Resilience: a journey of strategy and risk

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CEOs remain somewhat cautious about whether greater global growth will translate into sustained growth for their own companies — particularly over the next three years. That may be because, as they …

CEOs remain somewhat cautious about whether greater global growth will translate into sustained growth for their own companies — particularly over the next three years. That may be because, as they look to the future, chief executives see three seismic shifts looming — shifts which they know will hugely impact their businesses over the next five years: technological advances, demographic changes and shifts in economic power. These three global trends will throw new competition, new buying patterns, new consumer needs, new markets, new attitudes and new business models into their path... at a speed never encountered before. Here’s what the CEOs don’t know: How fast? How much? And how best to act in order to turn these risks into opportunities?

More: http://www.pwc.com/gx/en/governance-risk-compliance-consulting-services/resilience/publications/ceosurvey/fit-for-the-future.jhtml

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  • 1. www.pwc.com/resilience Resilience A journal of strategy and risk Fit for the future. But are you truly resilient? Challenge 1: Are you drawing the most innovation from your technology? Challenge 2: Are you ready for tomorrow’s workforce? Challenge 3: The changing consumer: An ever-more elusive target
  • 2. 2 I  Resilience: A journal of strategy and risk  Fit for the future. But are you truly resilient? In most areas of business, at least three-quarters of CEOs acknowledge the need for change, or are making changes, in response to global forces Q: In order to capitalise on the top-three global trends which you believe will most transform your business over the next five years, to what extent are you making changes, if any, to the following areas? 5 6CEOs are focused on changing their approach to managing risk, in response to global trends. When “the future” means a world in permanent flux, it’s not enough to be agile in the way you manage risk. Resilient organisations look for the growth opportunities hiding in the shadows — and have the strategies to capture them. out of Technology investments Organisational structure/design Customer growth and retention strategies Corporate governance Talent strategies Approach to managing risk Investment in production capacity Use and management of data and data analytics R&D and innovation capacity Channels to market Supply chain M&A strategies, joint ventures or strategic alliances Location of key operations or headquarters Recognise need to change Developing strategy to change Concrete plans to implement change programme Change programme underway or completed 10 19 27 35 7 21 25 35 9 20 28 34 8 16 17 33 12 22 27 32 11 19 22 31 7 14 21 30 12 21 26 28 13 22 24 27 10 23 23 25 10 21 19 24 13 24 20 21 9 13 12 17 % Base: All respondents (1,344) Source: PwC 17th Annual Global CEO Survey
  • 3. Resilience: A journal of strategy and risk I  3  While the results of PwC’s 17th Global CEO Survey point to careful optimism about global economic growth in still-turbulent times, CEOs remain somewhat cautious about whether greater global growth will translate into sustained growth for their own companies — particularly over the next three years. That may be because, as they look to the future, chief executives see three seismic shifts looming — shifts which they know will hugely impact their businesses over the next five years: technological advances, demographic changes and shifts in economic power. These three global trends will throw new competition, new buying patterns, new consumer needs, new markets, new attitudes and new business models into their path... at a speed never encountered before. Here’s what the CEOs don’t know: How fast? How much? And how best to act in order to turn these risks into opportunities? And act they must, if they want to survive and grow. Yet, as the results of our 17th Global CEO Survey illustrate, businesses vary vastly in their preparedness for the three megatrends. Many appear to be pausing and pondering. Others are embracing innovation and marching straight ahead. So what accounts for the difference? Is it a lower risk-appetite that is holding many businesses back, after the economic shocks of recent years? It is a lack of awareness of what the risks really are? On the other hand, what risk resilience practices have some CEOs started to implement which are putting them ahead of their competitors? Fit for the future means being fit for a world in flux. The good news is that we have much greater capacity today to get more data and model different futures. The bad news is, we can’t know all the eventualities — and we can’t remove all the risks. That’s why embracing risk resilience is the best route for navigating the coming storms of change. CEOs are more confident the global economy will improve than they are about their own business growth prospects Q: How confident are you about your company’s prospects for revenue growth over the next 12 months? Q: Do you believe the global economy will improve, stay the same, or decline over the next 12 months?
  • 4. 4 I  Resilience: A journal of strategy and risk  Are you drawing the most innovation from your technology? CEOs believe technological advances, demographic changes and global economic shifts will have a huge impact on their businesses over the next five years Q: Which of the following global trends do you believe will transform your business the most over the next five years? 81%of CEOs rank technological advances as having a transformative impact on their business. It seems like a bit of a disconnect — or a potentially missed opportunity: While four out of five CEOs surveyed ranked technological advances as one of the top three drivers that will transform their business, only a quarter (27%) said they had actually completed or initiated an innovation-focussed change programme. What’s behind that apparent disparity? It would seem as though, while CEOs can feel the growing moment of upcoming change, few have a sense of confidence about precisely which technological breakthroughs will take off — and, more to the point, how such changes might impact their business models and long-run operating conditions. Technological advances Mean rank: 2.31 50 30 19 81 Demographic shifts Mean rank: 1.95 28 39 33 60 Resource scarcity and climate change Mean rank: 1.87 29 30 41 46 Urbanisation Mean rank: 1.84 25 34 41 40 Shift in global economic power 30 37 34 Mean rank: 1.96 59 % ranking 2nd % ranking 1st % ranking 3rd % ranking 1st, 2nd or 3rd # 1Challenge: Technology
  • 5. Resilience: A journal of strategy and risk I  5  The risks you face • Businesses that hold back on innovation risk becoming slow adapters, adapting to the wrong changes, or falling behind competitors. • Avoiding experimenting with technological innovation could lead to products or services becoming obsolete. • Organisations that appear slow to innovate run the risk, over the long term, of being seen as unattractive partners — a lag that can cripple their ability to attract not only the best strategic partners, but also the critical talent they need to compete. • As technology continues to proliferate across your business processes, creating greater connectivity and greater dependency on your data assets, your risks of exposure to cybercrime grow. • A failure to protect your (and your customers’) digital assets can lead to a damaging loss of trust in your business. Resilience practices • Enable breakthrough innovation by putting disciplined innovation procedures in place. • Collaborate with partners on innovation, and identify benefit- and risk-sharing models. • Use new digital channels to involve clients and your supply chain more closely in your product development and process innovation. • Ensure robust IT risk and strategic alliance strategies are in place to protect what needs to remain confidential — while enabling you to collaborate openly. • Put cyber-risk management at the heart of your business strategy: cyber-resilience depends not only on your IT actions — it pivots on your people and processes as well. Ask yourself... • What is my organisation’s risk appetite when it comes to opening up to outside parties? • Is ours a risk-averse culture? To what extent do we accept failure, and learn from mistakes? • How involved are our risk management leaders in growth strategy discussions? • Do we know everything we need to know about those we are collaborating with now? • How deftly can we keep control of our day-to-day operations, while also transforming the business? • Do we have really know how to turn digital risks into business opportunities? • Are our IT networks, data collection and storage processes fully secure? Are we sure about that? • Are we on top of any and all cyber security risks we face that could actually affect our business goals? • Are we as an organisation agile enough to deal with new threats as they arise?
  • 6. 6 I  Resilience: A journal of strategy and risk  # 2 Are you ready for tomorrow’s workforce? CEOs are becoming more worried about finding key skills Q: How concerned are you about the following potential economic and policy/business threats to your organisation’s growth prospects? (Availability of key skills was one of the threats CEOs named.) 6in10have taken tangible steps in the war for tomorrow’s talent. It’s harder than ever for CEOs to find and keep the right people in the right place at the right time. The “war for talent” remains both a challenge and a source of continuing uncertainty, with 63% of CEOs telling us they are somewhat or extremely concerned about the availability of key skills. Yet, 61% haven’t yet acted on their plans for change. 2011 2012 2013 46% 51% 56% 53% 58% 63% 2014 2009 2010 Base: All respondents (2014=1,344; 2013=1,330; 2012=1,258; 2011=1,201; 2010=1,198; 2009=1,124) Source: PwC 17th Annual Global CEO Survey Challenge: Demographics ONLY
  • 7. Resilience: A journal of strategy and risk I  7  The risks you face • A drop in the working-age population is decreasing the availability of desirable talent. • An aging workforce presents employers with healthcare, benefits and productivity issues. • The rapid industrialisation of some emerging economies is wooing educated nationals back home, leading to rising labour costs for some developed economies. • Perceived corporate resistance to cultural change can repel desirable younger talent. • The elimination of jobs by technology creates social risks. • A growing mismatch of skills, needs and location will require considerable adaptability in talent, cultures, and attitudes — as well as government support. Resilience practices • Use big data and big modelling to understand demographic trends and risks, and to identify new sources of labour. • Adapt Enterprise Risk Management to encompass demographic and other social risks. • Use technology to reimagine the workplace. Technology allows flexibility, mobility and “virtuality” — factors that can attract untapped resources and a new generation of workers. • Follow the talent to new markets — or back to old ones. • Engage with local educational institutions to help nurture the skills — and attract the talent — of tomorrow. Ask yourself... • Are our ERM processes able to capture changing demographic patterns and measure the risk to our business? • How effectively could we leverage our governance and controls systems to enable virtual working? • Does our corporate culture enable employees to develop trusted relationships, even across virtual networks? • As we adopt new virtual, cross- geographical employment models, are we complying with all relevant employment, fiscal and immigration laws? • How well do our corporate values, culture and conduct match those of tomorrow’s workforce?
  • 8. 8 I  Resilience: A journal of strategy and risk  The changing consumer: An ever-more elusive target Q: How concerned are CEOs about the threat of shift in consumer spending and behaviours to their growth prospects? Consumers are evolving, both geographically and demographically. Companies today must chase a faster-moving target — one that is both more diverse and more demanding than ever — and fight off increased competition. CEOs are well aware of this. More than half (52%) said they are concerned about shifts in consumer spending and behaviour, while 46% are worried about new market entrants. When it comes to consumer markets, one size most definitely does not fit all. Even among economic subsectors (e.g., “BRICs,” emerging markets, developed markets) there are significant differences in growth speed, competition and market dynamics. Each market presents its own challenges and opportunities which must be navigated. © 2014 PwC All rights reserved. PwC refers to the PwC network and or one or more of the member firms, each of which is a separate legal entity. Please see www.pwc.com/structure for further details. of CEOs are concerned about shifts in consumer spending and behaviour. Over half (52%) # 3Challenge: Consumers
  • 9. Resilience: A journal of strategy and risk I  9  The risks you face • Today’s increasingly interconnected economic landscape heightens supply chain complexity, and your risk exposure. • Approaching consumers in emerging markets in a non- differentiated way increases your risk of market entry failure. • Competitive new entrants and low barriers to entry increase the risk of loss of market share. • Consumers demand and share much more information about corporate activities than before: reputational risk is high for businesses that don’t align with consumer values. • Beyond the actual performance of your product or service, reputational risk can ensnare you from a wide range of sources — including your supply chain partners, your operational and financial practices, your tax strategies, or a lack of support for the local community. • A failure to keep pace with evolving consumer expectations can jeopardise a necessary transformation. Resilience practices • Enhance your use of big data and big modelling to better understand the changing needs of consumer segments. • Shift your business model from being product/service-centric to client-centric. Engage with consumers across multiple channels to increase customer loyalty and nurture trust. • Make supply chains flexible enough to deliver to different segments in different ways and different geographies. • Remove unnecessary complexity from your value chain. • Tailor market entry and consumer targeting strategies for emerging markets. Know the political, economical, social, technological, legal, fraud, corruption and cultural risks for each market before going in. Otherwise, focus on growth in known markets. • Earn and protect your licence to operate in far-reaching markets by investing in the local communities there. • Embed assurance into your contracts. Exercise control and work to build trust between stakeholders. Ask yourself... • Are we aware of — and responding to — issues raised about our company in social networks? • Can we monitor the impact of our activities on various stakeholders to help guide our consumer strategies? • Do our consumers trust us? If so, are we leveraging that trust to create competitive advantage? If not, why not? • Are we willing to be more transparent in communicating our business activities and results with all stakeholders? • Once established in a faraway market, are we staying focussed on local economic and consumer trends? • Is our supply chain geared towards helping us fulfil our most important value propositions? • Has our supply chain become so complex that we’re losing oversight of our risks with supply chain partners? • Do we have enough redundancies built in to our supply chain to match shifting consumer demand? • Do we deeply understand the diverse perspectives and priorities of our customers? Do we know what they think of us, across different cultures and societies?
  • 10. Mark Ambler +44 (0) 20 721 31591 mark.d.ambler@uk.pwc.com PwC UK Tom Beagent +44 (0) 20 721 23493 tom.beagent@uk.pwc.com PwC UK Andrew Thurley +44 (0) 20 721 26503 andrew.thurley@uk.pwc.com PwC UK www.pwc.com PwC firms help organisations and individuals create the value they’re looking for. We’re a network of firms in 158 countries with close to 169,000 people who are committed to delivering quality in assurance, tax and advisory services. Tell us what matters to you and find out more by visiting us at www.pwc.com. This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, PricewaterhouseCoopers does not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it. © 2014 PwC. All rights reserved. Not for further distribution without the permission of PwC. “PwC” refers to the network of member firms of PricewaterhouseCoopers International Limited (PwCIL), or, as the context requires, individual member firms of the PwC network. Each member firm is a separate legal entity and does not act as agent of PwCIL or any other member firm. PwCIL does not provide any services to clients. PwCIL is not responsible or liable for the acts or omissions of any of its member firms nor can it control the exercise of their professional judgment or bind them in any way. No member firm is responsible or liable for the acts or omissions of any other member firm nor can it control the exercise of another member firm’s professional judgment or bind another member firm or PwCIL in any way. DT-14-0092 vlw Author Publishers Dennis Chesley Global Risk Consulting Leader PwC US Miles Everson US Advisory Leader PwC US Juan Pujadas Vice Chairman, Global Advisory Services PricewaterhouseCoopers International Ltd. Marco Amitrano Global Risk Assurance Leader PwC Netherlands Rick Stamm Vice Chairman, Global Tax Services, PricewaterhouseCoopers International Ltd. Michael Rendell Human Resource Services Leader PwC UK Executive Editors Robert G. Eccles Professor of Management Practice Harvard Business School Christopher Michaelson Director, Strategy and Risk Institute, PwC Global Advisory Associate Professor, University of St. Thomas Opus College of Business Managing Editor Rania Adwan +1 (646) 471 5116 rania.adwan@us.pwc.com PwC US Production Editor Shannon Schreibman +1 (646) 471 1102 shannon.schreibman@us.pwc.com PwC US Resilience Resilience: A journal of strategy and risk Special thanks to the following parties for their production and editorial assistance: Elaine Aitken, Justine Brown, Lisa Cockette, Jennifer Duck, Marc Farre, Tracy Fulham, Emily Litz, Joanna Malvern, Jill Peacock, Julie Szydlowski and Gautam Verma