Tag Archives: business strategy

Behind the scenes of the world’s leading industrial and manufacturing companies

Industrial leaders are digitising essential functions within their internal vertical operations processes, as well as with their horizontal partners along the value chain. In addition, they are enhancing their product portfolio with digital functionalities and introducing innovative, data-based services.

PwC has surveyed 2,000+ companies expecting to dramatically increase their overall level of digitisation. While just 33% rate their company as advanced today, that number jumps to over 70% looking ahead to 2020. While terms like the industrial internet or digital factory are also used to describe these changes, in this report PwC uses Industry 4.0 as a shorthand to describe a journey industrial companies are taking towards a complete value chain transformation.

Results show that Industry 4.0 digitises and integrates processes vertically across the entire organisation, from product development and purchasing, through manufacturing, logistics and service. All data about operations processes, process efficiency and quality management, as well as operations planning are available real-time, supported by augmented reality and optimised in an integrated network. Horizontal integration stretches beyond the internal operations from suppliers to customers and all key value chain partners. It includes technologies from track and trace devices to real-time integrated planning with execution.

Leading industrial companies also expand their offering by providing disruptive digital solutions such as complete, data-driven services and integrated platform solutions. Disruptive digital business models are often focused on generating additional digital revenues and optimising customer interaction and access. Digital products and services frequently look to serve customers with complete solutions in a distinct digital ecosystem.

PwC’s 2016 Global Industry 4.0 Survey of industrial companies is the biggest survey of its kind studying Industry 4.0 to date. With over 2,000 participants from companies in nine major industrial sectors and 26 countries, it goes to the heart of company thinking on the progress towards transforming into a digital enterprise.

The tax function as a strategic business asset

A new PwC study shows that the need for change is certain given the challenges tax functions are currently facing and those on the horizon. While a tax function may have been a passive participant in transformational and enterprise efforts in the past, it must now be a strong advocate for change. Tax functions should take ownership of their business case and pursue actions to ensure it is ready for the future.

The tax transformation journey will not be easy, but it is now imperative and the return on investment can be significant. With a thoughtful roadmap, the positive impact on the organisation may be felt for many years to come. The potential benefits will not only reduce above and below the line costs, but will improve company-wide risk management and tax governance, resource management, recruitment processes and many other areas. Through continuous transformation, the tax function will be viewed as not only as a critical and efficient compliance function, but also as an even more valuable strategic organisational asset.

strategy+business

For some time I’m working on the KM integration of Strategy& (former Booz & Company) with PwC and I can say there is more than finance about this acquisition. They are good. PwC has probably acquired the best in strategy consulting.

You can make your own mind by having a look at their magazine – strategy+business (s+b). Forbes nominated it among the top 25 websites for CEOs and its readership now spans more than 1,000,000 business leaders around the world. The magazine publishes ideas from chief executives, prominent business thinkers, academics from leading universities, and subject matter specialists from across the PwC network.

In s+b‘s latest reader survey, 90% of respondents reported taking action after reading an s+b article. You may also find it to be an insightful resource.

Seize Megatrends Opportunities: What made McDonald’s persevere in China?

In one of the latest “Strategy+Business” articles, the authors are asking a very powerful question for anyone looking into seizing megatrends opportunities: “What made McDonald’s persevere in China, and why did its U.S.-centric marketing approach succeed?” Here is their answer:

Because its leaders were early to recognize an opportunity in the interplay between two global megatrends. The first was the shift in economic power toward Asia. In 2000, less than 2 percent of global middle-class consumption occurred in China and India. By 2013, that proportion had reached almost 10 percent, and it is predicted to multiply several times by the middle of this century.

The second megatrend involved cultural transformation stemming from demographic change. The prevalence of smaller families under China’s one-child-per-family policy, which has been in place since 1979, has led to a stronger emphasis on children’s well-being.

Together, these two trends suggested that a huge number of Chinese citizens would gain a noteworthy (albeit small by Western standards) increase in their discretionary income. With relatively few children to spend it on, and more opportunities to learn about cultures outside China, they would aspire to the lifestyle of their traditionally more affluent Western counterparts. Well-known Western brands would suddenly be an attainable status symbol.

In 2004, many Western fast-food brands were struggling in their home countries, where they faced highly competitive markets and shifting public food preferences. So McDonald’s seized the Chinese market. The chain put in place subtle variations to its basic menu, such as locally popular sauces, and adopted a few tailored innovations, such as take-out windows for drinks, and of course the McWeddings. The chain also kept adjusting its offerings to reflect the responses it observed from its customers. In this way, the company gained a substantial foothold in the vital China market.

With a clear idea of the interactions among large-scale trends and how they will play out during the coming years, your company could gain a similarly strong advantage.

Communications industry concerned about keeping up with technological change

Communications alliancesCommunications industry CEOs are concerned about their company’s ability to keep up with the speed of technological change. And they’re looking to strategic alliances or joint ventures to propel growth, as shows the recently released CEO Survey.

Innovation still on top of CEO’s agenda

Communications industry CEOs know they need to innovate. Product/service innovation was selected by 41% of communications respondents when asked what they see as the main opportunity to grow their business (as compared with 35% of respondents from the global sample). And 49% of Communications industry CEOs said developing an innovation ecosystem that supports growth is a priority over the next three years.

 Restructuring is top priority

In the last twelve months 62% of Communications industry CEOs entered into a strategic alliance or joint venture, compared with 34% from the global sample. More activity is on the horizon: 54% of Communications CEOs say they plan to enter into a new strategic alliance or joint venture in the coming twelve months.

Planning time horizon

When asked “what is your current planning time horizon?” 56% of communications industry CEOs answered “three years”. The industry is changing too quickly to predict what will happen in just five years.

 Still confident on growth

72% of Communications industry CEOs are somewhat or very confident about their company’s prospects for revenue growth over the next twelve months. However, when asked about their confidence level about their company’s prospects for growth over the next three years, a stunning 90% said they are somewhat or very confident.

Considering the conclusion of this report, here are some cross-industry questions that would help us plan for the future:

  • What  does the “right” innovation strategy for my own business look like? Do we want to keep everything in house? Create an incubator? Develop a JV?
  • The control-oriented management style that’s well suited for traditional connectivity services clashes with the fast-paced decision-making requirements of innovation today. So how can we best organize the business to foster innovation?
  • The market’s expectation of “anything, everywhere, anytime” combined with shifting profit pools across the content, application, services, and network value chains requires an examination of relevance in this rapidly evolving ecosystem.  What is our response to these market changes?

The Eurozone Crises and its Scenarios. What does this mean to your business?

Eurozone 02
Eurozone (Photo credit: slolee)

The chances of Greece departing the Eurozone are rising sharply so what chances are there that Grece will remain in the Euro as a compromise? Spanish banks are still holding an estimated Euro 600bn of mortgages at full value on their books so Spain will be the next big test for Europe. Spanish and other Eurozone banks are going to require hundreds of billions of Euro recapitalisation in the next 12 months.

On January 2012, Congressional Research Services looked into possible scenarios regarding the Eurozone and their impact on US economy. Latest indicators from the US are mixed and patchy but this economy is out-performing the Eurozone. CEEMEA’s central outlook remains 3-5 years of sub-par economic growth, continuous Eurozone crises and tough global business conditions. PwC also provided four scenarios, including one where Greece would exit the Eurozone.

What does this mean to your business?

The risks for a worse outlook have intensified since March/April and Eurozone restructuring has the potential to create significant change and disruption to the operations of many organisations. Global companies (both headquartered in the Eurozone and ones with extensive links with it) will be impacted across their whole value chain.

There will be:

  • Treasury changes (e.g. liquidity and financing, security over banking arrangements);
  • Operational changes (e.g. documentation, pricing arrangements, customer payment mechanisms);
  • IT changes (e.g. systems configuration, payment and billing systems changes, master data, transaction data migration, package applications and support arrangements);
  • Planning, benchmarking and forecasting (e.g. contingencies, restatement of historical data, costs to implement the Eurozone restructuring);
  • Challenges in communications to shareholders, stakeholders, customers and suppliers regarding organisational impact and arrangements to manage the impact.

How one can cope with all these challenges? Here are some suggestions:

  • Evaluate your supply chain risk, particularly where raw materials become expensive for suppliers no longer in the euro-zone;
  • Develope business cases / risk analysis to take advantage of potential new sourcing opportunities and provide delivery support to realise these benefits;
  • Run rapid diagnostic tools that can be deployed simultaneously across Finance (EPM Blueprint, Finance Effectiveness);
  • The break-up of the Eurozone may even give rise to opportunities from a tax perspective: identify them and work to build them into existing contingency plans should the right commercial fact patterns arise in the future.

Other suggestions?

The future of risk management in the Communications industry

Iphone-picture
Image via Wikipedia

Each year I’m looking for the Global CEO Survey with great interest. Specifically this year I’m interested to see how risk management is affected by the global economic challenges. Communications CEOs are more worried not only about the global economic outlook, but also about several related risks. As the report shows, 45% are extremely concerned about the risk of economic volatility (versus 32% of the total sample). Similarly, 40% are extremely concerned about the measures highly indebted governments are taking to cut their fiscal deficits (versus 27%). Conversely, they’re more relaxed about the prospect of inflation. Only 19% of communications CEOs are somewhat concerned on this score (versus 31%).

Disruptive change is a constant feature of the communications industry and the results from this year’s survey indicate that CEOs see little sign of the pace and scale of change diminishing in the future. The rapid emergence and adoption of new technologies, devices and channels —from smartphones to tablets and Twitter to Groupon – can create overnight stars and catch the unprepared off guard. So it’s hardly surprising that 36% of communications CEOs are planning to make fundamental strategic changes in the next 12 months, compared to 13% across the rest of the survey population.

So how do communications CEOs propose to deal with these challenges?

They’re planning various strategic changes covering a wide range of financial and organisational areas over the next 12 months. Capital investment decisions and capital structuring activities feature prominently in their plans, for example: 31% intend to make major alterations to the former and 29% to the latter (versus 19% and 14%, respectively, of the total sample). And 29% expect to make major alterations in the way they manage risk, whereas the overall average is just 17%.

As well as changing their approach to investment and risk, communications CEOs say they’re likely to continue cutting costs. A full 90% have already implemented cost-reduction initiatives in the past 12 months, which is significantly more than the 75% who’ve done so in our entire survey sample. And 48% expect to outsource a business process or function in the next 12 months (compared to the overall average of 33%). Of course, outsourcing may be motivated by the need to reduce costs, but it’s also a component of the major organisational changes that two-fifths of communications CEOs expect to make in 2012.

Not surprisingly, since new technologies play such a key role in the sector, many communications CEOs are reconsidering how best to manage innovation, too. Communications CEOs are repositioning their portfolios to focus on developing new products and services, and fine-tuning existing products and services. But 60% also intend to adopt new business models in response to a fast-changing environment.

Predictably, perhaps, many communications CEOs are pinning their hopes for future growth on the emerging markets rather than the developed markets—as, indeed, are their peers in other sectors. And while most CEOs with plans to expand abroad are focusing on China, communications CEOs prefer Brazil: 26% believe it will be a key growth market in the next 12 months (versus 15%).

The full report on Communications CEO survey is available here.

Will social technologies improve performance?

English: A tag cloud (a typical Web 2.0 phenom...
Image via Wikipedia

One of the most challenging questions… Will enterprises benefit of Web 2.0 deployments and will such technology improve performance?

On the one hand you see by far too much time spent on Facebook these days and statements like “my whole life is there” are not such unussual amongst the young generation. Therefore, the question is not how you make them use it (they already do) but what benefit you have as a company from using such technologies?

McKinsey’s conclusion is that companies are improving their mastery of social technologies, using them to enhance operations and exploit new market opportunities (“How social technologies are extending the organization,” McKinsey Quarterly, November 2011). They asked 4,261 global executives how their organizations deploy social technologies, including social networking, blogs, video sharing and microblogging, and the benefits gained. The 2011 survey reports that when adopted at scale across an emerging type of networked enterprise and integrated into the work processes of employees, social technologies can boost a company’s financial performance and market share, also confirming last year’s survey results.

I find not quite spectacular the four clusters that emerge from McKinsey’s analysis:
1. Executives at internally networked organizations note the highest improvement in benefits from interactions with employees;
2. Executives at externally networked organizations note the highest improvement in interactions with customers, partners, and suppliers;
3. Executives at fully networked organizations report greater benefits from both internal and external interactions (this result is easy to be assumed out of the first two);
4. In the fourth and by far the largest group, developing organizations, respondents report lower-than-average improvements across all interactions at their organizations.

It’s clear that there is an improvement in communication, especially for large inter-regional organisations but you don’t need a study to know that. What I would be interested in is how this is linked to performance on the job also this would be more difficult to find out once it becomes a way of life and business. Looking ahead three to five years, many respondents expect still more profound organizational changes. They say that with fewer constraints on social technologies at their companies:

  • Boundaries among employees, vendors and customers will blur.

I would raise a red flag here as this might be a signifficant risk management issue.

  • More employee teams will be able to organize themselves.

I would consider it one of the most relevant benefits.

  • Data-driven decision-making will rise in importance.

I’d also add a red flag here considering that Web 2.0 gathers unstructured data and the real challenge will be how to manage such information in a structured way.

The next decade – the “most innovative time” ?

A recent PwC survey found that that innovation is high on the executive agenda in virtually every industry. In all, 78% of CEOs surveyed believe innovation will generate “significant” new revenue and cost reduction opportunities over the next three years. But it is highest for those where technology is changing customer expectations. In both the pharmaceutical and entertainment and media sectors, for example, more than 40% of CEOs believe their greatest opportunities for growth come from spawning new products and services.

Additionally, the survey found that CEOs are re-thinking their approach to innovation and increasingly seeking to collaborate with outside partners and in markets other than where they are based. For example, a majority of entertainment and media CEOs said they expect to co-develop new products and services.

The innovation process generally has four phases: 

  • Discovery: Identifying and sourcing ideas and problems that are the basis for future innovation. Sources may include employees as well as customers, suppliers, partners and other external organisations.
  • Incubation: Refining, developing and testing good ideas to see if they are technically feasible and make business sense.
  • Acceleration: Establishing pilot programs to test commercial feasibility.
  • Scale:  Integrating the innovation into the company; commercialisation and mass marketing.

However, the drive for innovation must arise from the CEO and other executive leadership by creating a culture that is open to new ideas and systematic in its approach to their development.

Therefore, the study also identifies 7 misconceptions about the innovation process:

  • Innovation can be delegated.  Not so. The drive to innovate begins at the top. If the CEO doesn’t protect and reward the process, it will fail.
  • Middle Management is the ally of innovation. Managers are not natural champions of innovation. They to reject new ideas in favor of efficiency.
  • Innovative people work for the money. Establishing a culture that embeds innovation in the organisation will attract and retain creative talent.
  • Innovation is a lucky accident. Successful innovation most often results from a disciplined process that sorts through many ideas.
  • The more open the innovation process, the less disciplined. Advances in collaborative tools, like social networking, are accelerating open innovation.
  • Businesses know how much innovation they need. Leaders must calculate their potential for inorganic growth to determine their need to innovate.
  • Innovation can’t be measured. Leadership needs to identify its ROII (Return on Innovation Investment).

Details about the study here.

A shared agenda for businesses and governments

This is one of the new trains that will be run...
Image via Wikipedia

Government leadership in building infrastructure is critical for competitiveness. A majority of CEOs identified the priority for the governments of all countries outside of Western Europe and Japan, where infrastructure is well developed, and of China – where the government allocated almost US$600 billion of stimulus spending for infrastructure projects over the past two years, according to PwC’s 14 Annual CEO Survey.

The role of private capital in financing infrastructure is unavoidable: an estimated US$3 trillion per year needs to be spent on infrastructure across the globe in the coming decades, according to a recent report from the World Economic Forum.

However, businesses can provide more than cash: they have expertise, and the abilities to execute and manage risks. This is part of what makes PPPs attractive. As Berthold Leetfink, Deputy Secretary General of the Ministry of Economics, Agriculture and Innovation in the Netherlands told PwC, “At least for the Netherlands, and I think for many other countries, planning and building infrastructure is very much in the hands of government. But it’s obvious that the private sector has a lot of knowledge in terms of building cheaply, efficiently or in a more environmentally friendly way.” As an example, a PPP project in 2009 to connect a 12-mile regional rapid transit line in Vancouver (Canada Line) was completed several months ahead of schedule.

Needless to say, businesses also have a key expectation for their governments: to tackle fiscal deficits to restore stability to the markets in a way that is mindful of the fragile environment for global growth. Public revenues are of course expected to be part of the equation: a majority of CEOs expect taxes will rise, led by 65% of CEOs in Asia and 70% in Latin America.

For a full report, you may click here.