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.
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.
A recent study – “CSR Trends” reviewed 602 companies listed in five Standard & Poor’s indices, as well as private companies and crown corporations. The survey does not evaluate the accuracy of the information being reported in the documents or a company’s compliance with any regulation but rather how effective companies have been in communicating their CSR strategies and performance.
The results show that CSR has changed from a nice activity to a core business value that defines the most significant businesses in the world. There are, however, differences in the way CSR results are communicated and here are some key findings:
– 81% of companies have CSR information on their websites but only 50% consider this information sufficiently important to deserve a link on the corporate home page;
– 80% of the companies, many of them worldwide brands such as Coca Cola, Nike, IBM, provide comprehensive explanations of their business activities. Surprisingly, 20% of the companies, many of them smaller and less well known than the multinationals mentioned above, did not provide a profile, essentially eliminating the context of their CSR strategies and achievements;
– Targets that are specific, measurable and have a deadline are significantly more meaningful than a general statement of good intend. Nevertheless, only 65% of companies seamed to realise that and include a summary of objectives on a dedicated space inside the report and only 27% of those objectives have been quantified.
– CSR is an interactive endeavour that requires constant communication with stakeholders. However, only 24% of companies use social media such as Twitter or Facebook to communicate their CSR activities.
This survey’s research was conducted jointly by PricewaterhouseCoopers’ Sustainable Business Solutions practice and Craib Design & Communications. The entire report can be downloaded here.
Management and staff become distracted and demoralised as they investigate what went wrong and respond to legal, regulatory and enforcement actions. In some recent cases, costs have soared into the billions, significantly affecting earnings.
In addition to the external fallout, as customers and partners distance themselves from a troubled company, there are daunting internal costs. Failing to actively prevent corruption allows employees and third parties to rationalize stealing from the company. Companies with anti-corruption programmes that enable bribe payments are also highly susceptible to theft and financial statement manipulation.
Companies that do not take steps to assess and manage corruption risk stand a greater chance of being caught in the anti-corruption net. With the passing of the Foreign Corrupt Practices Act (FCPA) in 1977, the US took the early initiative in enforcement. Under the act, any company listed on a US exchange or with significant operations in the US is subject to the rules and regulations of the US Department of Justice, regardless of where corruption occurs geographically. More recently, enforcement has become a more global affair, with the US working closely with authorities in other countries. In the last years, at least 20 of the 37 government signatories to the 1997 OECD Convention on Combating Bribery of Foreign Public Officials began one or more investigations into corruption, up from 12 in 2006.
Looked at logically, bribes do not make good business sense. They may not alter the situation in any way and there is no contract to enforce if the services paid for are not rendered. Having paid once, a company also opens the door to future and perhaps larger demands and becomes susceptible to blackmail. “If you pay someone $1,000 for a service, do you think the next time they will only ask for $1,000?” says Albert Wong, head of policy and external relations at Shell International. He tells his staff to avoid this slippery slope by refusing the first demand.
While companies cannot control how governments and competitors behave, there are tools available to help level the playing field. One example is the so-called “integrity pact,” where all parties sign an enforceable agreement not to engage in corruption. Our survey highlights the importance of getting everyone to play by the same rules. Almost 45% of respondents say they currently avoid certain markets or opportunities because of corruption risks and almost 40% say they have lost bids because of corrupt officials.
A global PwC report shows that:
• Almost 80% of respondents say their company has some form of programme in place to prevent and detect corruption, but only 22% are very confident that it identifies and mitigates the risk of corruption.
• Slightly less than half say their programme is clearly communicated and enforced, while 28% say there are problems with either the communication or the enforcement of their anti-corruption programme.
• Rigorous risk assessment, a crucial step in programme design, is overlooked by more than half of those surveyed, and only 25% perform proactive risk assessments or monitoring.
• Only 40% of respondents believe their current controls are effective at identifying high-risk business partners or suspect disbursements.
The potential of corruption may always be present; however, companies can learn from others and set up a robust and proactive anti-corruption programme to mitigate their risk.
You may find more about confronting corruption here.
Turbulent economic times are making many organisations consider restructuring. Theoretically, a company that has been restructured effectively will be more efficient, better organised, and better focused on its core business. However, in practice, many restructuring initiatives fail as a result of overlooking “insignificant” issues or taking an unrealistic approach of the reality of restructuring across multiple countries and markets.
Here are some key points you should consider before and during a restructuring initiative that may help you thrive in challenging times:
Adding value to your company
1) What are the business drivers behind your restructuring requirements?
2) What should your redesigned organisation look like?
3) Are you obtaining function efficiency and true value for money for your spend?
Engaging effectively with your employees
4) Is your approach to your restructuring consistent with your declared values?
5) Have you got effective communications plans in place?
6) Are you engaging with employee representatives in an appropriate manner in each of your markets?
Balancing your short and longterm risks
7) How do you manage your employment brand in such challenging times?
8) Is there a risk of any proposed measures damaging your future business strategy?
9) How do you retain key talent now and in years to come?
10) How do you continue the development of tomorrow’s people whilst restructuring?
Two-and-a-half years ago, McKinsey described eight technology-enabled business trends that were profoundly reshaping strategy across a wide swath of industries. Since then, the technology landscape has continued to evolve rapidly. The dizzying pace of change has affected those original eight trends, which have continued to spread (though often at a more rapid pace than anticipated), morph in unexpected ways, and grew in number to ten:
1. Distributed cocreation moves into the mainstream
By McKinsey’s estimates, when customer communities handle an issue, the per-contact cost can be as low as 10 percent of the cost to resolve the issue through traditional call centers. Other companies are extending their reach by using the Web for word-of-mouth marketing. However, since cocreation is a two-way process, companies must also provide feedback to stimulate continuing participation and commitment.
2. Making the network the organization
The recession underscored the value of such flexibility in managing volatility. McKinsey believes that the more porous, networked organizations of the future will need to organize work around critical tasks rather than molding it to constraints imposed by corporate structures.
3. Collaboration at scale
Across many economies, the number of people who undertake knowledge work has grown much more quickly than the number of production or transactions workers. While the body of knowledge around the best use of such technologies is still developing, a number of companies have conducted experiments, as one may see in the rapid growth rates of video and Web conferencing, expected to top 20 percent annually during the next few years.
4. The growing ‘Internet of Things’
Assets themselves became elements of an information system, with the ability to capture, compute, communicate, and collaborate around information – something that has come to be known as the “Internet of Things.” Embedded with sensors, actuators, and communications capabilities, such objects will soon be able to absorb and transmit information on a massive scale and, in some cases, to adapt and react to changes in the environment automatically. These “smart” assets can make processes more efficient, give products new capabilities, and spark novel business models.
5. Experimentation and big data
McKinsey affirms that some companies haven’t even mastered the technologies needed to capture and analyze the valuable information they can access. More commonly, they don’t have the right talent and processes to design experiments and extract business value from big data, which require changes in the way many executives now make decisions: trusting instincts and experience over experimentation and rigorous analysis. To get managers at all echelons to accept the value of experimentation, senior leaders must buy into a “test and learn” mind-set and then serve as role models for their teams.
6. Wiring for a sustainable world
Companies are now taking the first steps to reduce the environmental impact of their IT. Information technology is both a significant source of environmental emissions and a key enabler of many strategies to mitigate environmental damage.
7. Imagining anything as a service
In the IT industry, the growth of “cloud computing” (accessing computer resources provided through networks rather than running software or storing data on a local computer) exemplifies this shift. Consumer acceptance of Web-based cloud services for everything from e-mail to video is of course becoming universal, and companies are following suit.
8. The age of the multisided business model
Thr advertising-supported model has proliferated on the Internet, underwriting Web content sites, as well as services such as search and e-mail. It is now spreading to new markets, such as enterprise software: Spiceworks offers IT-management applications to 950,000 users at no cost, while it collects advertising from B2B companies that want access to IT professionals.
9. Innovating from the bottom of the pyramid
Hundreds of companies are now appearing on the global scene from emerging markets. For most global incumbents, these represent a new type of competitor: they are not only challenging the dominant players’ growth plans in developing markets but also exporting their extreme models to developed ones. To respond, global players must plug into the local networks of entrepreneurs, fast-growing businesses, suppliers, investors, and influencers spawning such disruptions.
10. Producing public good on the grid
Technology can also improve the delivery and effectiveness of many public services. At the UK Web site FixMyStreet.com, for example, citizens report, view, and discuss local problems, such as graffiti and the illegal dumping of waste, and interact with local officials who provide updates on actions to solve them.
Following a year of decline in 2009, the global E&M market, as a whole, is forecasted to grow by 5% compounded annually for the entire period to 2014 reaching US$1.7 trillion, up from US$1.3 trillion in 2009. Fastest growing region throughout the forecast period is Latin America growing at 8.8% compound annual rate (CAR) during the next 5 years to US$77 billion in 2014. Asia Pacific is next at 6.4% CAR through to 2014 to US$475 billion. Europe, Middle East and Africa (EMEA) follows at 4.6% to US$581 billion in 2014. The largest, but slowest growing market is North America growing at 3.9% CAR taking it from US$460 billion in 2009 to US$558 billion in 2014.
Consumers seam to embrace new media experiences with staggering speed. The advancing digital transformation is driving audience fragmentation to a level not previously seen. However, the current wave of change is of a different magnitude from previous ones both in its speed and its simultaneous impact across all segments.
Although there is consistency in the inevitable migration to digital, the ways in which this presents itself and the pace of change continues to vary by market. Regional and country variations in current market size and future growth reflect local factors around infrastructure, access availability and consumer behaviour. For example the mobile internet explosion has already happened in Japan, accounting for some 53% of global spending on mobile Internet access in 2009 while other markets are still at the bottom of their growth curve.
Advertising on the rebound
Advertising revenues have been particularly hit by the turbulent markets and while there are signs of a rebound, this is still fragile in nature. Spend is unlikely to return to former levels. By 2014, the US advertising spend is expected to still be 9% below its level in 2006. Overall, global advertising will increase at a 4.2% CAR from US$406 billion in 2009 to US$498 billion in 2014. Internet advertising will join television in 2014 as the only media with spending in excess of US$100 billion.
The projections reflect the fragmentation of the market and behavioural changes of consumers. The advertising industry is responding to consumers’ shifting attention and has embarked upon a long-term journey towards total marketing or total brand communication. Brands are changing their focus from advertising on a medium, to marketing through, and with, content.
Conversing with consumers
Consumer feedback and usage provides the only reliable guide to the commercial viability of products and services, and the global consumer base is being used as a test-bed for new offerings and consumption modes. However, as responses are still evolving it is up to the industry to anticipate and identify where they are heading and pre-empt the needs and wants of consumers. PwC believes that three themes will emerge from changing consumer behaviour:
The rising power of mobility and devices: Advances in technology and products will see increasingly converged, multi-functional and interoperable mobile devices come of age as a consumption platform by the end of 2011. Consumers are increasingly demanding “ubiquity”, with content flowing across different devices to support ever-greater interactivity and convenience. They are using mobile in new ways, and downloading ever-increasing numbers of mobile applications (“apps”) to support their lifestyles. The ability to consume and interact with content anywhere, anytime—and to share and discuss that content experience with other people via social networks—will become an increasingly integral part of people’s lives.
The growing dominance of the Internet experience over all content consumption: Using the Internet is now one of the great unifying experiences of the current era for consumers everywhere—and their expectation of Internet-style interactivity and access to content will continue to expand across media consumption in every segment. This trend is initially at its clearest in television. Equally, people are already consuming magazines and newspapers on Internet-enabled tablets, and streaming personalised music services such as Pandora in preference to buying physical CDs or even digital downloads.
Increasing engagement and readiness to pay for content—driven by improved consumption experiences and convenience: Ongoing fragmentation means that media offerings will need greater consumer engagement and quality to get themselves heard – and paid. Consumers are more willing to pay for content when accompanied by convenience and flexibility in usage, personalisation , and/or a differentiated experience that cannot be created elsewhere. Local relevance will also become important once again as an aspect of convenience and relevance.
Revolutionising the business
Digital migration and the changes in consumer behaviour have put extreme pressure on existing business models. It has caused the industry to radically rethink its approach to monetising content as it strives to capture new sources of revenue, be it from transactions or from participation with others operating in the evolving digital value chain.
Inevitably this results in individual companies searching for where to position themselves in the new digital world. Partnering with other organisations is becoming imperative in order to create viable commercial content offerings while sharing the costs and risks. Increasingly potential partners are being found from a diverse set of industries.
Whatever the partnership or collaboration PwC identifies seven critical factors for operating succesfully in the new value chain:
• Strategic flexibility
• Delivery of engagement and reationship with the customer through the consumption experience
• Economics of scale and scope
• Speed of decision-making and execution, with the appetite to experiment and fail
• Agility in talent management
• Ability to monetise brand/rights across platforms
• Strong capabilities in partnership structuring and M&A targeting and integration
2010 – 2014 Media Outlook in numbers
• There were 12 countries in 2009 with E&M spending above US$20 billion, led by the United States at US$428 billion and Japan at US$164 billion. Of the leading countries, the People’s Republic of China (PRC) will be by far the fastest growing with a projected 12% compound annual increase, fuelled by a vibrant economy and large increases in broadband penetration that in turn propel other segments. Japan will be the slowest growing of the leading countries at 2.8% compounded annually.
• Internet access is a key driver of spending in most segments. Increased broadband penetration will boost wired access while growing smartphone penetration and wireless network upgrades will drive mobile access. Spending on wired and mobile Internet access will rise from US$228 billion in 2009 to US$351 billion in 2014.
• PwC expects a relatively flat market in aggregate global advertising and consumer/end-user spending in 2010, improved growth in 2011 and a return to mid-single-digit gains during 2014. Overall global advertising will increase at a 4.2% CAR from US$406 billion in 2009 to US$498 billion in 2014. Overall consumer/end-user spending will rise from US$688 billion in 2009 to US$842 billion in 2014, a 4.1% compound annual increase.
• Globally, the video game market will grow from US$52.5 billion in 2009 to US$86.8 billion in 2014, growing at a compound growth rate of 10.6%. This will make it the second fastest-growing segment of E&M behind internet advertising wired and mobile, but will be the fastest-growing consumer/end user segment ahead of TV subscriptions and license fees.
• The global television subscription and license fee market will increase from $185.9 billion in 2009 to US$258.1 billion in 2014, a CAGR of 6.8%. This will outpace TV advertising, which will grow at a CAGR of 5.7%. The biggest component of this market is subscription spending and this will increase at 7.5% CAR to US$210.8 billion in 2014. Asia Pacific will be the fastest-growing region with a 10% compund annual increase rising to US$47.1 billion in 2014 from US$29.2 billion in 2009.
• Total global spending on consumer magazines fell by 10.6 percent in 2009. PwC projects an additional 2.7% decrease in 2010, a flat market in 2011, and modest growth during 2012–14. As a result, spending will total $74 billion in 2014, up 0.7 percent compounded annually from $71.5 billion in 2009.
• Electronic educational books will grow at a CAGR of 36.5% globally throughout the forecast period yet will still only account for less than 6% of global spend on educational books in 2014.
54% of the executives surveyed by McKinsey in April indicated that they would take steps to reduce operating costs in the next 12 months, compared with 47% in February. In April, 2/3 of the respondents rated economic conditions in their countries as better than they had been six months previously, and another 2/3 expected further improvement by the end of the first half of 2010 (“Economic Conditions Snapshot, April 2010: McKinsey Global Survey results,” mckinseyquarterly.com, April 2010). Yet any successes companies have at cutting costs during the downturn will erode with time. Many executives expect some proportion of the costs cut during the recent recession to return within 12 to 18 months (“What worked in cost cutting -and what’s next: McKinsey Global Survey results,” mckinseyquarterly.com, January 2010) – and prior research found that only 10% of cost reduction programs show sustained results three years later (Suzanne P. Nimocks, Robert L. Rosiello, and Oliver Wright, “Managing overhead costs,” mckinseyquarterly.com, May 2005).
Why is it then so difficult to make cost cuts stick?
In most cases, it’s because reduction programs don’t address the true drivers of costs or are simply too difficult to maintain over time. Sometimes, managers lack deep enough insight into their own operations to set useful cost reduction targets. In the midst of a crisis, they look for easily available benchmarks, such as what similar companies have accomplished, rather than taking the time to conduct a bottom-up examination of which costs should be cut. In other cases, individual business unit heads try to meet targets with draconian measures that are unrealistic over the long term, such as across-the-board cuts that don’t differentiate between those that add value or destroy it. In still others, managers use inaccurate or incomplete data to track costs, thus missing important opportunities and confounding efforts to ensure accountability.
Some possible solutions:
Focus on how to cut, not just how much
Benchmarks matter. External ones on some measures may be difficult to get, but where they are available – for example, on travel expenses – they can enable managers to compare performance across different units and identify real differences, as well as trade-offs that may not be in line with the organization’s overall strategy. Internal benchmarks are easier to access and provide great insights, especially because managers are more likely to understand and adjust for differences among their company’s organizational units than among different companies represented by external benchmarks.
P&L accounting data is not enough to make lasting decisions
Unfortunately, few companies have the kinds of systems they need to track costs at a fine-grained level – and they face a number of challenges in establishing them. Multiple data systems may make it difficult to aggregate and compare data from different geographies. Inconsistent accounting practices between businesses or time periods may lead to significant distortions. Changes in organizational structure (as a result of acquisitions, divestitures, or even changes in the allocation of overhead costs) may similarly distort tracking.
Clearly link cost management and strategy
Strategy must lead cost-cutting efforts, not vice versa. The goal cannot be merely to meet a bottom-line target. Indeed, among participants in a November 2009 survey, those who worked for companies that took an across-the-board approach to cost cutting in the recent downturn doubt that the cuts are sustainable. Those who predicted that the cuts could be sustained over the next 18 months were more likely to say that their companies chose a targeted approach. (“What worked in cost cutting – and what’s next: McKinsey Global Survey results,” mckinseyquarterly.com, January 2010).
Yet, many companies do not explicitly link cost reduction initiatives to broader strategic plans. As a result, reduction targets are set so that each business unit does “its share” – which starves high-performing units of the resources needed for valuable growth investments while generating only meager improvements at poorly performing units. Moreover, initiatives in one area of a business often have unintended negative consequences for the company as a whole.
Aim at results for 2-3 years not just 12 months
Most companies treat cost management as a one-off exercise driven by the need to manage short-term profit targets. Yet such hasty cost-cutting activity typically goes into reverse once the pressure is removed and rarely results in sustainable changes in cost structure. A better approach is to use the initial cost reduction program as an opportunity to build a competency in cost management rather than in cost reduction.
Last year I published an article in Forbes where I stated that the next step lobbyists are going to take in Romania, in order to avoid a lobbying law, will be to announce a self regulation initiative. Recently, during a conference dedicated to assessing the opportunity of a lobbying law in Romania, one of the lobbyists publicly announced that a voluntary registry of lobbying activities is going to be open by lobbyists themselves.
How will this make lobbying more transparent and why do lobbyists prefer self regulation instead of a law with similar conditions?
Possible answers in the attached article (Romanian only). Download a PDF version from here.
Transform is the bi-annual magazine of PwC in Central and Eastern Europe (CEE). It covers the latest business trends in 25 markets across the region, from the Czech Republic to Kazakhstan. Each issue of the magazine goes out to 10,000 business leaders, financiers, politicians and opinion formers in CEE.
Within the last issue, PwC brings the regional CEOs of three leading companies – Siemens, Orange and the ROLF Group – together to debate this issue and asks Romanian business veteran Dinu Patriciu for his insight. Staying in Romania, PwC features an exclusive interview with Bogdan Dragoi, Secretary of State at Romania’s Ministry of Public Finance, on how the government is trying to get the economy there back on track.
Also, in the wake of the World Eonomic Forum’s annual leaders summit in Davos, Switzerland, in the New Year, PwC turned to four commentators with expertise in the region for their thoughts on what CEE’s business and political leaders should be tackling this year.