09/25/2018

Why today’s CEOs need risk managers who can see around corners

Authors: George Stylianides, Global Risk Consulting Leader, PwC UK, Frank Martens, Global Risk Framework and Methodology Leader, PwC Canada and Hélène Katz, Director, Risk and Regulatory, PwC US

Take a look at the responses to two related questions in PwC’s 21st Annual Global CEO Survey, and you’ll find an odd disconnect—and the possible sources of both the optimism and the anxiety permeating C-Suites around the world. Asked whether the global economy will grow in the coming 12 months, 57% of CEOs said they believed that it would, a big jump from prior years. But when CEOs were asked about their own companies’ prospects in the coming 12 months, only 42% said they were very confident of revenue growth.

What explains the gap between CEOs’ outlook for the global economy and for their own organizations? We suggest that it indicates that CEOs have doubts about their organizations’ ability to anticipate and manage the manifold external risks confronting them. Moreover, we think, based on our own encounters with C-level leaders, that they are painfully aware that the markets are far less forgiving today of failures to anticipate risks than they used to be. It used to be that investors would give companies a pass for, say, supply-chain troubles caused by an erupting volcano or earnings targets missed because of international trade disputes. Today, CEOs tell us, investors expect companies to be prepared for whatever circumstance throws their way, and if they’re not, well, it might be time for a new CEO.

As you’d expect, the most pressing external threats vary from region to region. Concerns over infrastructure are a major worry point in Africa and India, while CEOs in Europe and North America are preoccupied with geopolitical uncertainty, over-regulation, and rising cyber threats. And while cyber was amongst the top-five risks in North America and parts of Central Europe, it did not make the even make the top-ten in parts of Eastern Europe or South America, replaced by concerns over populism.[1]

For all their variance, those threats share a few commonalities, two in particular: the threats are external to the organization, and they can’t be managed adequately via controls and checklists alone. In a world where risks are in near-constant flux, yesterday’s static risk management techniques yield few insights to support strategic decision-making. What companies need in today’s unforgiving environment is a dynamic approach to risk, enabled by tools such as analytics and data modeling, and a focus not on reducing risks to zero but on resilience and the capacity to adapt to changing circumstances, whatever form they take.

That means that risk management professionals now need to view risk through a wide-angle lens and consider how the impact of specific threats might ripple through an entire organization. How should a company respond to, say, large-scale population movements driven by changes in climate? Risk managers will need to engage a wide range of functional and business-unit leaders in comprehensive strategic conversations touching on everything from supply chain redundancies to legal ramifications to workplace-safety concerns to distribution impacts. In simpler times, those conversations would have centered on strengthening controls and risk-mitigation measures. Today, though, those discussions have to focus on identifying and ranking each, as well as on developing the flexibility and resiliency necessary to withstand them.

Risk management professionals must also be prepared to contend with risks that were not even recognized as risks a decade ago. Consider the workforce of the future. Has the company prepared for a new normal of talent scarcities? Can risk managers define clearly what impact a prolonged dearth of key skills would have on business strategy? Can they spell out for the C-Suite (and investors) how the company’s recruitment and strategies are changing to keep pace with the workforce?

Not so long ago, such conversations were rare, if not unheard-of, occurrences. Today, with CEOs seeking reasons to temper their anxiety with optimism, they’re par for the course. Welcome to the new normal, where the ability to see around corners isn’t a special gift, it’s table stakes.

[1] PwC, 2018 Global CEO Survey

06/01/2018

In private companies’ search for digital talent, transparency is key

Authors: Saul Plener, National leader for PwC's Private Company Services, PwC Canada, and Penny Partridge, Chief Human Resources Officer, PwC Canada.

It’s an exciting time to be CEO of a private company, but by no means is it easy. According to PwC’s 21st CEO Survey almost three-quarters (74%) of private company CEOs are concerned about the speed of technological change and its effects on their business.

Indeed, new technologies and digital systems are being introduced at a rate never seen before, reshaping the way we all do business. Private companies that currently lag their public counterparts in attracting digital talent need to take note of this deficit if they want to drive innovation, improve decision making, enhance customer experiences, and create better business models. More to the point, they need to take technology seriously.

On average, the CEOs who responded to our private company survey appear markedly less concerned than public company CEOs about the acceleration of technological change, and the cyber threats that inevitably come with it. Alarmingly, 22% of private company CEOs are not concerned at all about cyber threats. As such, it’s worth asking whether private companies are taking these digital disruptions as seriously as they should be, and are they acting quickly and strategically to seize opportunities and reduce risks?

Over 60% of private company CEO’s agreed that digital transformation can be disruptive to a business and leaders need to be prepared. Here are some important considerations for private company leaders considering how digital and technological advancements will shape the future of their businesses.

  1. Be transparent with plans for digital adoption

Private companies are just that: private. Many prefer to keep their business strategies and plans strictly confidential, limited to a small and senior circle of trusted individuals. However, being open about your business strategy, specifically your plans for how technology will play a key role in shaping your business, is increasingly important for attracting both customers and top talent.

Like it or not, transparency is the norm in today’s business landscape: anyone can do a quick internet search and learn all about your company. By treating your digital ambitions as a trade secret, you look like you’re lagging behind or avoiding future challenges. Be open about your budget and spending on digital software, your investment in new capabilities, and your specific tech opportunities. After all, the leaders of tomorrow want to know that they’re working for a forward-thinking company committed to innovation and transformation.

  1. Attract and retain talent with digital skills

Private company CEOs are working to attract the talent they need, the survey shows, including doing such things as improving compensation and benefits packages (78%), implementing continuous learning programs (85%), and modernizing the working environment (86%). Still, half of private company CEOs say it is difficult to attract digital talent. As more companies try to recruit these much sought-after professionals, the more challenging they are to find. While colleges and universities continue to ramp up their training in these skills, the reality is that supply doesn’t always keep up with demand. In fact, half of private business CEOs surveyed say it’s somewhat or very difficult to attract digital talent—yet it’s crucial to find that talent in order to fend off cyber threats and keep pace with the breakneck speed of technological change.

The best tech talent can have their pick of employer; they’re looking to find a company committed to tech transformation that will follow through on its plans to invest and evolve in the digital space. Your would-be recruits can tell if your commitment is superficial or transitory—and if that’s the case, they’ll look elsewhere. This makes it even more important for you to share your intentions for evolving your business. It’s not just about being transparent internally with your employees, but externally with the talent pool as well, by demonstrating that you have a robust strategy that you’re ready to put into action.

  1. Re-tool your existing talent for the digital world

At the end of the day, digital and tech skills have to be part of everyone’s role—not just IT. Sourcing and recruiting digital talent may be a daunting task. At the outset, make sure you’re aware of existing talent’s strengths and limitations, and how to effectively leverage team members with the right skills. Do you have people who are natural users of digital programs and platforms, who can push the needle to get others to do the same? Many business leaders are noticing potential in their own offices and helping those with interest and ability to increase their skills. Building your digital talent from the bottom up is becoming more important if you want to keep your business moving forward in all areas.

This doesn’t mean that skills like problem solving, leadership, adaptability, and creativity are no longer important; as a matter of fact, they’re necessary for digital systems to be mobilized as intelligently and as innovatively as possible. A digital-first workplace is one where different departments can collaborate in nimble, flexible, and cross-functional teams. And why not give your up-and-coming digitally-minded talent the opportunity to lead those transformation initiatives, reporting to your leadership team? It gives them a great opportunity to showcase their value and fully engage with the future of your business.

Locating and nurturing the talent you need is never an easy task, but as a private business, you may have an edge. The management teams of private companies tend to be small and tight-knit, unburdened by responsibility to public shareholders; as a result, you can often move more flexibly and decisively than your larger rivals. You can also change course with greater agility as you get a sense of which systems work best for your business, and build on your success by scaling them quickly. Success is contagious—once your strategies, software, and talent are in place, you can execute with speed and efficiency to pile up wins at an accelerating pace.

It’s time for private companies to be transparent with their tech strategies: your digital plan should be clear enough that everyone at your company can articulate it, and it should be public-facing so that the talent pool can see it—and see that you’re acting on it. For private businesses that don’t accept this level of transparency and visibility, the future will be an uphill battle. But companies that can be open about their digital ambitions will be able to compete, and win, for years to come.


About the authors:

Photo-saul-plener-use-this-picture-for-external-website-photo-2Saul Plener
 is the National Leader for PwC's Private Company Services practice in Canada. Based in Toronto, he works with a dedicated team of business advisers in Canada and globally to bring value to owners and leaders of private companies. 

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Partridge-penny-18-york-2Penny Partridge is Chief Human Resources Officer at PwC Canada. Based in Toronto, she is responsible for all aspects of talent management, learning and development, and human resources for PwC Canada. She is a partner on the firm’s Extended Leadership Team and also the Human Capital Performance Leader for the firm’s western territory region, US, South America, Mexico and the Caribbean.

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05/23/2018

Taking the Wide-Angle View: The Changing Role of the Risk Professional

Authors: Dennis Chesley, Global Risk and Regulatory Consulting Leader and global lead for the COSO ERM Framework update, PwC US and Brian Schwartz, US Internal Audit, Compliance and Risk Management - Financial Services Leader, PwC US

What a difference a year makes. In 2017, respondents to PwC’s annual CEO survey identified over-regulation, uncertain economic growth, and exchange-rate volatility as the top threats to their businesses. Of considerably less concern were terrorism, cyber threats, and geopolitical uncertainty.

Pwc-ceo-blog-graphicCEOs see a very different world in 2018, according to PwC's 21st CEO Survey. As their confidence in both the health of the global economy and their own companies’ growth prospects has surged, they have downgraded uncertain economic growth to the 13th most frequently cited threat in 2018, from the most frequently cited in 2017. And with the world’s leading economies growing more or less in sync, exchange-rate volatility has dropped from fifth to tenth. Over-regulation remains one of the top threats, but terrorism has vaulted to the second-most cited threat in 2018 from the 12th most cited threat in 2017. And though concern about exchange-rate fluctuations has waned, geopolitical uncertainty has climbed to third position from fourth over the same period.

What we’re looking at here is what you might call a risk realignment. Macroeconomic and direct business risks have receded from the forefront of CEO concerns, while broad, complex political, and social concerns have grown markedly more prominent. The emergence of cyber threats in particular as a leading threat underscores the new challenges that risk professionals face. It also goes a long way toward explaining why their roles have to change in the years ahead.

The rising concern over cyber threats is no surprise, given the proliferation of cyber intrusions, data theft, and malicious manipulation of social media platforms. But the issue isn’t just the number of cyber threats but also their nature. Cyber threats are not a one-off event but continuous and constantly changing. That shape-shifting quality exposes the shortcomings of the traditional approach to risk management, which is to build higher walls, deeper trenches, and thicker doors. Cyberattacks usually impact a wide spread of business activities and functions, from product development to production to marketing, and from compliance obligations and regulatory relationships to reputation management and customer trust. As business grows ever more digital, risks will become ever-present rather than episodic. Senior management will expect risk management professionals to develop a dynamic understanding of cyber threats’ effect on every aspect of business and advise leadership on their potential impact on the organisation’s strategy.

The notion of the risk professional as strategic advisor is not universally accepted in the business world, or indeed even among risk management professionals. This point was driven home to us recently when a client’s chief risk officer told us that she didn’t know the company’s strategy and didn’t need to know it to do her job. That viewpoint is not uncommon, in our experience. It’s also an express ticket to irrelevance. Risk management professionals once spent their days preparing quarterly risk assessments and incident reports and performing internal audits. That’s no longer enough, if it ever was. Today’s CEOs and boards expect risk management professionals to know how various risks affect business performance. If they can’t meet that expectation, leadership takes notice. It’s no coincidence that only 53% of directors responding to PwC’s most recent board member survey said that management effectively communicates the risks of implementing a proposed strategy.

Tomorrow’s boards will expect risk management professionals to understand the links between innovation and risk, particularly those risks associated with artificial intelligence, robotics, and other technologies, and address the strategic ramifications of a failure to innovate. They will be expected to support the entire innovation cycle and offer a perspective on the potential risks and opportunities at every stage. Their work will require them to deploy an array of new skills, competencies, and tools to support innovation and identify and assess exposures and opportunities for the organisation. 

As the findings suggest, there is a growing demand for risk management professionals who can take a wide-angle view of the business and understand how different and increasingly complex risks affect various activities and functions. To take that view they need business acumen and the soft skills necessary to advise their peers and persuade them of the virtues and vulnerabilities of a particular course of action. That’s not to say that risk management professionals don’t need technical skills as well, but those skills alone won’t be sufficient to meet the needs of the board and the CEO. The evolution of the role presents a challenge to risk management professionals, but also an opportunity. Historically, risk management professionals have been regarded within the organisation as wet blankets, forever saying ‘no’ to promising ideas. Now they have a chance to revise that view and demonstrate their value as strategic problem-solvers and enablers, helping the organisation meet its strategic goals and improve business performance. That sounds to us like a chance worth taking.

 


 

More information about the changing role of the risk professional can be found in the following publications:

The Global Risk Podcast Series: 10-minute conversations designed to provide you with valuable insight and fresh perspective on how to manage risk in today’s challenging global landscape. Don’t miss an episode at pwc.com/globalriskpodcast.

Do you have the full picture of the potential risks facing your business and the capabilities you need to create advantage? Introducing the Compendium of Examples, a companion document to the COSO ERM Framework. Coming soon – sign up to be notified.

Managing risks and enabling growth in the age of innovation: 2018 Risk in Review Study

Moving at the speed of innovation: 2018 State of the Internal Audit Profession Study

The Anxious Optimist in the Corner Office: PwC’s 21st Annual CEO Survey

04/18/2018

The top five trends in corporate responsibility

Author: Jonathan Grant, Director, Climate Change, PwC UK and Kirsty Jennings, PwC Global Corporate Responsibility Leader, PwC Australia

In the lead up to BITC’s Responsible Business week, we asked experts from around the PwC network and beyond for their views on the most significant trends in corporate responsibility (CR). Here are the five trends to watch:

1. There’s increasing social and environmental disruption - and there’s no avoiding it

Dramatic and unexpected changes to the global political, social, economic and environmental landscapes have made it a tough time to be in business.  In the last 12 months, extreme weather events have had a devastating impact on communities with severe floods in Bangladesh, drought, mudslides and wildfires in California, and hurricanes in the Gulf of Mexico.  Scientists are now increasingly confident in the links between this extreme weather and climate change.

Plastics pollution has suddenly hit the headlines, despite the fact that it has been building up in our rivers and oceans for decades.  Elsewhere, companies are under pressure on issues of social inequality, modern slavery, the gender pay gap, and the treatment of staff, contractors and gig workers. While these may be global issues, many demand that corporate responses are relevant at the local or community level.

Dealing with this uncertainty is tricky enough, but companies can no longer sit on the sidelines of these changes. They are expected to speak up and take a stand on issues - even ones unrelated to their business. Two thirds of consumers responding to a recent survey said they want brands to take a stance on difficult issues.  And 64% of respondents in the recent Edelman’s Trust barometer said they want CEOs to take a lead on policy change instead of waiting for government.   

 2. Investors, governments and others are piling on the pressure

Governments expect businesses to play their part in tackling these global challenges – and are not afraid to set ambitious targets. This has been particularly apparent since the Paris Agreement and Sustainable Development Goals were adopted in 2015. Governments starting to implement these agreements realise that they will not hit their targets without a significant contribution from the private sector.

This translates into increasing social and environmental regulation.  It also means softer pressure such as recommendations, guidance and encouragement from governments for businesses to take a lead.  Governments also recognize the power of their purchasing to drive change, with increasing requirements in public sector tenders on social or environmental performance.

Alongside the pressure from governments, there has been a surge in interest in CR from mainstream investors far beyond the socially responsible investment community.  In January, Larry Fink, CEO of BlackRock, sent a letter to CEOs calling on companies to explicitly state their strategy for creating long-term societal value. He drew a clear link between positive societal impact and strong long term financial returns.

3. The corporate response - creating wealth worth having?*

In response to mounting pressure from governments and investors, CR is undoubtedly moving higher up the corporate agenda and into the boardroom. This is no longer about charity or philanthropy, but impact and activism. Increasingly, CEOs are getting stuck into CR: sponsoring it internally, championing it externally and inspiring and collaborating with others.  For example, the CEOs of Ericsson, Olam International and Royal DSM are all well known for their positions on sustainable development goals (SDGs), sustainability and carbon pricing respectively.

As CR becomes more mainstream, businesses are reassessing their relationship with it. Leading global corporates are now talking about ‘Corporate Purpose’ and the importance of trust and ‘being trusted’ for business success.  But purpose is meaningless unless it is central to business strategy and backed up through implementation and action in the business. Ultimately, focusing on purpose should ensure the business creates long-term societal value and remains resilient and sustainable.

A purpose helps explain why the business exists and what value it brings. Firms are increasingly looking at their core products and services in the context of purpose: either to articulate how their offerings already contribute societal value, or to innovate new ones that do.

*Creating wealth worth having was the purpose of Climate Change Capital.

4. Technology for good?

The current pace of technological development is being described as the beginning of the fourth industrial revolution (4IR). Companies and corporate foundations are looking at how embracing technology and innovation in their CR programmes can increase their positive impact on society and the environment.  For example, some companies are already using a blockchain ledger to provide full supply chain traceability for diamonds, and more commodities are likely to follow. Artificial intelligence can solve big data problems, which could transform collection and reporting of a broad range of data beyond financials.  This could enhance real-time performance monitoring and management.

There is a vast opportunity for 4IR technology to improve the world with companies expected to take responsibility for their actions and the outcomes.  Our approach to responsible tech is linked here.

Alongside  innovation gains, today’s businesses need to mitigate the downsides, such as the jobs that are lost to AI and automation, the loss of privacy and data security, and the harm to physical and mental wellbeing.  There is also high energy demand associated with cryptocurrency mining. We are likely to see growing pressure on companies to be transparent and demonstrate a responsible approach in their strategies for deploying new technologies and managing the impacts of these changes.  

5. A more rigorous, quantitative approach to CR metrics and targets

CEOs across every region and country recognise that the world is moving away from measuring prosperity primarily through financial measures (e.g. GDP) and towards the use of multifaceted metrics (such as quality-of-life indices).  However, the use of broader metrics in the business environment is still limited.

As companies tackle CR issues, they need to be more rigorous and quantitative in their approach. For example, in the past, emissions targets were, frankly, a bit random. There are now ‘standards’ for climate action, with widespread adoption of science-based targets for greenhouse gas emissions or commitments to 100% renewable energy.

Leading companies are now considering how their other CR targets can also focus on maximising end impact. We think we’ll start to see an acceleration in the use of more comprehensive and integrated performance measures driving strategy and business performance.

When analysing risk, companies are also taking a far more evidence-based and quantitative approach. Following the recommendations of the Taskforce on Climate-related Financial Disclosures, many companies are using climate scenarios to assess the risks that climate change poses to their operations and value chains. Investors are expecting more quantified financial information about climate risks and opportunities, in mainstream financial filings.  This is a significant shift away from the anecdotes and emissions data provided in climate disclosures in the past.

We expect 2018 to be another rollercoaster year. The businesses that will thrive in these conditions will be those that genuinely engage and collaborate with a broad set of stakeholders, set out a clear and genuine purpose that resonates with their business, and back it up with rigorous numbers.

Connect with Jonathan on LinkedIn; Follow him on Twitter

Conntect with Kirsty on LinkedIn

03/16/2018

Winning at digital by focusing on culture: Reflections from Romania

Author: Olga Grygier-Siddons, Chief Executive, PwC Central & Eastern Europe Olga

Romanian CEOs are recognising that in order to attract and retain people with the hard technical capabilities their companies need for the digital era, they need to focus on soft skills and corporate culture.

That’s the key lesson that emerged from a panel discussion with three Romanian business leaders that I was privileged to be a part of this week: Sergiu Manea, CEO of Banca Comercială Română; Iulian Stanciu, CEO of Romanian online retailer eMAG; and Elisabeta Moraru, Country Manager of Google Romania.

And it’s a lesson that holds true for companies throughout Central and Eastern Europe.

All of our countries are justly proud of our traditions of technical education, producing legions of outstanding scientists and engineers whom the titans of the global digital economy are eager to recruit. But unfortunately, there are also a few less pleasant things that all of our economies share: old-school, top-down management styles; a lack of emphasis on teamwork and cooperation in the formal education system; and brain drain through emigration.

To compete with the global giants in recruiting the region’s world-class technical talent, we need to match them in offering world-class corporate cultures. I was heartened to see how the Romanian CEOs I spoke with have identified this challenge, and how they have concrete plans for how to address it.

I was in Bucharest to join my colleague Ionut Simion of PwC Romania in presenting the global and CEE regional results of PwC’s annual survey of CEOs, as well as the Romanian version of the report, for which we spoke with 68 business leaders in the country.

In the report, we set out four recommendations for business leaders in our region to address the key findings:

  1. Invest in new ways of retaining and motivating digital talent
  2. Help strengthen and improve the role of technology in society
  3. Work to build an education system for the future
  4. Be part of the conversation as societies rethink measures of prosperity.

The survey clearly showed that difficulty in attracting digital talent is a top concern for business leaders in Romania, as it is across our region as a whole. What are CEOs doing about it? Almost unanimously they see a need to focus on building higher engagement through things like teamwork and communications (97% in CEE, and 99% in Romania).

In addition to working for change within their organisations, all three of the CEOs on the panel pointed out the need for change in Romania’s education system. Mr Manea in particular said the country’s schools and universities need to become more flexible and entrepreneurial, encouraging students’ individual aspirations.

Much has changed since the planned economy, when we were trained for a job for life – but the education system in our part of the world has not changed that much since those times, as Mr Stanciu said.

Ms Moraru said these changes need to happen not only at the university level, but starting in primary schools. She also pointed out that Romanians need to embrace lifelong learning after they’ve left the academy gates. In addition to being last in the European Union in terms of technology infrastructure, Romania is last when it comes to the percentage of people engaged in continuing education after leaving university. Mr Manea said he hopes to work with the education system (both public and private) to create curricula on subjects including entrepreneurship, digital literacy and digital ethics.

Digital technologies naturally upset the old order of top-down management by providing opportunities for collaboration across various levels of an organisation and making it possible for everyone to have instant access to information. And companies have a responsibility to help engage employees in building a more collaborative, more open culture.

Mr Manea put this extremely well when talking about the two sides of digitalisation. In addition to the “digital outside” of new products, services and delivery systems that clients see, each company also has a “digital inside”: a new culture and mindset that involves more collaboration and less strict hierarchy. “The second aspect is even more important than the first,” he said.

A big part of the cultural shift is encouraging risk-taking: making sure people at lower levels aren’t afraid to fail, and putting an emphasis on learning from mistakes, as Mr Stanciu pointed out.

Members of the Millennial generation in our region are almost identical to their counterparts around the globe in terms of what they want to get out of their jobs: they’re not interested just in salaries, but in engagement and a sense of purpose. That’s something that global companies are able to offer them, so for our region to avoid falling behind, we need to compete not just on money, but on culture.

If companies around CEE listen closely to what our Romanian colleagues have to say, and take it to heart, I’m confident that we’ll meet that challenge.

Connect Olga on LinkedIn

Follow her on Twitter

Olga Grygier-Siddons is the Chief Executive Officer of PricewaterhouseCoopers Central and Eastern Europe (CEE) which comprises 29 Member Firms of the Global PwC Network. Olga is a member of the PwC Global Strategy Council which comprises the Territory Senior Partners from the largest 21 territories in the PwC Network.

02/05/2018

Doing Deals in 2018: will the good times continue to roll?

Author: Malcolm Lloyd, Global Deals Leader, PwC Spain Malcolm-lloyd-deals.jpg.pwcimage.200.252

Do sky–high levels of global growth confidence reported at Davos last month, and record levels of capital available mean a vintage year for deals?  Malcolm Lloyd, PwC Global Deals leader looks at the prospects.

Talk about starting a new year on a high:  2017 for the deals market, was one to remember.

The overall dynamic for the market last year was one of oversupply of capital and cheap financing: a fantastic year for divestments in terms of being able to realise and optimise gains, and across all deal-making activity there were some notable headline grabbers such as Amazon/Whole Foods.

Private Equity (PE) raised more capital than at any time since the financial crisis. The total amount of dry powder – available funding yet to be invested – was reported at over $960bn in Q3 of 2017, with estimates at the close of the year likely to hit all-time record highs again. Also, US corporates alone were projected to have over $1.9 trn of cash on their balance sheets at the end of 2017.

In brief, as we start 2018, there is no shortage of access to capital and financing. As my PwC economist colleagues put it, ‘let the good times roll’. Does it translate to business leaders’ confidence? This is the critical test for the deals environment in 2018.

57% of CEOs in this year’s PwC CEO Survey are optimistic about the prospect of the global economy improving in the year ahead - almost twice the level of last year (29%).

In many ways, the sky-high confidence in the global economy being reported mirrors the dynamic of the deals market. Throughout 2017, despite rising levels of geopolitical uncertainty, the level of deal activity has been maintained.

With such an amount of dry powder available, there is increasing pressure on PEs to put that money to work: with even more intense activity around finding opportunities.

For business leaders, M&A and divestments remain important strategies for growth. Particularly when you consider the more conservative levels of CEO confidence about businesses’ own growth prospects. 42% percent of CEOs said they are “very confident” in their own organisation’s growth prospects over the next 12 months, up from 38% last year.

42% of CEOs are considering M&A as part of their growth strategy in the year ahead, higher in Spain and China (48%), Australia (49%) and the US (69%). Technology (46%) and healthcare (44%) are amongst those sectors outpacing the global outlook. A quarter of CEOs in China (26%), and one in five of Australian and American CEOs are considering divestments, higher than the global average (16%). 

Technology disruption continues to be a key driver. In fact, the speed of technological change remains a top ten threat to growth for 38% of CEOs, up from 29% last year. In the Banking & Capital markets (42%) and Insurance sectors (51%), concern is higher, as it is in China (60%).

Few companies are doing deals now without an eye on innovation, and tackling where their business is experiencing disruption driven by technology. There’s much higher levels of interest in testing the hypothesis of a deal’s value in terms of technological transformation - skills, products, services, business models.

January was the first anniversary of the Dow Jones reaching above the 20,000 milestone for the first time in its history. There’s no doubt that the context – of stock market highs and oversupply of capital – is pushing up valuations; the question is how long the high valuations can be sustained, and whether the promised value can be delivered. We expect to see much more application of data analytics to validate underlying assumptions in the deals ahead.

More traditional questions remain for business leaders too. Over-regulation and an increasing tax burden remain key threats to growth identified by CEOs. How they could impact the deals environment, and the value they are creating is a key question for 2018.

The threat of over-regulation remains the top concern for CEOs (42% extremely concerned), particularly in China (52% extremely concerned) and the US (55%). Emerging too is CEOs’ concern on activist investors. The levels in the US (53% very or somewhat concerned) and China (87% very or somewhat concerned) stand out vs the global average of 42% (somewhat or very concerned).

Despite all this, the positive sentiment around deal-making in 2017 continues into 2018. Our CEO survey underlines the message of the World Economic Forum in Davos this year –achieving growth in a fractured world.

This is not the traditional deals market as many would have known it - leveraging equity, multiple arbitrage plays. It’s all about value creation, increasing revenue, optimising costs and improving overall strategic positioning. Deals are increasingly premised on value creation plays. Moves in the markets and sectors highlighted here will be closely watched in 2018 as businesses and deal makers get out to make hay while the sun shines. 

Find out more about PwC Global Deals Advisory services here

01/30/2018

Can Emerging Tech Help Ease CEO Anxiety?

Author: Vicki Huff Eckert, Global New Business & Innovation Leader, PwC US 6a00d83451623c69e201b8d201f76b970c-120wi

With the World Economic Forum having convened its annual meeting this week in Davos, Switzerland, global leaders from business and government discussed tackling some of the world’s biggest challenges. While many of these problems can be traced directly to industrialization, it’s the Fourth Industrial Revolution (4IR) — with its merging of digital, physical and biological realms — that could help rectify them.

More specifically, artificial intelligence (AI) will be a large part of potential solutions, whether the topic is climate change, biodiversity, ocean health, water management or air pollution. For instance, AI could support the creation of distributed, “off-grid” water and energy resources. It could also improve climate modelling or bolster natural disaster resilience planning.

Rather than a remedy in and of itself, AI is a vehicle that can help us arrive at these solutions. Achieving this vision will require ongoing cooperation among governments, technology hubs such as Silicon Valley, investors and civil society.

AI could prove to be the greatest collective innovation of our generation. But as Winston Churchill famously stated, “The price of greatness is responsibility.” This point cannot be overlooked, because the 4IR — driven by AI — could also exacerbate existing threats to environmental security or create entirely new risks that will need to be addressed.

According to PwC’s just-released Global CEO Survey, top executives are anxious about broad societal threats. Roughly a third of CEOs surveyed believe that globalization has not helped at all with averting climate change and resource scarcity. There is an opportunity to reduce these concerns as ethical and responsible applications of AI help us navigate a fractured world.  1_h7OdL-rLFhLAsXpHii5_iA

For example, a new report from PwC and the World Economic Forum, Harnessing artificial intelligence for the Earth, explores how AI innovations could help the environment and natural resource security agenda. The report details how using AI ethically and responsibly involves three main elements: the use of big data; the growing reliance on algorithms to perform tasks, shape choices and make decisions; and the gradual reduction of human involvement in many processes.

Yes, AI offers enormous potential both for the global economy and, more widely, for constructing a sustainable planet for future generations. However, it also poses both short- and long-term risks if it is not applied and managed responsibly where it involves individuals, organizations, society and the planet. Such risks go far beyond oft-cited job losses and could range from hacking and cyber threats to energy demand to ethical issues around bias and privacy concerns.

Doing the right thing, for business and for our world

The call to action runs much deeper than public-private collaboration. Angel investors, venture capitalists, accelerators and impact investors should build and support a portfolio of 4IR technology companies that address sustainability challenges as part of their core strategies. The same goes for mainstream institutional investors and asset managers in that they can embed sustainability into their AI investment portfolios. Will there be commercial opportunities? Yes. Could this type of support speed up AI’s transformational impact? Definitely.

By taking action across these areas, stakeholders build trust in society, and trust is an integral value for organizations of all sorts. And AI requires real accountability. As government and industry leaders navigate the risk factors that AI technology could amplify and exacerbate, they need to ensure the safety, transparency and validity of AI applications. The onus for this rests with authorities, AI researchers, technology pioneers and AI adopters in industry to encourage use cases that earn trust and take aim at the major issues facing our planet.

Scaling pioneering innovations, and making sustainability considerations a core component of AI development and use cases is one of the biggest challenges for innovators, investors and governments.

So much AI dialogue focuses on potential human job losses. This fills headlines, but the notion on its own omits significant benefits AI is bestowing on society. AI is changing the way we work, live and interact, and it’s enabling better health and education outcomes. So it’s all of our responsibility to make it.

01/26/2018

PwC’s 21st CEO Survey: Future-Proofing Today’s Workforce for Tomorrow

Authors: Bob Moritz, Global Chairman, PwC US and Carol Stubbings, Global Head of People & Organisation, PwC US  

There is a run on digital talent, and it is playing out across the world. PwC’s 21st CEO Survey, released this week in Davos, illuminates the urgency of this quest and the steps organisations in various regions are taking to buy, borrow and build a future-proofed workforce.

Not surprisingly, only one in four CEOs in the survey describe it as “somewhat” or “very easy” to attract digital talent. The optimistic outlier is the Asia-Pacific region, more specifically China where 60% of CEOs indicate that attracting digital talent is “somewhat” or “very easy.” The equivalent figure in the US is half that (30%) and only about a fifth as large in Germany (13%).

As part of the CEO Survey, we interviewed a number of CEOs. Valentin Stalf, CEO of German mobile banking startup N26, had this to say: “Talent is the key. Our biggest opportunity cost today is that we don’t always get the right people. And it’s especially true for tech and online jobs. The educational system is much slower than the transformation on the tech side, so people are still studying offline marketing when we need hundreds of people working in online marketing. We don’t have enough software developers. If we could hire 200 highly skilled people tomorrow we’d do that.”

So, what are companies doing to bridge the gap? To lure digital talent, organisations across the world are engaging in a range of strategies, the most widely used being: ‘modernising the working environment’ and ‘implementing continuous L&D programmes’. The only tactic not employed — at least to some extent — by a majority of the CEOs surveyed is “relocating operations close to talent pools”. Interestingly, “improving compensation packages” falls squarely in the middle of strategic options explored on a global basis. Regions are divided on “changing employee dress codes” to attract digital talent — it is not a widely adopted tactic in the Middle East or Africa.

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As one might expect, CEOs who find it easiest to attract digital talent tend to be more active across all of these dimensions. In China, over 80% of CEOs report using all of the strategies at least “to some extent.” “Improving compensation and benefits packages” ranks #1 with 57% of Chinese chief executives employing this strategy ‘to a large extent’.

When we asked Asia-Pacific CEOs why they find it relatively easy to attract digital talent, a large majority credited their company’s culture, reputation, track record of innovation, and attractive development opportunities and compensation packages. Whereas CEOs in China focused on their companies’ efforts to cultivate digital talent using a variety of strategies, nearly all the CEO respondents in India noted the wide availability of talent in their country to explain why it is easier for them to attract the necessary talent.

In our work with clients, we at PwC have recognized that you cannot buy your way out of this problem, nor can you hire or fire your way out of it. The available pool of digital talent is too limited to simply switch out your existing workforce for a digitally enabled one. Leading companies have already recognized that what has to change is not so much their talent as their ways of working — their culture and processes. They have to adopt the constantly iterative, customer-centric, blank slate ethos of a born digital platform company. They can selectively infuse digital talent to help lead the transformation, but the secret to success is upskilling their existing employees to take on the work that will be relevant in an AI-enabled future.

To further that goal, the World Economic Forum in partnership with the IT industry launched the IT Industry Skills Initiative this week to reskill 1 million workers for the jobs of the future by 2021. This joint initiative, the first of its kind, will bring competitive training and resource content together on one platform — the WEF SkillSET portal. We at PwC are proud to have developed a tailored Skills Assessment tool, based on the Fourth Industrial Revolution skills research, to help users determine which coursework and/or learning pathways best fit their current skillset and learning goals.

Fortunately, most CEOs in every region recognise their own responsibility to retrain employees whose tasks are automated — especially as they consider the broader challenges society is facing. And employees embrace their part in meeting the future as well. Three quarters of the respondents in our Workforce of the Future study are willing to take the initiative in updating their own skills rather than relying on their employer. By working in partnership, companies and their employees can realise the productivity and innovation promise of a digitally enabled work environment and meaningfully enhance not only their own prospects but the prosperity and vitality of society as a whole. My hope is that by working together, we can drive more inclusive growth around the world.

 

01/25/2018

The Centrality of Cybersecurity

Author: Bob Moritz, Global Chairman, PwC US  Bob moritz

Cybersecurity is one of the most critical challenges of the digital age. The global growth of networks and data, fueled by technological innovation, has enabled society to build prosperity and quality-of-life improvements. This rapid, sweeping change has also created a long-term challenge: managing inherent security risks in digital technology as the world grows more cyber dependent and hacking threats escalate.

In PwC’s 21st Global CEO Survey, global CEOs ranked cyber threats as the business threat of greatest concern, and the №4 overall worry behind over-regulation, terrorism, and geopolitical uncertainty. Cybersecurity is a hot topic this year at the World Economic Forum’s annual gathering in Davos–an event that examines the major economic, political, technological, and social issues impacting our world. The World Economic Forum’s Global Risks Report 2018 says large-scale cyberattacks and data breaches are increasingly likely amid rising cyber-dependency. Yesterday, I took part in a panel discussion in Davos titled “Hack the Attack” where we debated some of the key challenges that face the public and private sector in working together to prepare for cyberattacks. An interesting discussion with a great group of experts and leaders, talking about the risks and what pragmatic actions we can take as leaders.

There is a massive opportunity before all of us–private and public sector stakeholders from around the world, industries of all kinds, and experts in a wide array of disciplines–to collectively build the security, privacy, and trust that the world needs.

The Magnitude of the Challenge

The high stakes of cyber insecurity are increasingly clear. As our reliance on data and interconnectivity rises, developing resilience to withstand cyber shocks — that is, large-scale events with cascading disruptive consequences — has never been more important. In our 2018 Global State of Information Security® Survey, where we survey 9,500 executives from 122 countries across all industries, leaders of organizations that use automation or robotics acknowledge the potentially significant fallout of cyberattacks:

  • Forty percent of survey respondents cite the disruption of operations as the biggest consequence of a cyberattack, 39% cite the compromise of sensitive data, 32% cite harm to product quality, 29% cite damage to physical property, and 22% cite harm to human life.
  • Yet, despite this awareness, many companies at risk of cyber attacks — and to be realistic, we are all at risk — remain unprepared to deal with them. Forty-four percent of the executives in the survey say they do not have an overall information security strategy, 48% do not have awareness training and 54% do not have an incident reporting process.

Cyber insecurity has not gone unnoticed among consumers. In our recent US Consumer Intelligence Series survey, only 25% of respondents say they believe most companies handle their sensitive personal data responsibly.

With rising threats to data integrity, security and availability, leaders in the public and private sector are also facing greater accountability. New rules on data security and privacy such as the European Union’s General Data Protection Regulation, UK data protection legislation, China’s cybersecurity law, the White House’s cybersecurity executive order, proposed US legislation related to the internet of things, cybersecurity rules for the financial sector in New York State and municipal cybersecurity efforts illustrate the increasing attention these issues are receiving from policymakers at the international, national, state and local levels. There are no silver bullets in cybersecurity, however, including regulations.

Bringing Together the Private and Public Sectors

Collaboration between policymakers, regulators and the private sector is vital given the rapid pace of the cyber threat environment. By building consensus around emerging voluntary standards for cybersecurity, privacy, and the nascent but mushrooming internet of things, organizations have the potential to implement nimble, flexible, and robust measures for managing emerging risks and to demonstrate headway to stakeholders. Technology developers that pursue responsible innovation of this sort will likely be better positioned to build trust with consumers and increase economic performance.

In addition to having good tactics to deal with particular malware threats, companies must proactively manage risks in a strategic way, rather than viewing them episodically or from a compliance standpoint.

With the right risk management foundation in place, it becomes possible to gain from connectivity without losing consumer trust and to monetize data while respecting privacy. Threat intelligence and information sharing capabilities can help stakeholders identify and counter emerging risks with greater speed and effectiveness. Leading-edge technologies for cloud security, data analytics and monitoring, authentication, and open-source software can give defenders powerful tools in cyberspace.

In addition, greater focus on risks associated with the internet of things and geopolitical threats can provide leaders the broader perspective needed to more capably manage cyber and privacy risks across their enterprises.

Next Steps for Leaders Everywhere

While there are regulations and focus areas specific to various industries and geographies, there are four overarching principles for the way forward on combating cyber risks:

  • The need to significantly improve management of cyber and privacy risks is universal across the globe — regardless of the organization, sector, country or region — and will be vital for decades to come. As our 21st Global CEO Survey underscores, this is a business risk that requires the highest level of attention. CEOs need to embrace that challenge and focus on building the resilience needed to withstand disruptive cyberattacks and sustain operations — not just because of the risks, but because of the opportunities.
  • As the risk of cyber attacks increases, companies and CEOs need to consider their own policies, programs, and internal safeguards. While many have these helpful policies and codes of conduct in place, it’s about what people and companies may not be doing — individual actions that perhaps don’t match a company’s protocols puts them at even higher risk of attack.
  • Increased engagement, collaboration, and sharing of information among stakeholders has never been more important — but it needs to be substantial. We all need to push to make such endeavors as meaningful as possible.
  • We need to take the stigma out of asking for help when it comes to managing cybersecurity and privacy risks. Wise leaders know when to ask for help. There are many lessons and insights available from an array of stakeholders and it would be a shame not to seize that opportunity and take advantage of them.
 

8 ways AI can help save the planet

Author: Celine Herweijer, Partner, PwC UK Celine-herweijer

It’s a historic moment for Artificial Intelligence (AI). All the pieces are coming together: big data, advances in hardware, emerging powerful AI algorithms, and an open source community for tools that reduces barriers to entry for industry and start-ups alike. The result: AI is being propelled out of research labs and into our everyday lives, from navigating cities, ride shares, our energy networks, to the online world.

In 2018 everyone is starting to see the business value of AI. It is being added to more and more things every year, and it is getting smarter and smarter – accelerating human innovation. But as AI becomes more powerful, more autonomous and broader in its use and impact, the unsolved issue of AI safety is paramount. Risks include: bias, poor decision making, low transparency, job losses and malevolent use of AI, such as autonomous weaponry.

The challenge, however, goes beyond guiding “human friendly AI” to ensuring “Earth friendly AI”. As the scale and urgency of the economic and human health impacts from our deteriorating natural environment grows, we have an opportunity to look at how AI can help transform traditional sectors and systems to address climate change, deliver food and water security, build sustainable cities, and protect biodiversity and human wellbeing.

To this end, in a new Forum-PwC report launched at Davos this year, we showcase the significant opportunity to harness AI for the Earth. Here we outline eight of the identified “game changer” AI applications to address this planet’s challenges:

Ai-planet

1. Autonomous and connected electric vehicles

AI-guided autonomous vehicles (AVs) will enable a transition to mobility on-demand over the coming years and decades. Substantial greenhouse gas reductions for urban transport can be unlocked through route and traffic optimisation, eco-driving algorithms, programmed “platooning” of cars to traffic, and autonomous ride-sharing services. Electric AV fleets will be critical to deliver real gains.

2. Distributed energy grids

AI can enhance the predictability of demand and supply for renewables across a distributed grid, improve energy storage, efficiency and load management, assist in the integration and reliability of renewables and enable dynamic pricing and trading, creating market incentives.

3. Smart agriculture and food systems

AI-augmented agriculture involves automated data collection, decision-making and corrective actions via robotics to allow early detection of crop diseases and issues, to provide timed nutrition to livestock, and generally to optimise agricultural inputs and returns based on supply and demand. This promises to increase the resource efficiency of the agriculture industry, lowering the use of water, fertilisers and pesticides which cause damage to important ecosystems, and increase resilience to climate extremes.

4. Next generation weather and climate prediction

A new field of “Climate Informatics” is blossoming that uses AI to fundamentally transform weather forecasting and improve our understanding of the effects of climate change. This field traditionally requires high performance energy-intensive computing, but deep-learning networks can allow computers to run much faster and incorporate more complexity of the ‘real-world’ system into the calculations.

In just over a decade, computational power and advances in AI will enable home computers to have as much power as today’s supercomputers, lowering the cost of research, boosting scientific productivity and accelerating discoveries. AI techniques may also help correct biases in models, extract the most relevant data to avoid data degradation, predict extreme events and be used for impacts modelling.

5. Smart disaster response

AI can analyse simulations and real-time data (including social media data) of weather events and disasters in a region to seek out vulnerabilities and enhance disaster preparation, provide early warning, and prioritise response through coordination of emergency information capabilities. Deep reinforcement learning may one day be integrated into disaster simulations to determine optimal response strategies, similar to the way AI is currently being used to identify the best move in games like AlphaGo.

6. AI-designed intelligent, connected and livable cities

AI could be used to simulate and automate the generation of zoning laws, building ordinances and floodplains, combined with augmented and virtual reality (AR and VR). Real-time city-wide data on energy, water consumption and availability, traffic flows, people flows, and weather could create an “urban dashboard” to optimise urban sustainability.

7. A transparent digital Earth

A real-time, open API, AI-infused, digital geospatial dashboard for the planet would enable the monitoring, modelling and management of environmental systems at a scale and speed never before possible – from tackling illegal deforestation, water extraction, fishing and poaching, to air pollution, natural disaster response and smart agriculture.

8. Reinforcement learning for Earth sciences breakthroughs

This nascent AI technique – which requires no input data, substantially less computing power, and in which the evolutionary-like AI learns from itself – could soon evolve to enable its application to real-world problems in the natural sciences. Collaboration with Earth scientists to identify the systems – from climate science, materials science, biology, and other areas – which can be codified to apply reinforcement learning for scientific progress and discovery is vital. For example, DeepMind co-founder, Demis Hassabis, has suggested that in materials science, a descendant of AlphaGo Zero could be used to search for a room temperature superconductor – a hypothetical substance that allows for incredibly efficient energy systems.

To conclude, we live in exciting times. It is now possible to tackle some of the world’s biggest problems with emerging technologies such as AI. It’s time to put AI to work for the planet.

The 4IR for the Earth programme is a collaboration between the World Economic Forum, PwC, and Stanford University, and which is also supported by the MAVA Foundation. The programme looks to accelerate tech innovation for Earth's most pressing environmental challenges. It will help identify, support and scale new ventures, partnerships and business models that harness tech to transform how the world tackles environmental challenges. Reports released to date in the 4IR for the Earth series can be found here.