This document is an issue of the PricewaterhouseCoopers publication "View" from winter 2008. It contains articles on topics related to business such as achieving business agility, maximizing talent, health care reform, and an interview with futurist Andrew Zolli. The editorial introduces the new format and approach of View to keep up with changes in business. It also emphasizes the publication's focus on issues that concern business executives as they navigate forces of change.

1. view
In this issue
22
Achieving business
agility
38
Maximizing talent
winter 08
46
Interview with
Andrew Zolli
and more...
Healthy
choices?
What election-year healthcare reform proposals mean
for the future of employer-sponsored health insurance 10

2. Departments
3
A new view Business success
in the 21st century
Tom Craren
4
My view The key to 21st-century
competitiveness: Finding the right people
Dennis Nally
52
Your view On constant change
View points
6
Solving the tech waste problem
7
Syncing up on info security
8
Joining the consumer conversation
9
The business of bribes
9
International assignments
Features
10
Cover story
22
Change agents Just whose job is it to
Healthy choices? What do election-year ensure your business can keep pace with
healthcare reform proposals mean for customers, competitors, and suppliers?
the future of employer-sponsored health Randy Browning
insurance? Sandy Lutz, Benjamin Isgur,
and Jeffrey Gartland

3. It’s time to check up on how election-year healthcare reform
will affect employers, page 10.
30
One global flavor A US move to
38
Maximizing talent There are strategies
46
Interview
International Financial Reporting for making the most of your people Piercing the veil Andrew Zolli looks
Standards is inevitable. All companies no matter what tomorrow brings. at the future of business and of the
should think strategically about this Steve Rimmer, Karen Vander Linde, world. Interview by Tom Craren and
change and begin to understand Dolores Wilverding, and Warren Cinnick Gene Zasadinski
the impact now. Raymond J. Beier

4. view
winter 08
Editorial Contributors
Editorial Director In addition to our authors, we thank the following individuals for their contributions
Tom Craren to this issue of View:
View points
Managing Editor
Deborah K. Bothun, Principal, Advisory Services, Global Digital Convergence Leader
Gene Zasadinski
Charles Hacker, Partner, Advisory Services, Investigations
Assistant Managing Editor
Neil Keenan, Director, Advisory Services, Investigations
Christine Wendin
Mark Lobel, Partner, Advisory Services, Security
Assistant Editor
Mitchell Schuckman, Partner, International Assignment Services
Reena Vadehra
Steven Skalak, Partner, Advisory Services, US and Global Investigations Leader
Online
Business agility
Director, Online Marketing Bo Parker, Managing Director, Center for Technology and Innovation
Jack Teuber
International Financial Reporting Standards
Designer and Producer Sara DeSmith, Partner, National Professional Services Group, Global Accounting
Joe Breen Consulting Services
Design Photography
Odgis + Company Corbis, David Doubilet, Bill Gallery, Getty Images, Matt Goins, Vance Jacobs,
JupiterImages, Kit Kittle, National Geographic Image Collection, Reuters Pictures,
Creative Director
and Leonard Rubenstein
Janet Odgis
Designers
Banu Berker
Rhian Swierat
To request additional copies of View or to comment: www.pwc.com/view.
PricewaterhouseCoopers (www.pwc.com) provides industry-focused assurance, tax and advisory
services to build public trust and enhance value for its clients and their stakeholders. More than 146,000
people in 150 countries across our network share their thinking, experience, and solutions to develop fresh
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© 2008 PricewaterhouseCoopers LLP. All rights reserved.
“PricewaterhouseCoopers” refers to PricewaterhouseCoopers LLP (a Delaware limited liability partnership)
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PricewaterhouseCoopers View winter 08

5. Business success
A new view
in the 1st century
According to naturalist and evolutionary As it does to 21st-century business,
theorist Charles Darwin, “It is not the change also applies to View. With a new
strongest of the species that survive, nor design, a new format, a new editorial
the most intelligent, but the one most approach, and an enhanced online pres-
responsive to change.” Whether his words ence, View is evolving to keep pace with
accurately describe biological processes a changing business environment.
is still a matter of heated debate. But there
is no debate about their applicability to In line with those changes, we intend to
21st-century business: Complex forces consistently offer business executives
of change are at work, and only those like you straight talk on subjects that
companies flexible enough to respond matter. Topics in this issue include health-
appropriately will survive and prosper. care policy, agility, International Financial
Reporting Standards, and strategies for
Addressing these forces of change is what finding and maximizing talent. And there’s
View is all about. In each issue we share also an interview with noted futurist
insights into challenges that most concern Andrew Zolli.
you and that affect your success—chal-
lenges such as embedding agility into We hope you enjoy this issue of View and
your company and making change stick; that you’ll come back often. We promise
discovering opportunities inherent in some to be a friendly, reliable, informative, and
risk; attracting and maintaining talent; entertaining place for you to check in on
maximizing your corporate social respon- and track the trends and issues that interest
sibility efforts; disarming complexity; and and concern you most, not just today,
fostering innovation and collaboration. but over time as well. We know your expec-
tations are high. We wouldn’t have it any
other way. You can be sure that we’ll deliver.
Sincerely,
Tom Craren
Partner-in-Charge
US Thought Leadership
PricewaterhouseCoopers View winter 08

6. The key to 1st-century
My view
Dennis Nally
competitiveness
Finding the right people
In today’s knowledge-based economy, talent
will be the defining competitive advantage.
And companies that want to succeed are
dramatically rethinking the way they find,
develop, and hold on to talent.
PricewaterhouseCoopers View winter 08

7. In today’s leading organizations, there is no We can start by increasing the visa cap for want us. Yes, that’s right, want us. Today’s
question that talent—finding it, developing international professionals who want to recruits have expectations about the
it, and retaining it—affects success more work in the US. This year, for the first time companies they want to work for. They are
directly than any other single factor. It also in history, the visa cap was reached on the looking for commitments to integrity, to
is among the greatest causes of concern. first day of filing. Applications arriving after social responsibility, and to flexibility. And
day-one were denied. they are in a position to demand this and
Our 11th Annual Global CEO Survey bears more. Companies that meet and exceed
this out. While 89 percent of CEOs assert This and other policies and approaches to these demands will win. Those that don’t
that their companies’ people agendas education and to developing talent need to will fall behind.
are among their top priorities, 61 percent change. I firmly believe that to maintain its
express concern over the availability of competitive edge, America must become Some companies will find that coping with
key skills. In addition, 62 percent maintain a magnet for talent. But until this happens, these new realities is difficult. Others will
that their organizations need to change we can’t just sit on the sidelines. We’ve pretend they don’t exist and continue on
the way they recruit, motivate, and got to find and cultivate talent in our own with the old ways. However, organizations
develop employees. backyards. We’ve got to recruit students that succeed will be those that neither
at an earlier age. And we’ve got to learn ignore change nor fear it. Rather, they will
Responses such as these to questions how to use newer technologies such as be those that respond to change and turn
about what, a decade ago, was a yawn- mobile email and text messaging as pow- it to their advantage.
inducing issue suggest that a fundamental erful, new recruiting tools. We also need to
shift has occurred. Perhaps more than any fully exploit rich sources of new talent And that’s my view.
other aspect of business, the competition such as virtual online communities and
for talent has changed profoundly. social networks. Dennis Nally is chairman and senior partner of
PricewaterhouseCoopers LLP. In the next issue of
The reasons are not difficult to find. They But most important, we have to find ways View, he continues to examine this critical issue and
are related directly to globalization and to of ensuring that the people we want also offers his insights on developing and retaining talent.
changes in demographics and technology.
89%
Finding the right people
There was a time—at least in the account-
ing profession—when the only talent you
needed involved understanding a balance
sheet and an income statement. Those
days are long gone.
Today, we look for people not only with of CEOs assert that their companies’ people agendas are among
technical skills, but with integrity as well.
We also look for people with diverse back- their top priorities.
6%
grounds and cultures—people who bring a
broader understanding of the world around
them. Without such people, a company
cannot compete globally.
However, tapping into this type of work-
force is easier said than accomplished, and
business leaders must work proactively to of CEOs maintain that their organizations need to change the
remove obstacles. But what can be done? way they recruit, motivate, and develop employees.
PricewaterhouseCoopers View winter 08

8. View points
Corporate social responsibility
Solving the tech waste problem
For businesses across the United States, burden of its products—a burden shoul- Research’s November 2007 report titled In
yesterday’s technology has become dered by its corporate customers. A Search of Green Technology Consumers—
tomorrow’s problem. The millions of com- recent study by PricewaterhouseCoopers which covered American attitudes toward
puters, printers, and other gadgets that are surveyed tech industry senior executives green technology—only 12 percent of
commonplace in any office—and that we on their companies’ attitudes and policies respondents agree that they would pay
steadfastly rely on to conduct business— on environmentalism. When asked which extra for consumer electronics that used
can become threats when we discard them. factors were most important in their com- less energy or came from a company that
panies’ environmental decision making, was environmentally friendly. Forty-one
In the United States alone, approximately nearly half of the respondents cited “meet- percent said that though they are con-
2 million tons of e-waste is tossed into ing customer expectations/requirements,” cerned about the environment, they do not
landfills, poisoning the air and the land and but energy savings and regulatory compli- strongly agree that they would pay more
exposing people to dangerous toxins. In ance had an even greater impact on their for environmentally friendly electronics.
addition, all that hardware—especially data environmentally focused pursuits.1
centers that house a company’s informa- Despite this disconnect, many technol-
tion lifeblood—is eating up a lot of energy. So, can customers expect more green ogy companies have jumped on the green
In fact, 50 percent of the energy consumed products when a company’s next bandwagon. For instance, Sony is creating
in a data center is used just to cool down upgrade cycle rolls around? According to an e-waste drop-off facility where anyone
the network system. PricewaterhouseCoopers/National Venture can recycle unwanted electronics. And
Capital Association MoneyTree™ Report many technology companies are collabo-
Along with these practical problems, com- based on data from Thomson Financial, rating with smaller organizations to develop
panies face the challenge of going green venture capitalists invested in 2007 almost and promulgate more environmentally
and reducing their carbon footprints. This $2.2 billion in companies that make green friendly processes.
is becoming important as public interest in tech products. That investment is more
environmentalism increases and as more than the amount spent on green technology Such initiatives and collaborations are
organizations want to position themselves companies in 2006 and 2005 combined. pivotal for making green technology
as socially responsible businesses. a reality for any business. They reduce
While such numbers are impressive, a energy costs and provide an alternative
The technology industry is beginning to considerable amount of resistance to to junking used hardware.
recognize and address the environmental green tech products still exists. In Forrester
1 Technology Executive Connections: Going Green: Sustainable
Growth Strategies, PricewaterhouseCoopers, 2008.
Motivation for environmental decision making
Percent of tech company executives surveyed
70
60.1
60
50.7
50
44.6 43.2
40
30
20 17.6
14.9 14.2
10 8.8
3.4
0
Potential Complying with Meeting Potential Obtaining Matching the Attracting and Meeting Don’t know/
cost savings environmental customer for gaining tax incentives environmentally retaining staff investor/ Not applicable
from energy legislation and expectations/ competitive focused actions shareholder
efficiency regulation requirements advantage of competitors demands
Source: Technology Executive Connections: Going Green: Sustainable Growth Strategies, PricewaterhouseCoopers, 2008
6 PricewaterhouseCoopers View winter 08

9. CEOs, CIOs, and CSOs differ in their attitudes
about business security matters.
Managing risk
Syncing up on info security
Executive views on security attacks
Percent of senior executives surveyed
100
83
80
71 74
65
60 53
50
44 43
40
38
CEO
20
CIO
CISO/CSO
0
An employee or A hacker as the Fewer than 10 security
former employee as source of an attack attacks in the past year
the source of an attack
Source: Fifth Annual Global State of Information Security Survey 2007, CIO, CSO and PricewaterhouseCoopers
CEOs worldwide might want to sit down page concerning the number one priority Despite security and technology execu-
with their information and security offi- for company information security efforts: tives’ growing awareness of the true
cers to discuss their differing perceptions maintaining business continuity and alle- nature of security threats, an overwhelm-
of risk. According to a recent global viating risk. CSOs, however, place greater ing number of CEOs still say hackers—not
information security survey conducted emphasis on regulatory compliance. employees—are the culprits who should
by CIO magazine, CSO magazine, and be targeted. However, CEOs believe more
PricewaterhouseCoopers, CEOs, CIOs Perhaps the most interesting finding con- so than their security counterparts that
(chief information officers), and CISOs cerns a change in perception with regard their organizations are secure and have
(chief information security officers) or to the source of security threats—an area experienced few attacks.
CSOs (chief security officers) differ in their that the survey has tracked for five years.
attitudes about business security matters. Today, CIOs and CSOs say former and So, how can these differences be rec-
The survey concluded that many CEOs are current employees are more likely sources onciled? The survey data leads to what
far more confident about their companies’ of security attacks than outsiders are. And is perhaps a counterintuitive conclusion.
security than their information technology they report that email and abused user While information security strategies need
(IT) and security leaders are. accounts are the most common methods to include technical approaches, such
of employee attacks. This change, however, technical approaches may not lead to the
Typically lacking in-depth technical knowl- does not suggest an increase in corporate whole solution. More extensive or wider
edge with regard to IT, CEOs naturally crime over the past few years. Rather, it information sharing between an organiza-
have different perspectives on information points to possible cracks that have devel- tion’s top executives could turn out to be
security from those of the executive team oped in information security infrastructure, equally if not more important.
members who manage these functions. and it indicates a greater awareness of the
Even so, CEOs and CIOs are on the same changing nature of security attacks.
PricewaterhouseCoopers View winter 08

10. View points
Operational excellence
Joining the consumer conversation
If you think surfing the Web is better suited consumer conversation, along with more How companies better understand their
to the home office than to the corner one, traditional customer information, into its customers and markets
think again. operations. Millions of Internet-savvy Engage with 2%
consumers are now able to (1) instantly customers 6%
Consider this scenario. Your company provide feedback via email and text via the Web
recently launched a product, and the messages, (2) deeply discuss products 39% 53%
buzz surrounding the innovation has been and services on message boards, and
rising steadily. Shortly after the launch, a (3) broadcast their opinions on blogs
hazardous defect was detected. You do and social networking sites. This largely
the damage control drill—recalling the untapped chatter constitutes consumer
product, reaching out to the media, and conversation—reflecting the attitudes,
gauging customer reactions through your behaviors, and intentions of consumers.1 Monitor customers’ 3%
call center and focus groups. You hope online behavior and 9%
your collective response is enough to The massive volume and rapid pace of preferences 31%
minimize damage, but you’ve overlooked online activity make getting a handle on this
one important thing: online consumer fertile ground problematic. Hiring the right
conversations. Damage was brewing in people and finding the right tools to analyze
blogs and message boards as angry con- 57%
business intelligence based on consumer
sumers dissected your product’s downfall conversation are critical. According to
and debated alternatives. If only you had PwC’s Management Barometer, which reg-
been listening, your company could have ularly surveys senior executives on crucial Mine open-ended
responded proactively. 3%
business issues, 31 percent of respondents comments from
13%
monitor their customers’ online behavior on service and
The world of digital communications a regular basis. Fifty-three percent say their support calls 42%
is burgeoning, and for any business to companies use online devices to engage
succeed, it must embed this kind of digital with their customers.2 42%
A consumer electronics company real-
ized the benefits of this approach when its
new product was not selling as robustly Understand views 3%
as expected. Through analyzing online of key influencers
12%
consumer conversations, the company (advisory boards,
discovered that many customers thought experts)
55%
the product was incompatible with other 30%
brands. After the company changed its
marketing campaign, the product went
on to become a top seller.
As this example demonstrates, compa- Collect and analyze 2%
nies that engage in digital conversation observations by 3%
14%
by analyzing and integrating the findings employees who
with other customer data, and, ultimately, interact with or
by embedding this intelligence will be well observe customers
positioned to drive business transformation 81%
and gain competitive advantage.
1 PricewaterhouseCoopers, How Consumer Conversation Will
Yes No Not certain Not applicable
Transform Business, January 2008.
2 PricewaterhouseCoopers Management Barometer: Consumer Source: PricewaterhouseCoopers Management Barometer:
Conversations, January 2008. Consumer Conversations, January 2008
8 PricewaterhouseCoopers View winter 08

11. Global mobility
International
assignments
Economic crime North American companies reported having Money doesn’t always make the world go
been asked to pay a bribe in their home ’round. Organizations are discovering that
The business of bribes region, as opposed to 21 to 54 percent of it takes more than high salaries to attract
companies doing business in E7 countries. the best potential candidates to interna-
Interestingly, the survey also found that tional assignments.
companies asked to pay kickbacks were
more likely to lose deals to competitors that Recent studies we have undertaken sug-
were not asked to pay bribes. gest that the nature of global mobility is
This is the deal your company needs to changing.1 Whereas in the past, busi-
secure a position in a vital emerging mar- Why do businesses that succumb to nesses were interested mainly in hiring
ket. In the middle of negotiations, you’ve bribery suffer losses? The study suggests experienced staff from the West, today’s
been asked to grant a “commission” to that organizations known to be ethical are expatriates are being recruited from around
secure the contract. Should you pay— less likely to be approached with requests the world. They include younger, less ex-
just this once? for illicit money. Corrupt individuals prefer perienced workers, who serve for various
to deal with companies whose ethical lengths of time. In fact, in an effort to re-
According to a recent PwC study on global standards are ambiguous. In addition, duce costs, a growing number of organiza-
economic crime, corporate bribery rarely business relationships based on illegal tions have developed program alternatives
has positive results. transactions are not likely to focus on qual- to the traditional expatriate assignment.
ity and price—an indicator that the market Almost half the companies we surveyed
For our 4th Biennial Global Economic Crime is not operating according to competi- employ permanent transfers; about 20
Survey, we interviewed more than 5,400 tive norms. And companies in the E7 that percent send employees on short-term
companies in 40 countries and found that had implemented effective anticorruption assignments; and a small percentage use
companies in E7 countries (Brazil, China, controls and strong, clearly understood virtual staff where the employee does
India, Indonesia, Mexico, Russia, and ethical guidelines said they suffered up to not relocate but has responsibilities for
Turkey) reported higher incidences of being 50 percent fewer incidents of corruption a foreign office.
asked to pay a bribe.1 Only 3 percent of than other companies.
Changes are also occurring in the area of
In short, the study supports the old adage staff incentives to move abroad. It’s no
1 PricewaterhouseCoopers 4th Biennial Global Economic Crime
that honesty is the best policy when doing longer enough to simply increase salaries or
Survey - Economic crime: people, culture and controls, 2007. business in any market. provide other monetary perks. Employees
want a total package that delivers a cul-
tural education, keeps spouses happy, and
sets out reasonable career expectations.
Lost business opportunities in emerging markets The costs of sending employees and their
families abroad are high. If an employee is
Percent of companies surveyed
80
unhappy in the new environment, he or she
71 70 can jeopardize an overseas project. By im-
70 66 proving the help that employees get prior to
63
60 58 Companies and during their international assignment,
asked to pay
50 45 47 a bribe and lost companies can maximize their investments
an opportunity in the development of global talent.
40
31 Companies
30 never asked
23 21 to pay a bribe
20 18 17 18 and lost an
14 opportunity
10 8 6
Source:
0 4th Biennial 1 International assignment perspectives: Critical issues facing the
Brazil China India Indonesia Mexico North Russia Turkey Global Economic globally mobile workforce, PricewaterhouseCoopers, July 2007.
America Crime Survey
PricewaterhouseCoopers View winter 08 9

12. Cover story
Healthy choices?
PricewaterhouseCoopers View winter 08

13. What election-year
healthcare reform proposals
mean for the future of
employer-sponsored health
insurance
By Sandy Lutz, Benjamin Isgur, and Jeffrey Gartland
As the presidential campaign reaches a fever pitch, candidates on
both sides of the aisle are promulgating their positions on every-
thing from fiscal policy to the war in Iraq. One of the most closely
followed public debates centers on healthcare reform. Although
all voters have a vested interest in the discussion, voters who are
also employers may be most affected by its outcome.
If you are an employer, spiraling healthcare costs are eating
away at your bottom line. According to the US Census Bureau,
177 million Americans rely on employer-sponsored insurance
for their health coverage. At 16 percent of the US economy and
growing, healthcare is big business—maybe even your business.
Moreover, the health plan options companies offer have become
key factors in employee recruitment and retention. Current (and
prospective) employees are asking a number of questions. How
comprehensive is the existing coverage? How many choices
do I have? How much is it costing (going to cost) me? Can I do
better elsewhere?
It’s no wonder, then, that healthcare consistently ranks as one of
the top domestic policy issues on the minds of Americans and
that during election years healthcare policy becomes a focal point.
(See Figure 1.) Employers, employees, and politicians alike agree
that the system is not sustainable and that there is no clear path
ahead. As one might expect, Democrats differ from Republicans
in their respective approaches to healthcare reform. Generally,
Democrats favor broader and more immediate changes through
legislation, while their Republican counterparts focus primarily on
changes to tax policy as the means of transforming the system.
PricewaterhouseCoopers View winter 08 11

14. However, all of the major candidates agree For US businesses, too, the significant income for tax and payroll purposes. In fact,
that a single-payer model is not tenable and cost of healthcare is a major concern, one recent study found that employees
that going forward, our healthcare system particularly when one considers that would rather receive thousands of dollars
will continue to be a public-private partner- while just 61 percent of US businesses in employer-sponsored insurance benefits
ship. Just what that partnership will look offer health insurance to at least some than the same amount in additional salary.
like is the key question. And top of mind for employees, a whopping 98 percent of (See Figure 4.)
employers is cutting through the election- large businesses (those with 200 or more
year hype and determining what it really workers) do the same.3 Employers typically The future course for employer-sponsored
means to the future of their businesses. spend upwards of 10 percent of payroll insurance may depend largely on the
on health insurance for their workers. (See policies initiated by the next president of
Scoping the problem Figure 3.) Taken in aggregate, that’s a huge the United States. A new leader will help
number—nearly $600 billion, according to decide important policy questions con-
Healthcare spending has been increasing at
the US Department of Commerce’s Bureau cerning covering the uninsured, improving
about twice the rate of inflation, absorbing
of Economic Analysis. the quality of care, and using taxes and
a larger and larger share of both employers’
other mechanisms to fund coverage. Pro-
profits and workers’ salaries. (See Figure 2.)
It wasn’t always that way. Employer- posals run the gamut from mandating that
For employees, healthcare cost is the top
sponsored insurance was introduced dur- all employers provide coverage to doing
financial concern facing American fami-
ing World War II as a relatively inexpensive away with employer responsibility alto-
lies, ranking higher than home ownership,
way to recruit and retain employees in a gether. The major differences among the
energy costs, debt, retirement savings, and
tight labor market where wages were frozen possible approaches involve the following
college expenses, according to a recent
by the federal government. Americans broad categories: employer mandates,
Gallup Poll.1 The problem is compounded
quickly became accustomed to healthcare government and worker responsibility,
because the high cost of healthcare in the
coverage as a benefit of employment. They retiree coverage, tax policy, market
United States is directly related to growth in
have also gotten used to the favorable tax reforms, and cost control. (For a snap-
the number of uninsured people, especially
treatment of employer-sponsored insur- shot of the Democratic and Republican
when premium increases exceed personal
ance benefits under current law, in which approaches to healthcare, see “Opposing
income growth, thus making insurance
the premiums are excluded from their views,” beginning on page 20.)
less affordable.2
1 Gallup Organization, What Is the Most Important Financial Problem Facing Your Family Today? Gallup Poll Social Series, July 12–15, 2007.
2 Todd Gilmer and Richard Kronick, “It’s the Premiums, Stupid: Projections of the Uninsured through 2013,” Health Affairs, vol. 25, no. 6 (2006).
3 The Kaiser Family Foundation and Health Research and Educational Trust, Employer Health Benefits: 2007 Summary of Findings, September 2007.
1 PricewaterhouseCoopers View winter 08

15. Figure 1: America’s big concern Percent of Americans surveyed, citing healthcare as the nation’s most important problem
1991
1992
1994
1996
1997
1993
1995
2007
1998
1999
2000
2001
2002
2003
2004
2005
2006
30
25
20
15
10
5
J FMAMJ J A S OND J FMAMJ J A S OND J FMAMJ J A S OND J FMAMJ J A S OND J FMAMJ J A S OND J FMAMJ J A S OND J FMAMJ J A S OND J FMAMJ J A S OND J FMAMJ J A S OND J FMAMJ J A S OND J FMAMJ J A S OND J FMAMJ J A S OND J FMAMJ J A S OND J FMAMJ J A S OND J FMAMJ J A S OND J FMAMJ J A S OND J FMAMJ J A S
1992 1996 2000 2004 2008
Presidential Elections Presidential Elections Presidential Elections Presidential Elections Presidential
Elections
Clinton’s Task Force on
National Health Care Reform
Source: PricewaterhouseCoopers, Beyond the Sound Bite, 2007, based upon PwC Health Research Institute analysis of Gallup’s Most Important Problem series, October
11-14, 1990 through September 14-16, 2007
Figure : Healthcare’s growing 80
share of consumer spending
Percent change in wallet share of 70
personal consumption components
60
50
40
30
20
10
0 Medical care
Services, excluding
–10 medical care
Source: PricewaterhouseCoopers, Beyond –20 Durable goods
the Sound Bite, 2007, based upon PwC Nondurable goods
Health Research Institute analysis of data –30
from the Bureau of Economic Analysis,
“Personal Consumption Components,” 2007 1980 1985 1990 1995 2000 2005
Figure : Rising employer Figure : Health insurance trumps pay increases
healthcare costs Employer Percent of respondents who would rather have
premium contributions as a $6,700 in employer-sponsored health insurance—
share of payroll the average amount spent by employers on each
employee at the time of the survey—over the same
amount in additional taxable income
5%
20%
10.7%
9.8%
Prefer employer-
75% sponsored insurance
8.0% Prefer higher pay
Don’t know
Source: R. Helman and P. Fronstin, 2006 Health Confidence
Survey: Dissatisfaction with Health Care System Doubles Since
1996 2000 2003 2005 1998, EBRI (Employee Benefit Research Institute) Notes, vol. 27,
no. 11, November 2006, and earlier publications based on the
Source: Bureau of Labor Statistics’ Research Data Center, Employment Cost Index, data accessed from February 2006 to April 2007 EBRI Health Confidence Survey
PricewaterhouseCoopers View winter 08 1

16. Figure : Employer attitudes changing on providing coverage
Percent of respondents who say employers should move away from
providing healthcare coverage for active employees
6%
7%
Disagree
87% Agree
Neither
PricewaterhouseCoopers Health Research Institute, Tailoring the approach: Employer attitudes
and healthcare strategies address distinct issues, 2007
Pay, play—or no way
Figure 6: Overview of existing state employer mandates According to our analysis of US Census
Bureau data, 47 million Americans—more
Vermont
Catamount Health
than 15 percent of the population—do
Employers that do not offer health insur- not have health insurance. Of those, a full
ance, that offer health insurance only to two-thirds have a connection to a full-time
some employees, or that have uninsured job; that is, they either hold full-time jobs
employees must pay a quarterly assess- or are dependents of those who do. Given
ment fee of $1 per day per full-time these statistics, it is not surprising that
equivalent (FTE). FTE exceptions will be
made through 2010. The employer assess-
both of the major political parties consider
ment rate will be raised at the same rate addressing the working uninsured to be a
as Catamount Health premiums. high priority.
To expand access to care, proposals
from the leading Democratic candidates
require employers to provide worker health
coverage. This approach, often referred to
as pay or play, encourages employers to
fund employee health insurance by taxing
employers that do not.
The Democratic mandates strengthen and
expand the employer’s role in the health-
care market. Today, however, many large
companies agree that employers must
offer a minimum level of coverage. In a
recent PricewaterhouseCoopers survey,
150 US executives at large, publicly held
companies agree, with 87 percent reject-
ing the notion that employers should not
provide such coverage. (See Figure 5.)
Since 2005, 31 states have proposed
Hawaii Massachusetts a form of pay or play, and employer
Prepaid Health Care Act Act providing access to affordable, mandates have already been enacted in
Employers must provide health insurance for quality, and accountable healthcare
employees working over 20 hours per week. Employers must enroll at least one-fourth
Hawaii, Massachusetts, and Vermont.
Employers must contribute 50 percent of the pre- of employees in an employer-sponsored (See Figure 6.) In Massachusetts, employ-
mium for single coverage and the employee covers plan or pay at least one-third of employee ers with at least 10 workers pay each
the additional portion of the premium. Employee healthcare premium costs. Penalities for worker $295 per year if they do not make
contribution is not to exceed 1.5 percent of wages. failure to adhere to the mandate are $295 a “fair and reasonable” contribution to the
per employee per year. cost of workers’ coverage. In this case,
fair and reasonable means either enrolling
25 percent or more of full-time equivalents
Employer mandate passed (FTEs) in the employer’s plan or offering to
pay at least 33 percent of FTEs’ premiums.
Source: National Conference of State Legislatures Universal Employer mandate attempted 2005, 2006, or 2007
Health Care Action Network and Progressive State Network,
Towards Health Care for All in the States, September 19, 2007 No mandate being considered at this time
1 PricewaterhouseCoopers View winter 08

17. An individual mandate could coexist with an
employer mandate, potentially offering workers
affordable coverage options both through their
employers and in the individual market.
The mandate proposals generally estab- for by the government and administered by tend to believe that existing government
lish a minimum employer contribution. For private plans. Other Democratic proposals programs are underutilized. Rather than
example, if an employer currently pays include (1) a new government health insur- expanding government programs, leading
at least 6 percent of payroll costs toward ance option wherein individuals could Republicans would prefer that the gov-
employee health insurance, the employer purchase coverage (the program would ernment focus on enrolling uninsured
would be exempt from any further contri- be modeled after Medicare but not funded Americans who are eligible for Medicaid
bution. If the employer provides no health through the Medicare trust fund); (2) a new and for SCHIP but who haven’t signed up.
insurance or pays less than 6 percent of program that would mirror the Federal
payroll, the employer would have to con- Employees Health Benefits Program and Both parties advocate changing the
tribute to a public pool that brings the total make the same private insurance options individual’s role in the healthcare system.
contribution up to 6 percent of payroll. The enjoyed by federal employees available Democrats would start with an individual
public pool would then subsidize coverage to all Americans; and (3) the development mandate—that is, with a requirement that
for the uninsured. of a national health insurance exchange individuals procure health insurance similar
that would set standards for participating to the requirement in many states that
Generally speaking, Republicans do not plans and facilitate the purchasing of individuals procure automobile insurance.
support this approach. They oppose individual coverage. An individual mandate could coexist with
additional federal regulations on the health an employer mandate, potentially offer-
industry and specifically reject mandates. Republicans support proposals that would ing workers affordable coverage options
They counter that an employer mandate strengthen the individual insurance market both through their employers and in the
may not be effective unless the penalty is by extending to that market some of the individual market. Individual mandates
high enough to make purchasing coverage favorable tax treatment that is currently could be supported by new rules like
attractive. Some critics add that mandates available only for employer-group cover- guaranteed insurability and community
might cause employers to hire more part- age. Strengthening the individual market rating, which consist of pricing everyone
time or temporary workers who would not would not only provide tax support in a given geography the same, thereby
be subject to mandates. for people who do not have access to creating a large pool that spreads the
employer coverage; it would also offer risk. Together, guaranteed insurability and
Changing government and worker roles more insurance-product choices to community rating facilitate portability of
employees who currently are limited to just insurance—something both parties agree
Bolstering or diminishing the employer’s
one or two health plans. Also, Republicans on. A variation on this approach involves
role in healthcare is just one lever that is
being used to address healthcare reform.
How the parties see the responsibility of
the federal government and the respon-
sibility of individuals is another key issue
that also gets at the problem—and directly
impacts employers.
Democrats generally favor expanding
government programs such as Medicaid
and the State Children’s Health Insurance
Program (SCHIP). Many support a new
government-sponsored health insurance
program wherein individuals could pur-
chase coverage. This could benefit health
plans if the program were structured like
the Medicare drug benefit, which is paid
PricewaterhouseCoopers View winter 08 1

18. Health costs
600 1
billion USD is the amount
employers spend on health
million Americans rely on
employer-sponsored insurance
million Americans, more than
15 percent of the population,
insurance for their workers, for their health coverage. do not have health insurance.
upwards of 10 percent Of those, a full two-thirds have
of payroll. a connection to a full-time job.
PricewaterhouseCoopers View winter 08

19. Even employers that believe they have a
responsibility to provide health coverage
access for retirees also feel there are limits
to that responsibility.
an individual mandate only for children that by employers—a level that commonly
is supported through expanded govern- approaches annual family premiums of
ment programs. $15,000 or more.
Republicans oppose individual as well as Whichever coverage proposals prevail,
employer mandates. They argue that an they will affect employers. On one hand,
individual mandate may not be effective public-plan options may crowd out private
unless it is coupled with a severe penalty insurance if insured individuals drop their
for those who do not enroll in a plan. For private coverage in favor of less expensive
example, in Massachusetts—a state that government coverage. Or employers—
currently has an individual mandate—the especially employers of low-wage
penalty is loss of the individual exemp- workers—may decide not to offer insur-
tion. However, the value of the $3,500 ance when public alternatives are readily
tax exemption ranges from $0 (for lower- available. On the other hand, any plan that
income individuals not paying taxes) to covers more people may have the effect
$1,225 (for individuals in the 35 percent of lowering overall insurance premiums,
tax bracket). Given that the average annual a trend that could benefit employers.
premium cost of single coverage exceeds
$4,000, the penalty might not encour- The retiree dilemma
age many of the uninsured to purchase
Covering active workers and their depen-
insurance. In practice, a mandate would
dents is one thing, but what about the
likely be limited to those who can reason-
burden of providing coverage for retirees?
ably be expected to afford private health
Even employers that believe they have
insurance. Unless significant subsidies
a responsibility to provide health cover-
are provided for middle-income uninsured
age access for retirees also feel there are
people, such individuals cannot afford to
limits to that responsibility. In a recent PwC
purchase the level of insurance provided
survey, employers were less than certain
about their future support for retiree health
coverage. When asked to describe their
views on the topic, nearly three-quarters
said retiree health coverage is placing
Figure : Employer attitudes on retiree health coverage In describing your views about financial pressure on companies and that
retiree health coverage, do you agree at least somewhat with the following statements? such coverage will need to be changed
Percent agreeing through reduced employer contributions
and benefit caps. However, employers
Retiree health coverage is placing do show strong support for assisting
financial pressure on companies and
will need to be changed via reduced 73 employees in managing their own
employer contributions and benefit caps retirement health and associated costs.
Employers should help provide For example, nearly 80 percent support
access to affordable retiree health 74 providing retirees with savings account
coverage but not necessarily fund it
mechanisms, tax incentives, and access
Employees should set aside money to coverage even if they do not fund it.
during their active employment years 79 (See Figure 7.)
to fund their retirement healthcare needs
The parties’ proposals on retiree healthcare
There should be more tax incentives
for employees to set aside money to 80
closely mirror their positions on increasing
fund their retirement healthcare needs healthcare coverage in general. The
Source: PricewaterhouseCoopers Health Research Institute, Tailoring the approach: Employer attitudes and healthcare
strategies address distinct issues, 2007
PricewaterhouseCoopers View winter 08 1

20. Democrats would bring retirees into the sys- their own, affordable policies without help individual coverage more attractive and
tem either by expanding existing programs, from employers. This approach weakens begin to disentangle health insurance
by prepurchasing retiree healthcare cover- the connection between insurance from employment.
age, or by using health markets to increase and employment.
access. The Republicans favor tax incen- Under the Republican plan, people
tives through the expansion or modification The Republican plans extend the approach who purchase coverage costing less
of health savings accounts (HSAs). that President George W. Bush proposed than the deduction amounts would still
in his fiscal year 2008 budget: Contribu- receive the full value of the deduction,
Tax reformers and market makers tions to employer-sponsored insurance are which could influence individuals to shop
included in wages and therefore subject for the most basic coverage. However,
Instead of employer or individual mandates,
to income and payroll taxes. In exchange, the proposal would offer few incentives to
Republicans generally support changes
the president’s proposal would provide low-income earners who have no or little
to tax policy to stimulate a more robust
a standard deduction of $7,500 for all tax income liability. The administration
individual insurance market. Their theory
insured individuals and $15,000 for insured estimated that its proposal would reduce
is that with attractive rates and policies,
families. By eliminating the tax advantages the number of uninsured by 3 million.
individual consumers—especially those
associated with employer-sponsored insur- Critics, however, argue that employer-pur-
who are currently uninsured—can secure
ance, the president’s proposal would make chased insurance might continue to enjoy
an advantage over individually purchased
policies because of more favorable pricing
based on employer purchasing power.
Republicans favor expanding HSAs,
which let individuals earmark tax-
exempt contributions for healthcare.
By increasing contribution limits, they
hope to entice more individuals to
purchase insurance. Some also favor
doing away with high-deductible
requirements for HSAs, which would
also make the plans more attractive.
Opponents say the impact of such HSA
changes would likely be modest, based
on how changes have been received
since their inception a few years ago.
The HSA-eligible, high-deductible-health-
plan option has attracted about 4.5 million
Americans, about one-fourth of whom
previously were uninsured.4 However,
only about half of those with eligible
plans have actually opened HSAs.5
4 America’s Health Insurance Plans Center for Policy and
Research: “January 2007 Census Shows 4.5 Million People
Covered by HSA/High-Deductible Health Plans,” April 2007.
5 US Government Accountability Office, Consumer-Directed
Health Plans, Early Enrollee Experiences with Health Savings
Accounts and Eligible Health Plans, report to the Hon. Max
Baucus (D-Mont.), August 9, 2006. http://www.gao.gov/new.
items/d06798.pdf.
18 PricewaterhouseCoopers View winter 08

21. The individual market for health insurance There is emerging evidence to support regulations concerning employers—rules
has not grown during the past three years, this push, and some of the employers that and regulations designed to help expand
and the percent of Americans in high- have instituted wellness and prevention coverage for working Americans. Repub-
deductible health plans dropped in 2006, programs have seen a clear return on their lican candidates will frame the discussion
according to the Commonwealth Fund. investment in terms of improved worker around modifications to the tax code and
productivity or reduced absenteeism. reduced regulation of the insurance indus-
In keeping with the vision of expanded Employers are encouraged to create incen- try to de-emphasize the employer’s role in
individual markets, Republicans also favor tives for healthy behavior that may prevent favor of market forces.
permitting cross-state selling of insurance. chronic disease. That means programs to
The reduced regulations would create promote screenings, smoking cessation, Both parties are likely to promote wellness
national health insurance markets in which weight loss, and regular exercise. But there strategies designed to encourage healthy
individuals could purchase insurance plans are no quick fixes: Even the best employer lifestyles and to manage the epidemic
from anywhere in the nation. Under current programs are ineffective unless people of chronic disease. In the end, however,
regulations, insurance products may be commit to changing their behavior. commitment by business leaders and col-
sold within a state only if the product is laborative public-private partnerships most
approved by that state’s insurance com- The debate continues likely will help enhance productivity, reduce
missioner and if it abides by the individual the number of uninsured, quell the growing
As the presidential campaign season
state’s mandates. The Republicans pro- burden of healthcare costs, and lead to a
continues, employers can expect to see
pose replacing 50 different sets of state more healthy community.
increased attention paid to the health-
regulations with a single national standard. care debate and to the employer’s role in Sandy Lutz is managing director, Benjamin Isgur is
workers’ health. Democratic candidates, assistant director, and Jeffrey Gartland is a research
Reining in costs who focus on decreasing the number of analyst with the PricewaterhouseCoopers Health
Proposed mandates and tax policy changes uninsured, will speak about new rules and Research Institute.
focus principally on the issue of expanding
coverage for the uninsured. But controlling
skyrocketing healthcare costs is another
important priority—particularly for employ- Employer impacts
ers. To help control costs, Republicans and
Democrats alike urge an increased focus on
The good, the bad, the unknown
the twin pillars of wellness and prevention,
At this stage of the election, it’s still too early to assess the bottom-line impact of health-
yet the parties have yet to outline significant
care reform on employers. However, no matter who is elected, employers will be affected.
policies promoting this agenda and the
Here are a few of the potential benefits and risks associated with healthcare reform that
employer’s expanded role.
you might want to keep on your radar screen.
The consensus is that while tradition-
Potentially positive outcomes Potentially negative outcomes
ally, governments—not employers—have
been held responsible for a population’s • Fewer uninsured people in the health- • Coverage mandates could lead to
health, government alone cannot pre- care system may reduce both cost shift- higher costs and/or penalties.
vent the spread of chronic disease. The ing and overall premium costs.
• Tax credits and deductions that encour-
workplace is seen as an important focal
• Tax credits to purchase insurance may age workers to buy individual policies
point for successful prevention strategies,
increase attractiveness for recruitment may take away what some employers
and employers are seen as being able to
and retention at smaller firms. consider to be a key retention tool.
influence individual behavior by providing
a supportive environment and leveraging • More government spending on wellness
existing infrastructure to offer low-cost but and prevention could benefit employee
effective interventions. productivity.
PricewaterhouseCoopers View winter 08 19

22. Opposing views You’ve heard all the election rhetoric about how each candidate
will reform the healthcare system. While it’s still too early to call
the contest, here’s the quick party rundown on what employers
can expect once a new presidential term begins. One thing is
certain: There will be plenty of changes that affect employees,
employers’ obligations, and company profits.
Democrats
Strengthen the employer’s role
through mandates
No surprise that it’s How big businesses In reality, an employer mandate likely won’t have the crucial
will be affected implications the word mandate implies, because nearly all large
all about change employers already provide health coverage. Initially, businesses
could see higher benefits costs overall with more workers to cover,
for the Democrats. but lower premiums for current workers and retirees could result
Expect broad, more from fewer uninsured in the US healthcare system.
immediate reform How small The mandate to provide coverage for employees could hurt small
across the board, businesses will businesses—whether in the form of higher benefits costs or in
with new mandates, be affected the form of penalties. This change may result in the use of new
staffing models to replace expensive workers—including hiring
government pro- more part-time or temporary help—but increased government
spending on wellness and prevention programs could enhance
grams, and funding worker productivity.
mechanisms.
How workers Employees can potentially breathe a sigh of relief, knowing that
will be affected they will be eligible for coverage through employers or through
new government programs. And if more US families are insured,
they may see lower out-of-pocket costs for their share of the bur-
den. In an environment where health insurance benefits are a given,
workers may look at other criteria when evaluating job offers.
How retirees Retired workers without employer benefits would have more
will be affected coverage options through new government programs.
0 PricewaterhouseCoopers View winter 08

23. Republicans
Give workers the choice through
market options
Taking employers off the hook and creating a more robust
individual market, coupled with tax incentives, could make Republicans look
work-sponsored plans less popular. This shift could mean
lower overall benefits costs for businesses, but the trend
to taxes—credits
could weaken a company’s ability to use health benefits as and incentives—to
a central recruiting and retention tool.
spur increased health
If workers could procure their own affordable health insurance,
insurance market
smaller employers may be able to stop offering health benefits. competition. And they
This could mean cost savings but could also hurt worker recruit-
ment and retention. don’t want mandates
for individuals or
employers.
More-affordable health insurance options in the consumer mar-
ket, along with tax incentives, may entice employees to choose
personal plans instead of their employers’ plans. This measure of
freedom may mean that employees will look at other factors when
considering their choices of employers or of careers.
A renewed emphasis on health savings accounts and related
tax incentives may mean that retirees can stretch their healthcare
dollars further.
PricewaterhouseCoopers View winter 08 1

24. Operational excellence
Designing
Change agents agility
into your
corporate
DNA
By Randy Browning
PricewaterhouseCoopers View winter 08

25. Just whose job is it to ensure your business
can keep pace with customers, competitors,
and suppliers?
Markets aren’t what they used to be. The So, what exactly is agility, and under
Internet’s global reach and ability to supply whose job description does it fall? Agility
a near-instantaneous flow of information is infusion of your processes and decision
have forced businesses to sustain an making—your corporate DNA really—with
unprecedented scale and pace. Customers the ability to effect strategic change. It
and suppliers are acting accordingly, and involves everything you, your manage-
they’re changing their demands quickly. ment team, and your employees choose
For every company that can’t keep up, to do. This emphasis on selectivity is key
there’s one or more that can and will. because true agility requires establish-
ing a fine balance between flexibility and
Simply put, you need cultural and standardization. You must determine where
operational agility. There’s that word it makes sense to create and anticipate
again—agility. It’s been permeating the change and where it is more prudent to
corporate lexicon. But agility is more require a fixed approach. This balancing
than a buzzword; it’s a survival skill. In an act is necessary: While your customers
environment where global reach, techni- expect unique products and services, you
cal prowess, and optimal efficiency are have to provide those custom solutions
requirements, agility is a key differentiator. from a common, standardized supply chain
In fact, the ability to adapt to change was and infrastructure.
ranked as one of the most important per-
ceived sources of competitive advantage The endgame, of course, is not change for
by executives in PwC’s most recent global its own sake but the building of an optimal
CEO survey. (See Figure 1.) foundation—one that enables you to
respond to crucial opportunities and chal-
lenges with maximum results and minimal
organizational stress.
Figure 1: Perceived sources of competitive Ability to adapt to change 76
advantage According to our recent survey of more
than 1,100 global CEOs, agility is squarely at the Improved customer service 76
top of the executive agenda. The ability to adapt Access to and
to change was cited as one of the most important retention of key talent 74
sources of competitive advantage over the next
12 months—trumping even technological innova- Technological innovation 65
tion and talent. Ability to implement successful
collaborative partnerships 61
Improved sourcing/
supply chain management 50
Cross-cultural experience 42
Sole access to scarce resources 18
Other 4
0 10 20 30 40 50 60 70 80
Percent of respondents
Source: PricewaterhouseCoopers, 11th Annual Global CEO Survey, 2008
PricewaterhouseCoopers View winter 08

26. Payback Getting to agility are organized around specialties, thereby
Benefits of agility It’s no surprise, then, that achieving
agility is not easy. It’s especially difficult
creating operational silos. And each is
optimized for a specific task, such as
sales or engineering.
because businesses have spent the past
few decades optimizing for efficiency—an
In today’s market, the Model T–era
approach that typically squeezes out
approach whereby each group does its
flexibility. Henry Ford famously noted this
own thing and then hands off the result
contradiction when he said his assembly-
Building agility into your business prepares to the next in the chain just doesn’t work.
line-produced Model Ts were available in
you to respond quickly and efficiently when Being agile requires working across mul-
any color a customer wanted—as long as
new challenges or opportunities arise. But tiple silos simultaneously. Marketing and
it was black!
it also brings other benefits: production, for example, need to collabo-
rate at all stages of a product’s life cycle to
Improved ability to incorporate new As a result, most businesses are efficient at
ensure that changing customer needs get
business capabilities Acquisitions, alli- what they need to do today, but they can’t
incorporated rapidly into a product that is
ances, and dispositions often result in adapt themselves quickly or affordably to
cost-effective to produce.
the need to incorporate new capabilities. what they need to do tomorrow. This lack
An agile company can do so quickly and of flexibility isn’t limited to a company’s
Yet most executives lack such an inte-
cost-efficiently. It can also divest business static systems or production processes;
grated view of their organizations. Because
activities rapidly without losing any key it’s also embedded in the organization’s
they have no idea how all the pieces fit
competencies. human processes, such as workflow and
together, there’s no way to orchestrate all
decision making.
Reduced operation costs Taking stock the silos operationally. And there’s even
of all your business processes and less ability to execute on new or changed
Worse, there’s an organizational bias that
analyzing them for cost and value contribu- business strategies. Instead, executives
actively inhibits agility. Businesses typically
tion provides the opportunity to rationalize are reactive, scrambling as changes occur.
or to consolidate those processes that
are redundant.
Better reporting capabilities By reducing the
complexity of business and IT operations,
you can define common metrics that will
enable you to better evaluate performance.
Prioritized innovation Based on a clear
understanding of which business activity
or core processes contribute the most Most companies lock on to a singular business
value, you can focus innovation on those
specific areas.
strategy based on a set of assumptions about
Enhanced predictability of operations With what’s driving markets, customers, and suppli-
an end-to-end view of the business, you
can more easily collect information across
ers, but what if something unanticipated alters
the enterprise and the supply chain and the landscape?
feed it into predictive models for analysis.
PricewaterhouseCoopers View winter 08

27. The business agility blueprint will articulate the
set of requirements and expected outcomes
needed for a company to respond to future
market demands or opportunities.
Planning for what-if creating the blueprint requires companies Pitfalls
Businesses greatly improve their long-term
success by anticipating key opportunities
to take a hard look at how they conduct
their businesses today, how they hope to Barriers to agility
in the near-term future, and ultimately, how
and challenges before they occur and then
they might prepare for bigger disruptions in
preparing their organizations to be ready
the longer term.
to make the needed changes quickly. That
may sound like Business Strategy 101,
The blueprint provides a singular corporate
but it isn’t. Most companies lock on to
view that is often missing, and it helps Why is agility so hard to achieve? Here are
a singular business strategy based on a
make an unknown future easier to predict. some of the biggest culprits:
set of assumptions about what’s driving
First, it provides a complete picture of
markets, customers, and suppliers, but Lack of understanding of business
current business processes—where value
what if something unanticipated alters the processes You can’t begin making
gets created, where there are redundan-
landscape, such as a new data privacy changes to what you don’t understand.
cies, who owns which processes, and
regulation, a supplier’s public relations Many companies have poorly documented
where there are connection points. Then—
misstep, or a competitive merger? and inconsistent processes that need
through high-level scenario analysis—the
blueprint facilitates thinking about potential to be addressed before thinking about
What’s needed is a way for companies to agility efforts can begin.
changes and about how to operationalize
collectively assess such potential scenarios
responses to those changes. Business silos Agility requires an integrated
in order to determine which are worth
considering and then to build in the ability view of your business. But today that view
When it’s done, the blueprint will articulate is often missing because the company
to execute them. To determine where to
the set of requirements and expected out- operates in silos, each one optimized for
start and how to get there, most companies
comes needed to respond to future market specific functions.
could use a high-level map of present and
demands or opportunities. The blueprint
future value creation. We call this map a Limitations of supporting systems There
might reveal that it’s more cost-effective to
business agility blueprint. The process of was a time when technology investments
like enterprise resource planning systems
once created competitive advantage by
helping enterprises increase their scale
and efficiency through standardization.
Yet it’s that same standardization that
makes change so hard. The systems
are designed to handle discrete business
activity and can’t easily be adapted to
support changes in such activity.
Little investment in people and process
Widespread efforts to gain efficiencies
through technology platforms have had the
unintended consequence of shifting vital
attention away from people and process
improvements.
PricewaterhouseCoopers View winter 08

28. Agility must be embedded into the overall
management structure rather than treated
as yet another specialty function.
implement a change today—as part of would an operational excellence effort • Current business architecture: a com-
a greater operational excellence effort— such as Six Sigma or Balanced Scorecard. plete view of the organization’s business
than to ramp up later. In other cases, processes and their connection points
the approach may be to ensure that The business agility blueprint is at the heart
• Current enterprise architecture: your
processes and technologies are open of your company’s quest to be ready—
company’s technical blueprint that shows
and changeable so that they can accom- really ready—for whatever the future brings.
how and where the supporting informa-
modate future capabilities. As with construction of a house or other
tion technology (IT) systems are used
building, the blueprint is the focal point
Creating a business agility blueprint of all of your efforts. To create the final • Senior management’s beliefs about pos-
blueprint—a process that may take several sible strategic opportunities and poten-
Many executives focus on onetime or
months and that involves your entire execu- tially disruptive market changes that will
short-term activities that achieve agility
tive team—you will need to synthesize require alteration of your business model
through force of will, but once the initia-
from a number of internal constituents their
tive is over, the agility dissipates and the • Input from customer-facing departments
information and input, including:
original processes and behaviors reas- such as marketing and sales, describing
sert themselves. That’s why it’s critical to • Current business strategy the ways current operations limit flex-
approach agility as a foundational effort ibility in delivering additional value
• Mapping of your discrete business
that you execute with the same planning, to customers.
processes
broad reach, and accountability as you
6 PricewaterhouseCoopers View winter 08

29. You can begin to get a glimpse of the Taking a team approach Perhaps a new C-level executive is
potential of the business agility blueprint required—a chief agility officer (CAO),
Managing change is difficult even under
when you consider the example of tele- who would oversee the initiative much as
the best of circumstances, when all the
communications company BT. Realizing a chief financial officer ensures financial
factors and requirements are known. It’s
that the British telecommunications market efficiencies and standards across the
even harder to manage for the possibility
and the regulatory rules governing it were business. But as tempting as it is to name
of future change.
likely to undergo profound change, BT an agility czar who can manage such
decided to rethink its business. Facing the efforts, doing so is not the whole answer.
Is it the chief marketing officer’s job to
prospect of having to open up its busi- Agility must be embedded into the overall
determine potential customer demands
ness to competitive service providers, the management structure rather than treated
that should be anticipated? Should the
company consolidated its business pro- as yet another specialty function. In other
chief operating officer expand the pro-
cesses into 14 platforms to ensure there words, agility should be an integral part of
curement system to ensure it can source
was only one version of each process, no all aspects of a company’s strategic and
products and services not currently
matter where in the company it was used. operational efforts. Agility is a responsibil-
needed? Does the chief information officer
Next, it aligned its functional groups with ity of every executive team member and
need to upgrade the company’s Web
those process platforms. For instance, should be part of each one’s mandate and
platform so it can better analyze customer
BT standardized the process of validating mission. These executives will need to
data? Maybe—but all of these discrete
service availability for its current and future act both as a team and as individuals to
activities miss the point. Acting alone,
offerings, such as landline, cellular, DSL, develop an agility plan and ensure that it
each of these executives has little chance
or any other future product. Before the gets implemented.
of preparing the organization as a whole
reorganization, each functional group at
for agility.
the company had its own ways of meeting
this very common requirement. Now, when
BT wants to bring a new service online,
this piece of the offering can be dropped
into place easily.1
1 PricewaterhouseCoopers, Business Agility white paper, 2008.
Agility should be an
integral part of all aspects
of a company’s strategic and
operational efforts.
PricewaterhouseCoopers View winter 08

30. Staff and management
alike need to value agility
as much as they do
performance and efficiency.
As a team, the officers’ responsibilities incentives—for the desired actions—that blueprint, however, is not the CEO’s job.
are twofold: First, using the business are consistently applied no matter what That responsibility rests with a person or
agility blueprint, they must define where department is involved. This can be tricky an entity responsible for coordination and
agility should be designed into the busi- in culturally siloed organizations, but it is oversight and might fall to the chief strategy
ness. Second, they must ensure that the fundamental to success. officer or to an agility program office.
requisite changes get implemented and are
maintained. Much of the detail work will be A CEO who delegates agility solely to The CEO also bears the ultimate respon-
delegated to appropriate staff, under the operational experts sends a clear mes- sibility for ensuring success. While much
officers’ direction and review. sage: Agility is not important. And with of the work for facilitating agility falls to
that kind of tone from the top, the results other executives, the CEO must ensure the
The executive officer team should be pre- from any agility initiatives will likely be desired outcome by periodically assessing
pared to make changes in pursuing agility. disappointing. whether the goals set forth in the business
Many processes that used to be self- agility blueprint are being met. While a
contained would, under an agility mindset, In essence, the CEO owns the business monitoring group, such as a program
span multiple departments, requiring agility blueprint. Because the CEO ulti- office, can help provide the information
greater alignment across business units. mately sets business strategy, he or she to determine compliance, only the CEO
Such efforts may require reworking depart- also bears final responsibility for deter- can decisively act on that information.
ments to bring together processes that are mining which future scenarios the business
now closely related, or they may require should support through agility. Of course, Sustaining success
coordinating entities to ensure that their the rest of the executive team and other key
Achieving agility is not a one-off set of
efforts are mutually supportive. At the very staff will help identify and evaluate poten-
activities. While the executive team’s
least, the executive team needs to set tial scenarios. Managing the details of the
continual focus on agility is critical,
8 PricewaterhouseCoopers View winter 08

31. ultimately, achieving and sustaining agility
are everyone’s responsibilities. Staff and
management alike need to value agility
as much as they do performance and
efficiency. They need to support the
business agility blueprint and its goals
in their individual actions and decisions.
Executive management can make such
buy-in the path of least resistance by
offering appropriate incentives and by
fostering the right culture. And execu-
tive management has to practice what it
preaches. Only then will a company be
well positioned to cope with the business
reality of constant change.
Randy Browning is the clients and industries leader
of our US Advisory services practice.
For a more detailed discussion on how to achieve
business agility, read the new white paper at
www.pwc.com/view.
PricewaterhouseCoopers View winter 08 9

32. Compliance
One global flavor
Thinking about International
Financial Reporting
Standards and how leading
US companies are getting
ready for them
By Raymond J. Beier
A US move to IFRS is inevitable. All companies should think Globalization has changed nearly every
aspect of how companies manage their
strategically about this change and begin to understand the business—sourcing, distribution, consumer
impact now. pricing, raising of capital, and so much
else. Financial reporting has also been
greatly influenced by globalization. In fact,
it is not an overstatement to say that a
financial reporting revolution is now under
way. Increasingly, International Financial
Reporting Standards (IFRS) is how most
of the world talks to investors and other
stakeholders about corporate performance.
Changing to IFRS alters how companies
prepare and report their financial results
and necessitates that investors understand
any forthcoming changes. Anticipating that
the US will soon join the rest of the world
by allowing or mandating a move to IFRS,
some leading US companies are already
beginning to prepare for IFRS adoption.
Even if your company is not yet ready to
embrace IFRS, it makes sense for senior
0 PricewaterhouseCoopers View winter 08

33. management to take action so they can International Accounting Standards Board and Exchange Commission (SEC) has
understand how a move to IFRS will impact (IASB) and with IFRS since their incep- already taken preliminary steps that history
reporting of financial performance, opera- tion in 2001. In the past five years, the will almost certainly show to have been
tions, and communications with investors. IASB and FASB have worked to improve tipping points in the course of events:
and converge both US GAAP (Generally
• The SEC no longer requires foreign
IFRS: The world’s new reporting Accepted Accounting Principles) and IFRS,
private issuers to reconcile their IFRS
framework with an increasing focus on the end goal of
filings to US GAAP so long as they use
achieving high-quality, globally understood
The message is clear: IFRS is becoming IFRS as issued by the IASB.
reporting standards.
the global accounting language. Virtually
• The Commission is studying whether
all major territories other than the US use
The year 2007 brought a new perspective US companies should have the option
or are moving to IFRS. Approximately
to that goal for US constituents. Would of reporting under IFRS rather than
12,000 public companies around the world
adoption of IFRS in the US make sense? under US GAAP.
already use IFRS in territories such as the
In a global economy, do the reasons for
European Union, Australia, Singapore,
adoption outweigh the reasons for retain- As early as spring 2008, the SEC may
and Hong Kong. China, Canada, Japan,
ing our own US standards? And then this issue proposed rules that designate a date
and South Korea have announced their
intriguing question: Would adoption of for optional and/or mandatory adoption
intention to convert to IFRS in the not-too-
IFRS help to eliminate many of the difficul- of IFRS by US public companies. The
distant future. Although IFRS only recently
ties in US GAAP, which in certain respects speed with which a move to IFRS has
has made headlines in the US, the US
has come under increasing and well-taken progressed—from a mere possibility to
standard setter, the Financial Account-
criticism? The answers to these questions inevitability—has landed this topic squarely
ing Standards Board (FASB), has been
are now being weighed. The US Securities on the radar screen of many multinational
deeply involved with the London-based
PricewaterhouseCoopers View winter 08 1

34. capital markets to IFRS is relatively young,
it is too soon to tell whether the anticipated
decrease in cost of capital will prove out.
However, due to the sheer size of most cap-
ital-raising efforts and the long-term nature
of the payoff, even slight improvements in
transaction terms such as interest rates can
translate into significant dollar savings.
Within individual companies, the ability
to centralize and streamline accounting
functions and move financial personnel
freely around the world will lower costs
and strengthen internal controls. Today,
multinational corporations with numerous
statutory filing requirements around the
world need to employ staff with expertise in
each national GAAP to prepare filings and
then translate financial statements from
national GAAPs to the parent-company
reporting GAAP. Use of IFRS globally will
reduce these reporting efforts and related
costs and decrease the risk of errors.
Challenges of many kinds
companies and their boards. However, options, fewer barriers of entry to non-US Although the benefits at both the macro
some pioneering US companies that rec- markets, and, potentially, a lower cost of and micro levels are attainable, the associ-
ognize the inevitability of IFRS are not just capital. Moving to a single global account- ated challenges are meaningful and need
talking about it— they are actively begin- ing and reporting language also will reduce to be addressed. Key for companies is
ning the conversion process. complexity—a welcome improvement understanding how their financial report-
for the companies that prepare financial ing will change under IFRS and what
This article looks in broad terms at the reports and for the investors and other those changes will mean to investors and
shift from US GAAP to IFRS and at the stakeholders who rely on them. other financial statement users. Managing
emerging best practices of leading US and communicating the impact of these
companies that view IFRS reporting as not From a capital markets perspective, many changes appropriately are defining points
only inevitable, but also beneficial. These multinational companies believe IFRS in a successful conversion plan.
companies are aware of the challenging offers an opportunity to lower their cost of
scope of implementation. They want to be capital. Widespread acceptance of IFRS Perhaps the most immediate hurdle US
ready to seize the advantages and make a financial statements allows companies to companies will face in a conversion to IFRS
smooth transition. And they want to control seek capital across a broad base of global is a limited pool of IFRS-knowledgeable
the costs of doing so. funding without having to incur additional resources. Companies need to determine
financial-reporting costs based on the if they already have the right skill sets in-
Benefits of IFRS source of funding. Anticipating increased house to manage the change, and, if not,
competition among global investors and
From a macroeconomic perspective, whether individuals who possess those
financiers for attractive investments, strong
the benefits of using one global financial skills should be hired. Learning IFRS is
companies expect their cost of capital to
reporting language are evident: increased a challenge for the US at all levels, from
decrease. Because the conversion of major
comparability across global investment colleges and universities educating future
PricewaterhouseCoopers View winter 08

35. accounting professionals to retraining for This point is dramatically illustrated by and other detail over the years that
current financial executives, auditors, comparing the modest number of IFRS the process of applying it has become
analysts, and professional investors. accounting standards that address the cumbersome and complex.
accounting for financial instruments with
Beyond learning the principles of IFRS, the mass of US GAAP literature on the Conversions to IFRS by companies in other
preparers, users of financial reporting, and same topic. (See Figure 1.) The IFRS lit- countries, particularly in the European
educators will need to change how they erature isn’t weak or incomplete. It clearly Union and Australia, lay excellent ground-
think about and practice their disciplines. states the principles, avoids unnecessary work for US companies to follow. With
The needed changes are broad in scope: rule-making, and relies on preparers— different national GAAPs as starting points,
cultural, behavioral, and institutional. Unlike CFOs, controllers, and others—to exercise it’s true that each country’s conversion to
US GAAP, IFRS is intentionally light on inter- professional judgment. Undoubtedly, many IFRS varied in its challenges and level of
pretive guidance. Principles and a minimum Americans will initially find it challenging difficulty. Due to the long-standing global
of necessary rules require accountants to and uncomfortable to navigate without influence of US GAAP and the conver-
make more professional judgments about prescriptive guidance and to set aside gence agenda between the FASB and
the nature of transactions when determining time-honored practices. the IASB, many IFRS standards issued in
how to account for them. The principles are recent years are based on principles that
generally consistent with those in US GAAP Here is an issue worth considering more are fairly consistent with existing US GAAP
or closely similar, but much greater exercise closely. The principles underlying IFRS are standards. This should translate into fewer
of judgment is needed in a framework that in fact designed to narrow the acceptable accounting differences for US companies
deliberately doesn’t carry the same weight alternatives. US GAAP is similarly based that are converting to IFRS as compared
of detailed rules, bright lines, safe harbors, on fundamental accounting principles, but with many of the other countries that have
and exceptions. it has become laden with so many rules already done so.
Figure 1: Financial instruments Key differences between US GAAP and IFRS
US GAAP IFRS
FAS 5 IAS 32
FAS 91 IAS 39
FAS 107
FAS 114
FAS 115
FAS 133
FAS 138
FAS 140
FAS 149
FAS 150
DIGs
EITFs
Industry guides
PricewaterhouseCoopers View winter 08

36. Differences between IFRS and US GAAP
Despite the large number of parallel principles underlying IFRS and US GAAP, the devil is in the
details, and differences can be significant for certain industries and types of transactions. The
following examples of key differences are somewhat technical in nature, but readers familiar with
accounting and reporting will see at a glance the primary implications.
IFRS US GAAP Implications
Asset write offs Impairment assessment of Impairment analysis is a Impairment charges may be
long-lived assets is a one-step two-step process based first recognized more frequently,
process based on discounted on undiscounted cash flows. earlier, and for different amounts
cash flows. Under certain Reversal of impairments is under IFRS. Combined with the
circumstances, previously prohibited under US GAAP. ability to reverse impairments,
recognized impairments the result is greater potential
are reversed. earnings volatility.
Fair value accounting Greater use of fair value, Requires historical cost The result is a very different
and certain assets, such as valuation of such assets. balance sheet and a clearer
property, plant, and equipment; view for investors of the
intangible assets; and invest- unrealized appreciation in
ment property can be carried certain major asset categories.
and remeasured to fair value
each period.
Development costs Development portion of Both research and develop- Development costs do not hit
research and development ment costs are expensed. the bottom line immediately
costs is capitalized if certain but, rather, are expensed over
criteria are met. an estimated life, typically
as the associated revenues
from the development activities
are earned.
Liability versus equity Classification of an instrument Instruments with both liability The result is an increase in
classification as a financial liability versus and equity characteristics can interest expense, greater
equity is stricter and based on often qualify for treatment as volatility in the income state-
the substance of the instrument mezzanine equity and are not ment, and less equity on
rather than on its legal form. marked to fair value. the balance sheet than under
Compound instruments must US GAAP.
be bifurcated between the
liability and equity components.
Pension accounting Recognition of pension expense Requires actuarial gains and The cost of providing pension
may be accelerated: Companies losses to be amortized over life benefits is not deferred as far
can elect to recognize actuarial expectancy, and prior-service into the future under IFRS as
gains and losses immediately cost is amortized over the it is under US GAAP.
rather than deferring for a remaining service period.
period of time, and prior-service
cost is recognized over the
vesting period.
As the option to use IFRS becomes available in the United States and companies decide to adopt,
each company will need to undertake an extensive review of financial policies to determine the
impact of these and many other differences between the two frameworks.
PricewaterhouseCoopers View winter 08

37. A clean-sheet-of-paper approach will
be beneficial for many companies;
some may be tempted to try to force
their historical US GAAP policies to
fit into IFRS as a means of simplifying
the conversion process.
Preparing for the move to IFRS Other key lessons learned include: customer and vendor contracts and
employee compensation arrangements to
Because IFRS appears inevitable, compa- Selecting new IFRS accounting policies
planning for MA activity and income tax
nies need to begin actively assessing what A clean-sheet-of-paper approach will be
structures. The involvement of key company
such a move will mean to their operations, beneficial for many companies; some may
expertise—legal and risk management,
financial statements, and stakeholders. be tempted to try to force their histori-
treasury, sales, tax, human resources and
The European conversion to IFRS taught cal US GAAP policies to fit into IFRS as
investor relations—at the right stage is
us that companies that take the initiative a means of simplifying the conversion
essential to a successful conversion.
now will benefit by enjoying a smoother process. But conversion to IFRS is a rare,
transition with fewer fire drills. onetime opportunity to comprehensively Planning the IFRS conversion project
reassess all accounting policies. IFRS Conversion projects can vary in length,
may offer alternatives that US GAAP did difficulty, and cost depending on the level
not—alternatives that may better reflect of complexity in a company’s transactions,
the economic substance of transactions operational structure, and regulatory
and positions. Benchmarking against environment. Another lesson to be learned
global peers and competitors that have from Europe’s mass adoption in 2005
already adopted IFRS will provide valu- is that conversion will take longer than
able insight into what is acceptable in the expected. US companies that have started
marketplace. the process—mostly large multinational
companies—estimate that it will take at
Involving the whole company New financial-
least two to three years and significant
reporting principles can impact nearly every
resources—both internal and external—
aspect of a company’s operations—from
to complete a quality conversion project.
PricewaterhouseCoopers View winter 08

38. Integrating the change Integrating IFRS Impact analysis A company’s legal contracts represent
principles into operations from the ground another layer of impact for consideration.
To scope a conversion project effec-
up is a necessity. Companies that left their A change to IFRS may result in a dramati-
tively, companies need to understand the
IFRS conversions to the last minute often cally different balance sheet and changes
multiple moving parts and wide-ranging
tried to complete the transition by making in earnings projections, key performance
impacts that a move to IFRS will bring. An
top-side adjustments to their existing prac- indicators, and financial ratios. In response,
impact analysis helps identify the depth
tices. IFRS is not a bolt-on solution to be debt agreements and specific covenants
and breadth of necessary changes, how
layered on top of old conventions. Compa- may need to be modified. Changes in
long they could take to implement, what
nies that do so will strain internal controls accounting policies and disclosure require-
resources are needed to bring them to frui-
over financial reporting and increase their ments may necessitate new information
tion, and what impact they could have on
risk of reporting errors. needs. Customer and vendor contracts
the companies’ stakeholders. Some facets
may need to be revised and compensation
of an impact analysis include:
Each company’s road map to IFRS will be agreements restructured.
unique, but the following steps provide
Understanding what is affected Conver-
an approach and key considerations for The impact on accounting and reporting
sion to IFRS will change the way certain
a well-orchestrated conversion plan. processes, controls, and IT systems needs
transactions are accounted for. A thor-
to be considered. A move to IFRS can cre-
ough review of the financial statements,
ate new information needs and impact how
with detailed identification of differences
controls are designed or implemented, how
between current accounting and IFRS, will
consolidations are achieved, and how finan-
help a company assess the dimensions of
cial systems record and report information.
the conversion and the scope of the infor-
Changes in these areas need to be vetted
mation needs.
and will eventually need to be documented
and tested.
6 PricewaterhouseCoopers View winter 08

39. A change to IFRS may result in a dramatically
different balance sheet and changes in
earnings projections, key performance
indicators, and financial ratios.
Understanding resource needs and Although milestones and timelines at this Final thoughts
timelines Assessment of the quantitative early stage of a conversion project are
As the move to International Financial
and qualitative levels of resources needed, tentative, having them in place is key to
Reporting Standards gains momentum,
coupled with decisions on whether to scoping the project, assessing the cor-
more and more forward-thinking compa-
train internal resources (and what amount rect level of urgency of various tasks, and
nies are preparing for a move to IFRS. They
of training is necessary) or hire external keeping all participants focused on the
are identifying the benefits they expect to
resources, is critical and frequently under- many moving pieces of the project.
realize and the challenges they will face
estimated. Decisions on resources also
along the way. At a minimum, all companies
play a key role in budgeting the cost of Project management reminder: A formally
should consider undertaking an impact
a conversion project. established and executive-sponsored
analysis now so that they have an accurate
project with a dedicated project team is
appreciation of what IFRS will mean to their
needed in most cases to manage success-
business when it arrives on US shores.
fully through completion.
Raymond J. Beier is the partner responsible for
strategic policy and analysis within PwC’s National
Professional Services Group.
PricewaterhouseCoopers View winter 08

40. People management
Maximizing
talent Strategies for
making the most
of your people
no matter what
tomorrow brings
PricewaterhouseCoopers View winter 08

41. By Steve Rimmer, Karen Vander Linde, Why should executives worry about the next talent crisis
Dolores Wilverding, and Warren Cinnick
when they have their hands full with current people
challenges? Times are changing, and they’re changing fast.
The battle for talent—always fierce—is escalating.
According to the US Department of Labor, surveyed by PricewaterhouseCoopers indi-
by 2014, more than one out of every three cated they will actively seek out employers
US workers will be 50 years of age or older. whose corporate social responsibility
The exodus of baby boomers from the behavior reflects their own.1
workforce will leave vacancies in critical
leadership and other pivotal roles. This However, as many companies are
raises a crucial question: How does a busi- discovering, reacting and adapting to
ness make the most of the talent it has to current talent trends will not be enough.
ensure the right skills are in the right place Thinking about talent like a long-term asset
at the right time—no matter how often its and viewing talent as a distinctive competi-
needs change? Businesses that build their tive attribute are significant shifts away
talent pipeline internally, evaluate alterna- from thinking about talent as a discrete
tive work pools, and explore ways to meet war that can be won. Anticipating and
their future employee needs will be better preparing for future organizational, societal,
positioned than their competitors to face and marketplace changes—and then
these kinds of challenges. weighing their implications on how to
secure talent—are aspects of an organiza-
Today, companies are already beginning to tional sustainability mindset. In an effort
see the profound need for a new approach to gain insight into how businesses
to maximizing talent—companies like the can accomplish this talent objective, a
international technology manufacturer that PricewaterhouseCoopers team conducted
determines it must address the gap left by a scenario planning exercise to envision
the retirement of some 50,000 managers ways that businesses could evolve to
and leaders over the next decade and the meet future workforce challenges.
successful midsize financial services firm
that enters expanding markets and must The resulting report—Managing Tomorrow’s
learn to supplement internal talent with key People: The Future of Work to 2020—
contractor relationships so that the company presented three business scenarios.
does not risk derailing its rapid growth. Or In one, big companies reign supreme
consider that most of the nearly 3,000 new
graduates from China (87 percent), the 1 PricewaterhouseCoopers, Managing Tomorrow’s People:
UK (71 percent), and the US (90 percent) The Future of Work to 2020, 2008.
PricewaterhouseCoopers View winter 08 9

42. Key considerations
Organizational talent levers
The following are questions to consider when integrating key levers to maximize talent:
Talent lever Key considerations
Strategy How do we align and integrate talent in attracting top talent and treat social
strategies into business planning? responsibility as optional; in a green model,
social responsibility is paramount, and
consumers and employees together drive
corporate accountability and responsibility;
and in the third scenario, localism prevails,
Planning What will help us anticipate and proactively and a global network of linked but separate
create talent plans for the future? small businesses prospers under entre-
preneurial leaders while larger companies
flounder.
Assessment What is the best way to assess talent Applying the lessons
strengths and gaps? Though these scenarios are extreme, they
raise important considerations for real
businesses today. Fundamentally, all sce-
narios or types of organizations begin with
Development What tools and processes will help us build the key talent levers: strategy, planning,
our talent bench at multiple levels? assessment, development, succession
management, rewards and recognition, and
measurement. The actions related to these
levers will shape the future of the work-
place and, ultimately, the business itself.
Succession management What processes should we put in place to
plan to fill every key job whether it is open As a practical exercise, we will consider
or not? how the levers are used in prototypical
organizations of our future scenarios: large,
corporate entities; midsize, highly networked
companies;2 and, where appropriate,
Rewards and recognition What will energize our culture, encourage companies driven by social responsibility.
individual excellence, and help us retain the
best talent? We present these examples to show how
different kinds of companies are tailoring
core talent maximization principles to meet
Measurement What metrics and gauges can we visibly their specific needs. However, these levers
display about our organizational and apply to any business. In fact, we have
individual performance?
2 A highly networked organization is one in which specialized
skills or intellectual property is central. Examples would be
technology companies and professional services firms.
0 PricewaterhouseCoopers View winter 08

43. found that companies of all sizes understand the need for a systematic future, however, organizations will need
and types can and do benefit from approach to assessing, planning, devel- to find ways to increase the frequency of
integrating the following key principles oping, and deploying talent to leverage assessment and their ability to develop
into their talent planning. resources. They are using mechanisms talent rapidly; ultimately, they will need to
to control the process of identifying build agile workforces that can adapt to
Creating a strategic workforce plan strengths and gaps regarding talent built changing market needs.
into service-level agreements with vendors.
In our experience, we have found that suc-
Likewise, some larger companies that are Assessment processes are even more
cessful companies align and integrate their
seeking to build up strength in key areas important in companies that are growing
talent strategies around future business
are also attempting to leverage unique through acquisitions. Such companies are
plans and review those strategies regularly.
talents from alternative sources. discovering that it is critical to assess their
For example, a forward-thinking global
people resources throughout the process,
conglomerate we know of currently inte-
Identifying talent strengths and gaps not just during due diligence. For example,
grates its talent strategy and planning into
we know an electronics manufacturer that
its annual three-year business-planning To remain ahead of competitors, businesses
seemed to have lost its entrepreneurial
process. As part of key business strategies must regularly assess their existing work-
edge after successfully growing more
to sell or acquire divisions, part of the due force to better leverage strengths and fill
than 20 times larger through a series of
diligence process involves assessing cur- gaps through developing, recruiting, or
international mergers and acquisitions.
rent and future talent requirements. Given acquiring the skills they need. Unless dealt
Management recognized that leading a
the rapid pace of change, even corpora- with effectively, small gaps almost always
company of that size and complexity would
tions that have already embedded the grow larger, but merely understanding the
require different skills and so established
talent-planning process into their strategic gaps won’t move a business ahead as much
a set of critical competencies tied to its
planning must be prepared to do it more as will making the most of its strengths. For
future strategy. The existing leadership
frequently—even quarterly for economi- example, successful organizations where
team was assessed against those new
cally vibrant regions—in order to anticipate recruitment has always been strong have
competencies in order to identify leadership
emerging changes and to be able to typically built upon that competency in a
gaps to fill and develop. Looking ahead, this
modify strategies quickly. competitive market, and attracting talent
large, flexible company plans to continue
with speed and a passion for quality are
to conduct assessments regularly and has
Unlike large corporate entities, smaller, differentiators for successful growth.
developed systems for providing feedback
more highly networked organizations rely
on the set of skills it needs for specific
on the talent that is resident in their orga- Increasingly, successful large corporations
growth and improvement projects.
nizations and in their networked alliances. are implementing continuous assess-
Their ability to change direction and grow ment processes. Today, a global financial
Developing talent that is strong
depends on their ability to maintain these services company might get away with
and deep
alliances in order to anticipate and secure annually assessing all managers and
the right kind of talent. For a networked above to identify strengths and gaps—at The cycle of workforce expansion and
organization, acquiring new talent often both the organizational and the individual retrenchment that prevailed in the 1990s
means entering into an alliance or a joint levels—and then incorporating the results is simply not a viable approach in today’s
venture. Savvy networked organizations in its overall talent-planning process. In the talent-lean environment. Instead, building
PricewaterhouseCoopers View winter 08 1

44. talent needs a broad skill set to be able to
adapt quickly to changing needs and to
provide support for one another. In these
companies, frequent job rotations and mul-
tifunctional career paths are expected and
required aspects of leadership develop-
ment. For unique skill sets or highly refined
technical skills, they maintain alliances
and alternative talent pools to ensure that
they are flexible enough to respond and
With most companies facing changing talent are able to expand capability as the market
changes its requirements.
demands and a shrinking talent pool, large
organizations are placing more focus on Achieving these objectives poses a prob-
lem. Integrating outside talent into the
identifying emerging leaders throughout an organization requires a level of transparency
about skills and capabilities and a level of
enterprise. candid dialogue about talent that typically
does not exist today between organizations
linked by service and partnership agree-
ments. However, successful networked
organizations of the future will build ongoing
development of talent into provisions in
their service-level agreements with alliance
partners or outsourcing providers.
a nimble workforce through training, selected a group of pivotal employees
coaching, and mentoring will define from a variety of functions. The team
success—and even survival. focused one-third of its efforts for
120 days on a critical product issue.
Large corporations that focus only on The team uncovered, tested, and solicited
developing a targeted group of high-poten- management’s approval for a solution to
tial individuals to fill positions at the top of the problem that resulted in an annual
the organization are at risk. More and more, increase in profitability of $6 million. You
executives are finding that they need to can bet that team members learned more
develop talent at all levels because pivotal than a bit about business strategy and
roles and employees exist in all functions. planning in the process.
Given the rapid pace of change, success-
ful, large organizations are looking beyond Unlike their larger counterparts, highly
traditional classroom and online training. networked organizations tend to be lean.
They are also providing individuals with Therefore, when it comes to talent, their
embedded learning and on-the-job experi- key challenge lies in the availability of
ence that will continue their development sufficient talent alternatives. The compa-
and increase their readiness to step up to nies we have studied typically meet that
broader roles or expand their expertise. challenge through outsourcing, alliances,
and joint ventures. However, they have
For example, rather than training employ- also discovered the need to develop talent
ees about business strategy and planning, for key leadership positions and pivotal
one global consumer products company roles. In fact, they have found that internal
PricewaterhouseCoopers View winter 08

45. In addition, we have noted that to facilitate Saratoga research group noted that the important, that they must continuously
ongoing development, enterprises of many percentage of key roles for which orga- assess how to deploy people to broaden
shapes and sizes have relied on coach- nizations have either one or two unique their skills through experience. For
ing and mentoring for every employee. succession candidates identified per key example, if a large US organization needs
Many organizations assign a coach or role has been increasing dramatically. In to send talent to oversee a manufacturing
mentor who is not the same person as the 2006, the median company over a two- facility in China, it would benefit by choos-
employee’s manager. By so doing, they are year period had nearly doubled the number ing an individual whose future career role
expanding access to key resources that of roles that have at least one successor.3 will require significant exposure to Chinese
will help individuals broaden their perspec- culture and China’s economy. In most
tives and skills. While developing a pipeline to fill leader- companies with multinational footprints,
ship roles in the top two or three tiers the opportunity to deploy talent returning
An organization seeking to become more is critically important, large integrated from international assignments to positions
green might have key top talent work on a corporations with foresight are also build- that make use of the experience and skills
strategy to develop talent via activities that ing talent pipelines at multiple levels. With acquired there is an underdeveloped area.
demonstrate social responsibility, such as most companies facing changing talent
assisting with an environmental organiza- demands and a shrinking talent pool, these Highly networked organizations approach
tion or foreign aid program. organizations are placing more focus on succession planning differently. They focus
identifying emerging leaders throughout on cross-functional development to ensure
Managing succession an enterprise and preparing them not only that talent is ready to step into new roles
to step into higher roles but also to take and to rapidly assimilate new responsibili-
Organizations that manage succession well
on broader responsibilities for helping the ties. Such companies have recognized the
do so by building a deep pipeline of talent
organization fulfill its strategic plans. To be need to broaden the boundaries of suc-
and by planning proactively with regard to
effective, organizations are realizing that cession management to include alliances
developing and deploying these resources.
they have to better anticipate the need and alternative work pools and thus ensure
In its most recent annual report, PwC’s
for new skills and knowledge and, equally they have the talent expertise they need
3 PricewaterhouseCoopers, US Human Capital Effectiveness
Report 2007/2008, 2007.
The cycle of workforce expansion and retrenchment that prevailed
in the 1990s is simply not a viable approach in today’s talent-lean
environment. Instead, building a nimble workforce through training,
coaching, and mentoring will define success—and even survival.
PricewaterhouseCoopers View winter 08

46. Executives at many organizations are realizing
that placing talent on the business agenda is
not enough. Going forward, measures around
talent need to be part of a corporation’s overall
performance metrics.
to meet market demand. Companies that bonuses and high salaries. A prime parking
use talent development–related criteria spot, tickets to a sporting event, or a gift
when selecting members of their networks certificate to a day spa could go a long
are increasingly addressing standards way in promoting short-term job satisfac-
for development and succession in their tion and attracting talent. Similarly, on
service-level agreements. They are also the other end of the demographic spec-
utilizing methods for trading talent in order trum, employees approaching retirement
to best service projects. Highly networked have views different from those of their
organizations are also considering exploit- predecessors regarding how to leave the
ing the portability of benefits and defined workforce. No company has yet mastered
contribution plans within their networks the concept of phased retirement as a
of business partners and turning this means of managing knowledge and of col-
potential liability into an advantage in the laboratively extending the working lives of
job market. highly valued employees. This is a frontier
where the reward, recognition, benefits,
Rewarding and recognizing and policy tools will need to come together
performance to help close the knowledge gap that is
part of the current retirement process.
In the current talent environment, organi-
zations of all sizes are inspiring both
Large corporate organizations traditionally
individuals and teams with flexible and
have had well-defined reward systems
targeted forms of reward and recognition.
that include annual raises and bonuses.
As the rising generation of Millennials enters
To facilitate teamwork across organi-
the workforce, organizations recognize the
zational and geographic boundaries,
importance of understanding what kinds
some large, integrated organizations are
of rewards and recognition motivate these
considering offering more incremental
individuals. And it’s not always about big
team-based rewards and individual peer
recognition. A number of highly networked
organizations are starting to associate
flexible cash and noncash reward and
recognition programs with individual
projects. Vesting individuals in a project’s
success offers great incentive for the
contractors on which highly networked
organizations depend.
Looking ahead, businesses of all types
are rethinking their reward and recognition
systems to accommodate and motivate
workforces with diverse attitudes about job
satisfaction. For example, there is rising
evidence to suggest that employees are
more focused on environmental issues
and are making good corporate citizenship
a part of the reason they choose to join
or stay with an organization. Under such
PricewaterhouseCoopers View winter 08

47. circumstances, socially conscious orga-
nizations are rewarding talent for leaving
a more gentle carbon footprint on Earth
by traveling less, carpooling to work, or
participating in community service oppor-
tunities. To develop new approaches to
social issues, some organizations are tak-
ing a forward-looking approach by offering
employees opportunities for increased
community, external organization, and
workplace involvement. Ultimately, this
part of the public talent-attraction profile
for your company will be measured by
what actions occur, not by what aspira-
tions are stated.
Measuring individual and organizational
talent attributes Executives at many organizations are In the future, organizations that uphold
realizing that placing talent on the busi- socially responsible ideals will have
If talent issues are to be taken seriously, ness agenda is not enough. Going forward, organizational and individual performance
measurement is essential. A PwC report measures around talent need to be part metrics in place to balance corporate
covering more than 15,000 organizations of a corporation’s overall performance results with the public good. To accomplish
in the US and Europe found that few orga- metrics. For example, an annual report this, an organization might measure and
nizations have achieved truly global and discussing business performance might report the number of hours spent by its
real-time people measurement capabilities include how the company is performing employees on community service projects.
or have quantified the financial value of on its talent metrics.
their talent, even when it is possible to do Looking ahead
so.4 The continued adoption of enterprise Large corporations rely on the promotion
resource planning systems is actually a No matter which path a business takes,
of corporate culture attributes and behav-
boon to the measurement and tracking there is one clear constant: More than
iors as a means of engaging employees.
of talent. With a properly configured ever, it must manage talent resources as
Today’s employees are looking to see
system, the year-over-year and long-term carefully as it does business operations.
these attributes and behaviors represented
views of individuals as measurable and Businesses seeking to practice talent
in how people are measured, rewarded,
valuable resources can be well served by maximization and sustainability are culti-
and promoted. Clearly, how metrics are
enterprise systems. vating talent in their organizations today
applied will have an impact on attracting,
in order to prepare for the future.
acquiring, and keeping talent.
This will change. In the future, leaders
of both large companies and networked To continuously improve, highly networked
organizations will be held accountable for organizations are integrating talent metrics
developing and coaching people. Talent at the project level to evaluate talent and Steve Rimmer is a principal in PwC’s Human
will be a core part of their responsibility. As its relevant impact. Among the challenges Resource Solutions practice and the HR
large corporations move toward engaging networked organizations face are partners Transaction Services leader. Karen Vander Linde
talent across organizational boundar- is a principal in and the global leader of PwC’s
whose systems of measuring contributions People and Change practice. Dolores Wilverding
ies, others—in addition to an individual’s are completely different from their own. is a managing director in the People and Change
immediate manager—will participate in the Thus, it is important to align talent metrics practice, and Warren Cinnick is a director in the
performance management process. to the goals currently at hand. People and Change practice.
4 PricewaterhouseCoopers, Key Trends in Human Capital:
A Global Perspective, 2006.
PricewaterhouseCoopers View winter 08

48. Interview
Piercing the veil
Does your
Andrew Zolli looks at
organization
the future of business
need the world
and of
a
chief agility
Interview by Tom Craren and Gene Zasadinski
officer?
6 PricewaterhouseCoopers View winter 08

49. Back to the Future is the name of a movie, but it also Andrew Zolli is an expert in global foresight and
innovation, studying the complex trends at the
describes Andrew Zolli’s professional landscape. Zolli is a intersection of technology, sustainability, and
futurist, and—at least imaginatively—the future is where he global society that are shaping our future. His firm,
Z + Partners, helps senior leaders at some of the
spends most of his time. A century ago, the word futurist world’s preeminent companies, institutions, and
governments see, understand, and respond to
conjured up images of crystal balls, tarot cards, and Ouija complex change.
boards. While modern-day prognosticators depend on other
tools, all futurists—past and present—rely on the rare ability
to predict drivers and trends with some degree of accuracy.
As his clients affirm, Andrew Zolli has a generous measure
of that ability. In our interview, he applies his gift of foresight
to the world of business and to the world at large.
PwC: You are often referred to as a futur- PwC: So how should companies be en-
ist. What does that term mean to you, and gaging a foresight researcher like you, and
is that how you define yourself? how far out should they be looking?
AZ: I actually prefer foresight researcher or AZ: First, companies should work with
global trends analyst. A lot of what I do is foresight researchers to perform what I like
about looking at critical places—where you to call environmental scanning—that is,
can see future trends emerging that are scanning within such defining driving areas
going to be definitive for the whole planet as demographics, emerging technologies,
or for a culture or an industry—and then and economics to get a sense of how
thinking through with senior leaders about those environments are unfolding. Com-
how those trends might shape the global panies should then develop scenarios that
operating environment. look specifically at how the individual data
points in each one of those areas might
PwC: You refer to these as intersections.
unfold. I think organizations should do en-
AZ: That’s right. The big ones that I pay vironmental scanning every year. And they
attention to are demographics, globaliza- might want to do scenarios every three to
tion, environmental issues, some global five years.
policy—especially global business is-
PwC: Can you describe a typical scenario-
sues—and emerging technologies. But the
building process?
most fruitful terrain lies between those ver-
tical areas of focus. For example, it’s not AZ: The process begins by identifying key
so much demographics as it is the effect of uncertainties. For example, a current key
demographics on healthcare, public policy, uncertainty right now involves the American
or the environment. What I do is develop economy. Will it go into recession, and—
visions of the future that share key themes more important—will it drag down the
and that help senior leadership teams look global economy in the process? Another
just a little bit further out. Sometimes you key uncertainty is about the price of oil.
should act on great opportunities while If you place just those fundamental macro
they’re still over the horizon. drivers on a two-by-two grid, you can
PricewaterhouseCoopers View winter 08

50. Drivers and trends: Zolli looks ahead First, there are the fundamental long-term trends that you and
I can’t do anything about, such as demographics. The second would be large structural forces like
long-term climate change. The third would involve big global economic forces. But you also have to
look at what we think of as the accidents and incidents. These are wild cards—low-probability but
high-impact events, such as terrorist plots or, for that matter, breakthrough technology inventions.
Long-term trends
+
Structural forces
+
Economic forces
+ ? Wild cards
envision four different worlds that suggest number of old and young people who have PwC: You mentioned healthcare. These
a number of future policy implications. ever coexisted in our society’s history. This demographic changes must have a pro-
What you’re really after when you’re will result in some interesting paradoxes. found impact on the future structure of
developing scenarios are data rich stories Let’s take the workforce, for example. Many healthcare, right?
that are expressed in a number of ways. boomers soon will be retiring, but many will
AZ: Of course, and I think it’s a combination
A scenario that draws on only the left stay on the job. That creates a paradox for
of really complicated issues. You’ve got the
hemisphere of the brain—the one that’s all Generation Xers. Many will move up the
general frame of the traditional healthcare
charts and numbers—misses the nuances. management chain much sooner than their
system—as we understand it—pushing us
The reality is, we’re not exclusively rational predecessors did. Others will get trapped
toward new political circumstances. You’ve
creatures. We’re semirational creatures behind a new glass ceiling created by
got the rise of network consumers acting in
who make decisions based on our emo- boomers who won’t or can’t retire.
their own interests in healthcare for the first
tions and our own experience. Our visions
PwC: Beyond the workforce, what else will time. But most interesting will be the rise of
of the future need to reflect that.
change? healthcare innovations.
PwC: You mentioned a number of powerful
AZ: I think we’ll also be seeing some very PwC: Can you give an example?
drivers. What should companies focus on
interesting changes in the structure of
in terms of some of the major trends that AZ: Yes. Take pharmacogenomics. The
families. For instance, because of advances
you see? pharmacogenomics revolution is the
in healthcare, many people are outliving
intersection of drug targeting and genetics.
AZ: First of all, demographics are criti- their incomes and in a sense, moving back
For example, in today’s healthcare environ-
cal. Historically, the American population home to live with or close to their children.
ment, if three people get sick, it’s very likely
architecture has looked like a pyramid—with
PwC: What’s the impact of this change? that within a certain set of parameters,
young people significantly outnumbering
they’ll each be given the same medicine—
older people—but the baby boomers are AZ: When you change the family, you
often in the same doses. Unfortunately,
creating a big bulge in the middle. Over the change the basic unit of consumption.
because of genetic factors, the same
course of the next two decades, we’re going For instance, who makes healthcare
medicine that heals one does nothing for
to see a new population structure emerge in decisions? Who makes entertainment deci-
or kills the others. We’re only just beginning
the United States. Instead of a pyramid, that sions? Everything is affected. Take product
to understand the intersection between
structure will resemble an hourglass, the design, for example. Designing for three
genetic triggers and medical effectiveness.
two ends of which will represent the largest generations as opposed to two involves
very different sets of issues.
8 PricewaterhouseCoopers View winter 08

51. PwC: That explains innovation, but where
does foresight fit in?
AZ: Foresight is a core cognitive skill—just
like playing, having a think tank, doing
ethnography, or building networks. It’s also
a core leadership skill, and in my research,
the organizations that have proved to be
the best sustained innovators are also the
best at foresight.
PwC: It must be incredibly difficult to
embed these types of thinking into an
organization.
AZ: It is. Thinking about the future and
thinking about innovation are whole-brain
exercises, and big companies typically are
not whole-brain organizations. But in making
decisions, leaders of whole-brain organiza-
tions draw on both rational—left brain—and
intuitive—right brain—mental resources.
PwC: Should companies be taking this
whole-brain approach to today’s hot-
button issues like climate change and
sustainability—especially in the US, which
PwC: We’ve talked a lot about demo- AZ: Yes. What we’ve discovered about or- some perceive as being behind the rest of
graphics. What else should companies ganizations that are very good at becoming the world in its response to these areas?
look at? sustained innovators is that they share com- AZ: Yes, but let’s separate the two issues.
AZ: Three things: First, there are the mon characteristics. First, they spend a lot They’re related, but they’re not the same.
fundamental long-term trends that you of time paying attention to weak signals as Climate change is a critical, fundamental
and I can’t do anything about, such as part of their culture, and they’re very good challenge for the planet. Sustainability is a
demographics. The second would be at identifying what they don’t know. Sec- business issue. The first thing to say about
large structural forces like long-term ond, sustained innovators use a portfolio of climate change is that it will continue to
climate change. The third would involve five cognitive styles simultaneously. The first accelerate. There is a 30-year lag between
big global economic forces. But you also is the classic think-tank model: You take a when we put carbon and greenhouse gases
have to look at what we think of as the group of experts, lock them in a closet, and into the atmosphere and when they have
accidents and incidents. These are wild hope you get a solution to your problem. a measurable effect. So we’re dealing this
cards—low-probability but high-impact Eighty-five percent of the time, you don’t. A year with 1978’s carbon, and that’s a real
events, such as terrorist plots or, for that second style of thinking and style of prob- issue for us. Long before we have to deal
matter, breakthrough technology inven- lem solving is about ethnography: sending with the full effects of climate change, we’ll
tions. Will understanding all of these things people out into the field to see what people have run out of oil. That’s an absolutely
lead to perfectly accurate predictions all of are doing. Using this method, about 70 per- done deal. So we’re going to have to learn
the time? Of course not. It’s not so much cent of the time you get real but incremental how to live in a postcarbon economy. The
that you turn to experts to give you all the innovation. The third style is what I call the good news is that this is an opportunity
answers all the time but that you develop play category, in which you put a problem for tremendous wealth creation. The green
a culture of constant investigation—con- through thousands of iterations until you energy revolution is going to make the IT
stantly scanning the weak signals that are either solve it or redefine it. The fourth one revolution look minuscule in comparison.
going to be definitive in the years to come. is about scenario planning, where you ask
yourself what your organization would look PwC: But what’s the bad news?
PwC: Companies that are good at fore- like under a certain set of circumstances AZ: The bad news is that climate change
sight also seem to be the best innovators. and then work backward from there. And is going to adversely affect poor countries
Is there a connection between foresight finally, the fifth style involves leveraging the
and innovation? power of networks.
PricewaterhouseCoopers View winter 08 9

52. There will always be superpowers, but what
will be most important over the next 20 years
is the gentle, continuous expansion of what
I call the dominant global superconduit.
much more than wealthy countries. Dis- PwC: And what’s the other side of 75 percent of global GDP was generated
ease will spread faster, and catastrophic sustainability? by two countries: India and China. In
climate-related events will increase and search of more-efficient routes to that
AZ: The other side is really about a cluster
disproportionately affect such areas as wealth, Europe discovered North and
of business issues, chief of which is talent.
coastal Africa and coastal Asia. South America: resource-rich places that
Young people—those we label as Millen-
could be mined and could be absorbed
PwC: What about sustainability? nials—have an abundance of choices.
and could be exploited. So you’ve got this
They’re looking for meaning and purpose.
AZ: There are two sides to sustainability. 500-year delta of Western preeminence
They’re more likely than their seniors to
The first involves an eco-industrial revolu- based on the compounding value of this
say, “I’d rather have a meaningless job at
tion that we are in the midst of. We’ve had enormous, extraordinary wealth reserve,
a meaningful company than a meaningful
three waves of environmental thinking in and now we’re seeing the return to histori-
job at a meaningless company.” Does that
the post–World War II period. In the 1960s cal norms. While this will bring with it the
make sense?
and 1970s, we saw the rise of conserva- inevitable decline of single currencies, it
tion—preserving parks and so on. This led PwC: Yes, it does. will also create a more multipolar planet.
in the 1980s and 1990s to a second great
AZ: And that is a deep psychographic and PwC: So are you saying it’s likely that there
revolution: the sustainability revolution. But
generational shift that’s propelling the green won’t be superpowers at some point?
there’s a problem with sustainability. The
movement and the issues around sustain-
markets do not uniformly reward sustain- AZ: No. There will always be superpowers,
ability. It’s also driving the brand inside the
able behavior, so there aren’t efficient and but what will be most important over the
company. In today’s world, a company’s
consistent definitions. The third wave that next 20 years is the gentle, continuous ex-
essence or brand is as important to the
we’re starting to see emerge is a post- pansion of what I call the dominant global
company’s employees as it is to the
sustainability era where we’re using new superconduit.
company’s customers and shareholders.
technologies to look at the natural world
PwC: What’s that?
as a library of engineering solutions. A PwC: We mentioned earlier that climate
great example of this is the lotus leaf. Even change and sustainability are areas in AZ: If you look at a GDP-per-square-
though lotus leaves grow in brown, brack- which some feel the US needs to catch up. kilometer map of planet Earth—that is, a
ish water, they never appear to be dirty. Are there other aspects of US competitive- map showing where in the world all the
The leaf is covered with a special wax in a ness—or lack thereof—that companies money is—you’ll see a highway that runs
series of little bumps and ridges that pre- should be keeping their eyes on? over North America, over the Atlantic
vent organic material from adhering to the Ocean, over Europe, down to the Middle
AZ: You know, I think there’s something
surface. A group of German engineers used East, down through India, up through
really important here. Some business
this property as the basis of a self-cleaning China and Japan, back up over the Pacific
leaders are worried about the decline
house paint. In other words, we’re start- Ocean, and then back to North America.
of American preeminence in the world.
ing to view the natural world as a library of Almost 90 percent of all global transac-
I think the answer is a couple of different
latent applications and new approaches tions occur along that highway. The people
things. First of all, it’s going to happen.
to solving business issues, resulting in a situated on the highway are living well
And it’s going to happen faster than I think
whole bunch of new technologies. beyond the means of their local environ-
a lot of people know. But this is simply a
ments. They’re net importers from the rest
return to historical norms. In the year 1500,
0 PricewaterhouseCoopers View winter 08

53. of the world. Life in this superconduit is Connections
going to continue to be fast, consumptive,
and deeply intermingled, and it’s going to The space shuttle and the Appian Way
continue for the foreseeable future.
PwC: Is that a good thing?
AZ: Not entirely. One problem is that every
major period of massive global integration
has ended in global war. So one of the big Understanding the future is all about un- Thousands of years ago, two Roman
questions is, Can we shift from a unipolar derstanding connections—even those that legionnaires walking down a road, side by
or a bipolar to a multipolar world and avoid reach across centuries. side, defined the size of the roads in what
real conflict? would become Europe. So the means by
Only the most avid space shuttle enthusi- which the material used for building the
PwC: Can we?
asts may know that by federal mandate, international space station was transported
AZ: There’s reason for hope. It used to the payload of the shuttle has to be able to the space shuttle is directly connected
be that two places that had large stand- to fit on a railcar. Why? Under President to a standard of measurement that goes
ing armies pointed at each other were not Lyndon Johnson, the fledgling space pro- back thousands of years.
going to go to war. Then it was two places gram received a big boost, and it became
that both had significant densities of necessary to be able to move large quanti- In the same way, much of the world of the
fast-food restaurants would not go to war. ties of materials around the country quickly future will be predicated on standards be-
And now I think, arguably, the situation and efficiently. ing developed today. You could say that in
is that any two countries that exchange almost everything we do—from designing
at least 15 petabytes of email a week are But here’s where the connections come cars to building skyscrapers—we are in
probably not going to go to war. The level in. The size of a railcar is based on the fact measuring our future.—AZ
of economic, cultural, and technological width of its axles. Because vehicles
exchange between them is so great. occasionally have to intersect with railcars,
the width of a railcar’s axles is defined by
PwC: In 50 years, will the world be a
the size of the road—a size determined by
better place?
the European standard.
AZ: I think so. We tend to envision the
future as a blank slate, but that’s really not
the case. In many ways, the future is now.
Much about the world we currently live
in—the good and the bad—will follow us
into the future. If the past 50 years have
taught us anything, it’s that with advances
in technology and science, we can tilt that
equation toward the good. So, yes, I’m
quite optimistic about the future.
PricewaterhouseCoopers View winter 08 1

54. Your view
Constant change has become a given in today’s business
environment. And you know how crucial it is to adjust your
organization to this new imperative. But what is top of mind for
a business leader who is considering organizational change?
In our 11th Annual Global CEO Survey, we asked senior
executives worldwide to give us their candid views on change.
Do their sentiments echo your thoughts, or is there something
else on your mind? Let us know at www.pwc.com/view.
“I would like to change the mindset of people about change itself. “A vision of continuous improvement and capacity for adaptation.”
Even when they agree to the process of change, they tend to lose Argentina
sight of long-term objectives and do not implement change posi-
tively enough.” Belgium “People’s attitude to change.” Hungary
“To be more patient about driving change.” Canada “The ability to identify the changes that are coming about and to
adapt quickly. Must anticipate the changes ahead and prepare.”
“To create even more willingness to change among executives.” United Kingdom
Germany
“I think people have to be more open to change, collaboration,
“I would like to change the internal processes and decision mak- and innovation in this competitive business environment. Business
ing processes. We also need to look at people issues—the middle as usual is not acceptable; we need an open architecture to be
and senior management needs to have strong leadership skills. successful in this competitive environment.” United States
The recruitment process would need an extensive review.” China
“Our responsiveness to the changing market needs. Basically
“Space for creativity and innovation in the rigid structure of the we are not able to anticipate or address the problem practically.”
company.” Argentina India
“Lack of willingness to meet/make change.” Finland “Work-life balance.” South Africa
“Not to see change as a threat but as an opportunity.” “Develop more collaboration among senior management.”
the Netherlands Australia
“More effort has to be taken to make sure that people really “Support by staff for a change.” Japan
understand the reason for and benefit of the change.” Indonesia
“Creating an organization that’s strong and flexible to react to an
“The ability of the whole team to carry out changes, integrate increasingly volatile external market.” United States
themselves in the different functions, and react quickly to changes.”
Italy
PricewaterhouseCoopers View winter 08

55. “Internally there is a need for the ability to absorb new ideas and “People’s attitude to change.” Hungary
accept the changes in business models.” Hong Kong
“To know what customers really want.” Japan
“Change-management clarity related to response to change in my
organization.” Thailand “The possibility to take a longer term view of the business.
Short-term business pressure is overwhelming. We focus so
“The ability to adapt quickly and cope with the change.” much on a 12-month horizon. I’d like to be looking out three
South Korea to five years.” Poland
“Explaining the benefits of change to employees.” United States “Make decisions more quickly.” Mexico
“To be able to better transmit the necessities of the change of “My own attention to the quality of collaboration at the highest
business.” Portugal executive level and my own engagement to effect changes.”
United States
“I would like to improve the ability to address cross-cultural
differences and make people understand each other easier.” “I wish I had more time for my staff.” Germany
Turkey
“To change the culture of the organization so it becomes more
“Getting everyone to row in one boat in the same direction.” powerful and entrepreneurial.” United States
Canada
“Better coherence between the corporate goals and individual
“Get people across the company to always think positive and also tasks for each department.” Ukraine
have the conviction to achieve what they dream.” India
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56. Rear view
www.pwc.com/view Are you maximizing talent in your organization?
° Have I integrated a talent strategy as part of my business plan?
° Do I treat the talent process like the quarterly sales review,
operations review, or quarterly financial close?
° Does our annual report review how well we are maximizing
our talent assets?
° Do our executives and managers at all levels dedicate time to
being actively involved in training, coaching, and mentoring?
° How do we develop the people who report to us?
° Are we creating a learning culture where continuous
development and coaching are the norms?
° What are we doing to build a strong leadership pipeline to
ensure our leaders are prepared to lead in the future?
° What are we doing to develop emerging leaders? Do
they have clearly defined development plans to help their
career progression?
° Are our organization’s leaders held accountable for
modeling our values and leadership behaviors?
° What types of flexible rewards and recognition am
I implementing to motivate a diverse workforce?
° What metrics do we report on and monitor that help
us anticipate key talent trends?
° How does our talent compare to the talent at our
fiercest competitors?
*connectedthinking