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.

Panel 4

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. 

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