are also robots, but we list them as a separate technology.)

7. Virtual reality
Intended as an immersive experience, VR typically requires equipment such as a headset and, unlike AR, involves a defined, contained space. VR involves a computer-generated simulation of a 3D image or complete environment.

8. 3D printing
Additive manufacturing is used to create 3D objects based on digital models by layering or “printing” successive layers of materials—plastic, metal, glass or wood. 3D printing has the potential to turn every large enterprise, small business and living room into a factory.

Most companies have laid a foundation for emerging technology with investments in social, mobile, analytics and cloud (SMAC). The Essential Eight are much broader in their impact and will require executive engagement. Emerging technology is no longer the realm of IT alone, and these breakthroughs will influence the competitive landscape for years to come. Follow the blog, as we’ll discuss each of these technologies in the coming months.

In the meantime, what technologies beyond SMAC do you think will be ubiquitous in 2020?

With more than 25 years of experience in helping technology companies innovate and execute growth strategies, Vicki Huff Eckert leads PwC’s US and Global New Business, a unit formed to innovate and expand PwC’s offerings that build trust in society and solve important problems. Vicki’s passion for innovation has led to her successful development of several strategic partnerships between PwC and some of today’s most visionary tech companies – and the incorporation of innovative technologies into PwC consulting solutions. She continues this work today, leading the PwC’s New Business to help clients embrace emerging technologies to empower their business strategy.