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



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.


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.



Get great people – and let them make mistakes

Author: Will Butler-Adams, CEO, Brompton Bikes Will Butler-Adams

Ultimately, running a successful business comes down to meeting the customer’s needs – which in our case means reacting to the consumer. And when it comes to doing this, I think a smaller business like ours has an inherent advantage.

Why? Take a look at big, established business. They’ve spent generations developing a culture and an enormous marketing plan with great big billboards – but they also have slightly ‘phony’ people. That is going to take time to change. 

Instead of having people toeing a party line, I think you’ve got to allow your staff to make mistakes and enable them to be honest.  You’ve got to have a free sort of culture in the business, where people can just be their normal selves and aren’t all peddling the same message.

Something we do at Brompton is effectively allow ourselves to fail.  Of course we have to get our homework done and deliver the monthly numbers, but we also have the “let’s muck around and find out” bit.  That bit is effectively written off before we even start, so you have nothing to lose. If we spend some money and then we learn something useful, we go: “Yippee, look what we found out. This could be interesting – let’s do a serious job of understanding the possibility.” Investing in people

Making this work comes down to employing the right people and managing them in the right way in the right culture. The role of a manager is to surround themselves with people who have different skills from their own. If I’m employing someone who’s a coder, I haven’t got the first clue about coding.  I can’t tell them what to do. I want to tell them what I need to achieve – that’s the vision bit.  And then I need to give them the resources, money and people to get on and do it. 

The other thing is that, as humans, we like order.  My alarm goes at a quarter to six every morning.  Within five minutes I could tell you where I am within about four paces.  It’s so predictable – and predictability isn’t good for innovation.  So, the other part of my job is to create disorder. Whenever I see my staff getting all comfy and thinking everything’s settled, I just get a little grenade, lob it in, and cause a whole lot of chaos – because from that you create innovation.  When people are running around picking up the pieces they discover something. 

That’s how our company has grown up: guessing as best we can with the best people we can find.  In my view, there’s no masterstroke in growing a business.  It’s about surrounding yourself with good people – and having a bit of luck. 


Wearables: Helping us be more efficient & live longer

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

Not long ago we all wore “business clothes” to work each day. Today business casual is the norm and many of us are sporting “wearable” technology. This trend is only the start of a change that I believe has the potential for tremendous benefits for each of us personally and professionally. And, possibly, as a result, we will be able to work and play better.

At PwC, we just finished studying wearables in our newly released report “The Wearable Life 2.0: Connected Living in a Wearable World,” part of our Consumer Intelligence Series (CIS). We surveyed over a thousand consumers about wearable technology and compared the results to our 2014 report on the same topic. In this study we found that the adoption rate for wearables has skyrocketed, more than doubling from 21 percent to 49 percent. And we confirmed devices focused on fitness are receiving the most positive reception with 45 percent of those who own a wearable owning one in this category. Interestingly, we also found that parents tend to be more willing adopters than non-parents--62 percent to 41 percent, because of demands on their time, household stress, and as a means to keep their children safe. Wearables_infographic

Wearables hold significant promise for enterprises, with the potential to transform tech-enabled companies, to digital environments with technology integrated throughout all operations and decisions. Not surprisingly, about half of our respondents believe wearable tech will increase workplace efficiency in some way. Wearables, combined with Artificial Intelligence, have the ability to make employees more efficient while facing less stress, by delivering real-time information (through eyeglasses or earpieces, for instance) directly to each employee specific to the task they’re performing. Imagine a time when you’re entering a business meeting, with the agenda and list of participants called up right as you walk in. Facial recognition can allow the names of colleagues to be whispered into your ear as you say “hello.” Not that you’d ever forget.

In a world where the speed of business is only getting faster and every waking hour is a working hour, wearables may hold the promise of easing work demands, while increasing efficiency. The byproduct of the increased productivity created by smartphones was the ability to be reached anywhere and at anytime. We are able to work remotely and are often expected to regardless of the time. Whether at the dinner table or on vacation, that technological advance actually married us more to our jobs. My hope is that wearables will do the opposite, creating a more effective workforce, so productive that non-work time can ultimately be work-free time.

As a mom of two children, juggling work, personal and community commitments, I believe wearables destiny is to create a smart device that is truly my virtual assistant. While many people using wearables to track their health today haven’t seen health benefits, there’s a great opportunity to improve the technology, to track more indicators and enhance notifications to deliver greater results. As Anand Rao, PwC US Artificial Intelligence leader notes, “The intelligence hidden behind many of our day-to-day interactions can be used to marry machine learning, voice recognition, and conversational agents with a smart wearables interface that has yet to be seen in the current model.” It is when these emerging technologies are served up on an interface that we wear every day, that wearables will have achieved their potential.

Looking ahead, we see great promise in wearables. Most respondents -- 70 percent -- say they believe widespread adoption of the technology will allow people to live 10 years longer, up from 56 percent two years ago. But developers need to build an experience that makes us better employees and, more importantly, human beings. At the end of the day, our dinner tables and vacations should be work-free because of wearables not in spite of them. Try that on for size.

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.


Bracing for Brexit

Author: Bob Moritz , Network Chairman elect, PwC International Ltd.

Bob Moritz

The global economy has enjoyed tremendous growth and opportunity by expanding the freedom to pursue business success through unfettered market access. This approach is being tested with the United Kingdom’s vote to “Brexit” the European Union. The outcome of this referendum has created uncertainty on a global scale.

The immediate plunge in the world’s major stock markets in reaction is only the beginning. New deals between Britain and its trading partner countries will need to be hammered out, while at the same time its relationship with the European Union is unwound. Legal, political, immigration, and other matters will require years of effort to sort. As a result, the intertwined global economy is now very much in a tangle. Yet, it is important to remember that the British have a very long history of adaptability and innovation when confronted with new challenges and opportunities. The UK’s economic stability is shaken but there’s no question it will remain one of the world’s great financial hubs and top economic powers. The global economy too has faced and overcome difficult challenges, even as recently as 2008. The coming months, however, will require patience from an impatient world as detailed, complex issues are worked through. It will be incumbent on government and corporate heads to provide true leadership through this process.

Confidence begets stability and vice versa. Academics and economists were broadly concerned about Brexit before the vote. The dramatic stock selloff reflects these predictions. Now that Brexit is a coming reality, our experts see fundamental steps forward to mitigate risk and best position business for a prosperous tomorrow. We have developed a series of positions for businesses broken down by industry sector, including sections on economic impact, tax, and global mobility. You can find each of these approaches here. The way forward requires studying on a level of granularity how these changes will impact each business sector specifically. A clear process for every organisation to adapt and evolve for this new market is essential. Brexit

This also isn’t just about macroeconomic impact, it’s about higher and better living standards for more people in more places. Changes on those fronts may not be evident immediately, and progress may be stagnant or slow. But government and the private sector can and should now also play a role here. There’s no question that the vote for Brexit stemmed from real anxiety about the direction and impact of the global economy, along with other concerns.

Our world is stronger when there’s more opportunity, not less. For those of us watching from outside the UK, we want to ensure robust, competitive markets around the world for goods and services. The world has truly competitive, big “global” markets creating tremendous business opportunities, whether it is the EU, the United States, China, or other markets around the world. This exit has caused tremors through all the world’s economies that will have to be weathered. The UK will remain a key trading partner for many, though many deals will need renegotiation.

It’s no secret that business investment and activity gravitate toward stability. This vote represents change for better or worse. Certainly, the UK isn’t plunging into darkness. Its economic system remains capitalistic. It is one of the world’s strongest democracies-- evidenced by this vote, in fact.

The timetable for the process of Brexit now will take at least two years. There will be domestic political turmoil in Britain. And its economy will likely suffer in the short and medium term, even if it prospers down the road. The global impact will last for some time. But each element of a Brexit will come into sharper relief as we move forward, uncertainty will give way to new market realities and real opportunities. As a global company, we at PwC will continue to lead by helping our clients work toward this better future, embracing the challenges and seeing potential.

Robert (Bob) E. Moritz is  the Network Chairman elect, PwC International Ltd. Read more


Digital natives take an ‘outside in’ approach to leadership

Author: Nora Wu, PwC Vice Chairwoman and Global Human Capital Leader Nora Wu 6 (2)

The Annual Global CEO Survey focused on how international business leaders are finding new ways to compete in an era of digital change. This year, in a unique collaboration with AIESEC, a leading international student organization, we compared their views with 200 young leaders under 30, in over 100 countries.

The results of this survey; Tomorrow’s leaders today, give us interesting insights into how both established and emerging leaders define the challenges and opportunities of the business environment.

Optimistic or realistic?

60% of AIESEC respondents believe that economic growth will improve over the next 12 months, compared to only 27% of CEOs. The results illustrate how leaders of tomorrow are optimistic and confident, despite current economic uncertainties and the ‘digital disruption’ that is challenging many established businesses today.

As the report points out, such a positive outlook is not solely down to the ‘optimism of youth.’ This generation of future leaders are digital natives and they see cyber threats as a real concern. 86% say that companies should be worried about this compared to 61% of CEOs.

‘Outside in’ business view

Perhaps one of the most striking differences between the two groups is the emphasis young leaders place on an ‘outside in’ approach. The prominence of social media in their lives means that transparency and information sharing is part of life, making them highly attuned to the power of public opinion beyond the customer base, through Twitter and Facebook for example.  

This focus on visibility and transparency has had an impact on today’s business environment already, and AIESEC respondents see this increasing. For example, they view stakeholders like local communities, the public, NGOs and the media as having a much more important role in influencing corporate strategy. They rank the influence of the media three times higher (74% vs 25%) than current CEOs. 

The world-wide workforce

Developing a skilled and adaptable workforce with a strong pipeline of future leaders, was a priority for both groups. But there are some differences in views. Pipeline for future leaders

21% of AIESEC members recognise that international opportunities will be key in attracting the best talent in the future, but only 7% of CEOs agree. We’ve already seen an increasing demand for international assignments and global mobility in PwC, which is a career imperative for many millennials when choosing where they’d like to work; 2013 NextGen global generational study.

 Leadership matters

I’ve always viewed change as an opportunity. As is the case with any opportunity, the measure of success is a result of how you approach it. The future generation of leaders are digital natives, and their experience will be reflected as business’ view of change shifts from digital disruption to digital norms. The issues AISEC respondents prioritized like; communication, transparency and their outlook for economic growth, shows how leadership is adapting over time.

When AIESEC members were asked about the skills that will be important for all employees in the future, leadership skills came out on top. How organisations tackle the shifting expectations of leadership and how they adapt to recruit, develop and retain future leaders is a complex issue. However, it is one which will underpin the future competitiveness and growth of companies.

At PwC, our development approach; ‘The PwC Professional’ is shaped around the concept of ‘whole leadership’ - combining technical capabilities, relationships, business and global acumen. AIESEC’s members remind us how these attributes summarize the skills and capabilities needed to develop both personally and professionally within an organization, no matter what stage of your career you are at.

An eternal optimist with a genuine belief in human potential, Nora is the first woman from China to hold her current role. Prior to this, she was the PwC China Senior Partner for the Shanghai office, the Central China Markets Leader and the Asia Pacific Human Capital Leader. Last year Nora was invited to speak at the annual TEDx Shanghai Women event and inspired many with her personal story and lessons learned along the way. Read more



The profession of the future: blending human insight with technology innovation to create and build trust

Author: Dennis Nally, Chairman, PwC International Ltd. Dennis

At the end of June 2016, I’ll conclude my tenure as Chairman of PricewaterhouseCoopers International Limited, after two terms lasting a total of seven years. The world has changed dramatically since I became Chairman in 2009 – and even more since I joined the firm in 1974. In my view, as I prepare to leave the profession, there’s never been a better time to join it.

Why? Let’s start by taking a look around us. It’s a world where everyone has a mobile device and old certainties about society and business are being subverted by the day. Where the global population rises by 145 every minute, where 1.5 million people migrate to cities every week, and where emerging economies are rapidly overtaking the ‘developed’ world in purchasing power.

It’s all a far cry from my first day at PwC, when the invention of the World Wide Web was still 15 years in the future and mobile computing was in the realm of science fiction. Today, the implications of ubiquitous mobile connectivity – and the future world we’re all using it to create – are only gradually becoming clear.

But here are a couple of pointers to where we’re heading. According to the recent PwC global Pulse Survey, 85% of CEOs see more interaction with consumers as a result of being connected. And by 2025, just five sectors of the sharing economy – peer-to-peer accommodation, car sharing, peer-to-peer finance, music, TV and video streaming, and online staffing – could be generating collective global revenues of some US$335bn.

The rising importance of purpose and values…

Looking across such developments, we can pick out five global megatrends that are disrupting societies, economies and organizations worldwide: demographic & social change; shifts in economic power; rapid urbanization; climate change & resource scarcity; and technological breakthroughs. All of these megatrends – and the collisions between them – are driving profound and sweeping change. No area of life or business is immune, and our own profession – across assurance, tax and consulting – is no exception.

As this maelstrom of change plays out, perhaps the biggest shift affecting our profession is that people today expect more from business than ever before. In an environment of unprecedented transparency and constant scrutiny on social media, business is expected to play a role in society beyond generating profit for its shareholders – and to contribute visibly and actively to helping to tackle pressing global problems ranging from climate change to inequality.

One frequently-cited manifestation of these rising expectations is a decline of trust in business and other institutions in the wake of the global financial crisis. But while the new demands placed on business clearly raise challenges, they also open up massive opportunities for those businesses that rise to them.

What opportunities? By having a positive impact on society, communities and the environment, companies can demonstrate a core underlying purpose and related set of values that go beyond making money. And by continuing to behave authentically in line with purpose and values, a business can build trust progressively over time while also trading profitably in commercial terms. As these dynamics have evolved, and the importance of companies’ core purpose has grown, so the focus has shifted from what business does to how it does it – and at what cost to others.

…brings major implications for our profession

What does all this mean for our own profession? The effect is that we now have a vital role to play both in exhibiting our own purpose and values in everything we do, and in helping other organizations do the same. And our profession’s ability to deliver on both counts is increasingly driven and shaped by technology and transparency.

Let me use PwC as an example. We’re currently re-visiting our network’s values through a major consultation with partners and staff worldwide. I see values as being the cornerstone of success.

These values in turn support a purpose: to build trust in society and solve important problems. Again, we strive to express this purpose through everything we do. In my view, having a set of common values and a publicly-stated purpose is vital for any organization to remain relevant, embed a positive culture, and create a  workforce who feel confident and supported in doing the right thing.

However, it’s inevitable that trying to do the right thing will create challenging issues in some areas – with one of the most prominent being the question of what moral obligation there exists when advising clients on tax. Here I believe we have a responsibility to ensure we discuss the wider perspective with clients, exploring not just what they can do within the rules, but how any course of action will be viewed by their wider stakeholders. In this way, we can help them decide what ‘the right thing to do’ means for their various stakeholder groups, and by extension for their business.

The changed CEO environment…

Ultimately, of course, a business’s decisions on tax – and indeed on any other issue – should be guided and sharpened by its core purpose. In my view, the successful organizations of the future will be those that have a clear purpose, articulate it well, and embed it at all levels throughout the business.

This is a message that’s getting across to business leaders. The latest PwC Pulse Survey shows that nine out of ten CEOs worldwide say their organizations have a clearly-stated and defined purpose – a finding that’s consistent across all regions and sectors. But while they care about purpose, they’re struggling to scale it up and translate it into concrete values-led actions, behaviors and decisions. And if a purpose isn’t driving behavior, it risks becoming a slogan.

Our research confirms that in many cases this risk is very real. Only one in five CEOs strongly agree that when a crisis arises, their company's purpose always comes first in their decision-making. One third cite embedding stated values that influence employee behaviors as the issue that requires the most effort – and only half say employees will be positively viewed for acting in accordance with those values. Perhaps most tellingly, two-thirds say legacy culture and old ideas are hindering new ways of doing things.

All of this underlines the scale of the task facing today’s CEOs, as they strive to reshape companies that were originally built on delivering profit alone, into ones where profit and purpose combine. It’s a transformation that won’t be quick or easy.  It’s taking place amid close scrutiny from a widening range of stakeholders – from regulators to non-governmental organizations (NGOs) to social media bloggers – all seeking greater transparency and accountability. But it's also a change that’s clearly under way, that businesses must keep pace with, and that our profession has an opportunity and duty to support.

…requires a new model for building trust

For this fusion of profit and purpose to succeed in recalibrating public perceptions of business, we’ll need a new model for building trust. As skeptical stakeholders struggle to keep up with headlong change, companies can no longer rely on trust they’ve earned in the past. Instead they’ll need to re-establish trust continually as they transform and enter new markets. This means organizations can innovate and grow more successfully by having a better understanding of the drivers of trust, and by providing stakeholders with deeper, wider and more transparent insights into their business.

So, what will the new model for trust look like? And what can our profession learn from other market participants who are exploring how to redesign organizations for this extension of trust? In my view, clear lessons can be gleaned from the growth of the sharing economy – spearheaded by the likes of Airbnb, Uber and TripAdvisor – based on a new form of trust that’s more peer-to-peer and less institutional. Put simply, people trust other people more than they trust organizations. Business needs to reflect this change, and our profession needs to help them do so.

Taking this lesson on board, the new model for trust will have various characteristics. It will provide insights into the issues on the minds of boards and management. It will look at the critical alignment between a business’s purpose, strategy and key performance indicators. And it will communicate transparently and credibly around the tone, culture and behavior of the business, its approaches to remuneration and risk, and how these elements link to overall business performance.

The new trust model will also take into account environmental impacts, and the broader aspects of sustainability in society and communities. It will apply sophisticated technology to analyze ‘big data’ from within and beyond the organization, and help make sense of it through insightful commentary. And it will provide information that’s as near real-time and as forward-looking as possible, while allowing different stakeholders to interrogate it from their own perspective. Together, all of this will enable organizations to demonstrate that they are fulfilling their stated values and purpose, and thereby that they deserve the trust of stakeholders.

This future brings many profound implications. For example, constant real-time scrutiny will mean the behavior of every organization and its people will always be under the spotlight, whether they’re dealing with an environmental issue or solving a problem for a customer – thus creating an ongoing series of key moments at which they can either earn or lose trust. And the heightened importance of technology in building and sustaining trust will demand new and different skillsets from the ones that companies often needed in the past.

The future: blending people and technology

Combine these attributes, and a picture of the future of the profession begins to emerge – one with human insight at its core. The rising power of technology has prompted some to ask whether the days of assurance delivered by human auditors are numbered. They aren’t.

To remain relevant for clients and resilient for all our stakeholders in the future that’s now taking shape, our profession needs to avoid regarding advancing technology as a threat that could effectively replace our role, and instead embrace a world where technology matters more than ever before. To keep pace with a changing world for our clients, we need to invest in changing ourselves. If there’s a lasting legacy I want to leave with PwC, it’s that I emboldened the PwC network towards that investment and change.

So, what kind of profession will all this create? Some things will remain recognizable from today’s world: the best professional services across assurance, tax and consulting will continue to be delivered by blending highly-skilled professionals with world-class enabling technology. But what will continue to change over time is the sophistication, reach and power of that technology, enabling our professionals to collect, manage, analyze and create actionable intelligence from an ever-wider array of information with increasing speed, flexibility and responsiveness.

This is a future that is exciting and different. As its various elements come together, it’s why I believe that today is the best time ever to join our profession. We’ll be at the nexus where technology, professional judgment and public trust converge and combine. And for any young person setting out on their professional career with the energy and ambition to make a positive difference to the world, as I did in 1974, I can’t think of a better place to start.

Dennis Nally leads the global network of PwC firms. He has extensive experience serving large multinational clients in a variety of industries, principally focusing on technology and life sciences. Dennis is also a frequent speaker and guest lecturer on issues affecting the professional services profession and the global capital markets. Read Dennis Nally's full biography.


Every company is a media company. So, what’s next?

Author: Deborah Bothun, Global Entertainment and Media Leader Deborah-Bothun

When you hear the name Red Bull, what do you think of? A maker of energy drinks? Or a media company? Today, both answers are right: beyond the drink that bears its name, the company is also the owner of media properties that include one of the first marketer-branded channel apps on Apple TV.

 In some ways, this cross-over into media is a very current phenomenon. Across the world, the boundaries that that have historically surrounded – and to a degree protected – the entertainment & media (E&M) sector are eroding at breakneck speed, as companies across a growing range of industries seek to build, buy and borrow media capabilities to reach existing and potential customers.

But looked at another way, today’s widespread move into media is just the latest manifestation of the decades-old relationship between consumer/industrial companies and E&M. The 1950s-era daytime serials were known as “soap operas” because they were sponsored by companies that made soap. Hello Kitty was born in Japan in 1975 as a way to cute-ify merchandise, and then expanded into television series, comics and video games.

So, what’s changed since then? The answer – as across so much of the media landscape – is digital. Empowered by digitization, compelled by competitive pressures, enabled by data, and eager to connect directly with customers, companies are now expanding their marketing playbooks to include ever more E&M-like capabilities, including a recent onslaught of in-house media divisions being created.

But once they’ve got these capabilities, the question is how to use them to greatest advantage. I’ve been examining this conundrum for an article in a Special Report in Strategy&Business, produced to mark the launch of the PwC Global entertainment and media outlook 2016-2020. And the answer I’ve come to is that companies must choose a “way to play” based on two dimensions: first, the level of direct insight and data they have about their customers and users; and second, whether their products and services are sold in a structured, linear value chain, or a more circular and fluid ecosystem.

Media-Matrix-exhibit-ej-croppedDrill down further into these dynamics, and apply some insights from MIT Sloan research scientist Peter Weill and Stephanie L. Woerner, and we find four main strategic options for media companies looking to thrive in an increasingly digital ecosystem: Maker, Maximizer, Module, and Mash-up.

While choosing which quadrant they want to play in is an important decision for CEOs in any industry as they venture into the E&M space, the fact is there is no “right” quadrant – no one-size-fits-all strategy. Every company needs to decide for itself where it will play best.

So, should E&M incumbents fear that the powerful invaders now coming onto their turf – retailers, technology giants, financial services companies, and more – pose a competitive threat to their future? Certainly, they all compete for talent. But there are two reasons why media companies should not be worried.

First, there are now huge opportunities for E&M businesses to expand the other way and play in sectors like technology, retail, and consumer goods. And second, these new entrants are also great potential partners and customers. After all, they have a lot to learn. And who knows better than media businesses what it really takes to capture and hold audiences? 

To read more on Deborah’s views on this topic, and a range of other articles and interviews inspired by PwC’s Global E&M Outlook 2016-2020, please click through to the Strategy&Business Special Report. For the underlying data and E&M revenue forecasts, visit pwc.com/outlook.

Deborah Bothun is the Global Entertainment and Media Leader at PwC and leads the US Entertainment, Media and Communications practice, focused on helping clients address the business imperatives that are important to their success. For over 20 years, Ms. Bothun has worked with Fortune 500 entertainment and media companies in adapting to the changing content, distribution and advertising marketplace. 



As CEOs strive to meet wider stakeholder expectations, does tax have a role to play?

Author: J Rick Stamm, Vice Chairman, Global Tax Rs 01

From the results of the CEO survey, it is clear that for many CEOs the purpose of their business is not simply to generate as much profit as possible for their investors but also to benefit their employees, the communities where they operate and society more generally. Increasingly, businesses are expected to develop products and services that enrich people’s lives and to do so in a way that is sustainable and takes into account the impact that they have on the societies in which they operate. Indeed, almost a quarter of CEOs report that they have updated their organisation's purpose in the last three years to take account of the broader impact that they have on society.

As Patrick Lenain of the OECD notes in his blog post of 5 February below, for many businesses their tax payments are one of the most significant ways that they contribute to society. However, the full extent of that tax contribution is not well articulated and is consequently not well understood. If businesses explained the full extent of taxes that they pay, and how they approach tax issues, would this help them to demonstrate how they generate value for a broader range of stakeholders, not just their investors?

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In my view, an era of increased transparency is already upon us and it is being driven not only by stakeholder expectations or more stringent reporting requirements but by technology. Businesses the world over are being utterly transformed by powerful new technologies, which are in turn shaping their relationship with their stakeholders. When asked about the global trends most likely to transform wider stakeholder expectations of businesses in the next five years, 77% of CEOs globally cited technological advances.

The world of tax is in no way immune to the transformative power of technology. Taxing authorities are harnessing technology not just to collect routine tax data through e-filing but in more significant ways, and corporate tax departments are investing in technology to improve compliance and efficiency. Technology – and social media particularly – is forcing both businesses and taxing authorities to engage and respond to questions around tax in a clear and accessible way, and to a much wider base of stakeholders than before.

As CEOs look to meet the expectations of their stakeholders, a clear explanation of their contribution to society through the taxes that they pay will be critical. Providing proper context for all of their social, environmental, tax and economic impacts, business can help stakeholders understand the total impact of their tax strategy and contribution as an element of their total contribution to society.

Rick Stamm is the Vice Chairman, Global Tax. He was appointed to this role in October 2011. In his role, he is responsible for building the capabilities of Tax practices across the PwC network of firms, as well as for interacting on Tax and business issues with many of the firm's larger clients. Read more