View Issue 14

viewIssue 14 28 The anytime, anywhere business opportunity 42 Defining a new CEO agenda 54 Interview with historian Niall Ferguson Seeking value in a radically changing world 10 Striking the innovation balance Departments 2 My view Have you joined the dance? Bob Moritz 22 62 Two views Beyond open and closed innovation Rear view Are you aware of the misconceptions surrounding innovation? View points 4 6 7 8 Making over healthcare Combating cybercrime: The general counsel’s role Seeking shared agendas with governments How credible is your sustainability reporting? Features 10 Cover story Striking the innovation balance Discover the six tensions that most affect your company’s ability to innovate successfully. John J. Sviokla Page 24 Measuring innovation Tracking your company’s progress and benchmarking your efforts are essential parts of the innovation process. Christopher Wasden 28 The anytime, anywhere business opportunity Mobility is redefining the way companies work—delivering productivity gains in the near term and paving the way for more innovative business activity in the long term. Thomas R. Johnson Page 38 The technology powering business mobility An executive overview of the IT building blocks. Alan Morrison view Issue 14 Innovation is a balancing act. Find out how to master the art, page 10. 42 Defining a new CEO agenda The eight questions every business leader needs to consider in a post-crisis economy. Tom Craren 54 Interview Taking the long view Historian Niall Ferguson looks at politics, economics, and the “killer apps” that make or break civilizations. Interview by Gene Zasadinski Such advances are having a dramatic impact on how CEOs. it was clear that the world in which they are confronting their issues and concerns is changing radically.1 As we reviewed the CEOs’ responses to our questions. As in any period of change. stability. wherever in the world these stakeholders reside. because of cost considerations. and innovation resident in Western nations.By Bob Moritz Bob Moritz is chairman and senior partner of PricewaterhouseCoopers LLP. with growth prospects in those economies considerably higher than they have been. 2 PwC View issue 14 . to e-mobility. changes in technology are transforming the way companies do business and interact with their customers. partners. Earlier this year. The winners will be those that “join the dance” by embracing change and adapting to a new environment. “The only way to make sense out of change is to plunge into it. centers of power and influence are shifting. it has never been more of a challenge than during the recent economic crisis and today as we move forward with a post-crisis recovery. as both developed and emerging market countries redefine their roles in the new global landscape. employees. to social networks. As a means of achieving growth. and other stakeholders. My view Have you joined the dance? As philosopher and writer Alan Watts once said. and join the dance. Today. CEOs are turning to product innovation outside of their home markets and are involving customers. Historically. Take innovation. For example. However. and boards are adapting to change. The losers will be those that hold on to the status quo and allow sweeping change to overwhelm them. From cloud computing. CEOs are just as likely to focus on the innovation needed to develop new products and services. management teams. CEOs have targeted emerging economies as suppliers. and with the quality. we published the 14th edition of our annual global CEO survey. Sourcing is another example. In addition.” While coping with change (and risk) has always been a key factor in a global economy. winners and losers will be determined by leadership’s response to these and other challenges we are seeing. innovation has never ranked as high in our survey as penetrating existing markets. for instance. move with it. and other partners in each stage of the innovation process. companies are gearing up for growth. but there doesn’t seem to be enough available talent to go around. it means that prospects for growth are driving a renewed confidence.2 3) overregulation. while this could change given the dynamic environment in which we operate. more and more CEOs are eager to partner with governments on shared priorities that are critical to business growth. In fact. and parts of Latin America. up from 21 percent in 2009 and 31 percent in 2010. particularly in the near term and specifically as it relates to corporate performance. such as workforce skills and infrastructure. 48 percent of survey respondents are very confident about their company’s prospects for revenue growth over the next 12 months. Send us your comments at pwc. Other strategies include finding ways to better leverage underutilized talent pools. Depending on how you look at it. 14th Annual Global CEO Survey. the top four risks are dominated by threats related to government policies and talent: 1) recession/economy. 2011. The winners will be those that “join the dance” by embracing change and adapting to a new environment. President Clinton said the following: “Rarely have Americans lived through so much change in so many ways in so short a time. CEOs’ perceptions of risk are also changing. two-thirds of CEOs believe they are encountering a limited pool of skilled job candidates. This year. PwC View issue 14 3 . delivered January 27. these currently do not rise to the top of the list. but are doing so precisely and selectively. 1998. 3 William Jefferson Clinton’s Sixth State of the Union Address. As we point out in our survey. countries such as the US and Germany have joined the ranks of China and other emerging economies as significant future sources of supply. they have plunged into change. So what does all of this mean for businesses moving forward in a post-crisis world? First. strategies for managing talent are prominent on the CEOs’ agendas and include more non-financial rewards such as training and mentoring programs and more international assignments. This is not to say that CEOs are unconcerned with other risks ranging from energy costs and inflation to higher taxes. and finding new ways to compete and win. 2 New options. CEOs are confident about the future. those words are even more applicable today than they were a decade or so ago.The losers will be those that hold on to the status quo and allow sweeping change to overwhelm them. What’s yours? We’d like to know. and joined the dance. However. For growth initiatives. recognizing significant change. they have abandoned a scattershot approach and are selectively targeting these to emerging markets that offer the most promise—markets where recovery is expected to be strong. Back in 1998. Growth prospects are driving the need for qualified people. In short. 1 Statistics presented in this column are from PwC. The difference is that today’s successful companies are much better than their predecessors at responding to change by refocusing.”3 Clearly. That’s my view. And they don’t want to go it alone. and 4) availability of key skills. Second. India. 2) public deficit. In fact. This is an area where the US can and must do better.com/view. adapting. it means that. a situation even more acute in high-growth regions like China. talent is a concern or an opportunity. moved with it. For these reasons. The minimum percentages that must be spent on medical services are 80 percent for small employers (those with fewer than 100 employees) and 85 percent for large employers (those with 100 or more employees). beginning this year. Research has shown that higher deductibles 4 PwC View issue 14 . legal. Thanks to a massive government infusion of stimulus dollars. which means connecting to other providers and patients. More than half of physicians surveyed by PwC’s Health Research Institute (HRI) said hospitals and physicians will become more closely aligned through ACOs in the next five years. which measure the portion of insurance premium dollars spent on medical care. 3. Health information technology. but only if they adhere to a complex set of quality. 4. for the first time. employers are increasing the levels of coinsurance. But what are the most significant issues in play? A recent report identifies six. In 2011.300 modifications that must be made by January 2012. a new coding system that will add five times the number of current diagnosis and inpatient codes. and HIPAA 5010. and operational rules that leave little margin for error. State legislative activity around those exchanges is expected to be high in 2011 as states seek to meet the certification deadlines set for 2013.1 1. the first round of which starts in January 2012. At the same time. one thing’s clear: The healthcare industry in the US will never be the same. 2011 will be a peak year for doctors and hospitals to buy electronic health records. Consumer healthcare spending. Accountable care organizations. a new electronic transaction system that requires more than 1. Health insurance reform. and employers. To conform to the new health reform law. insurers must either spend a certain percentage on care or pay rebates to members. Accountable care organizations (ACOs) must achieve both cost efficiency and high quality to stay in the three-year program. At the same time. pharmaceutical and life sciences companies. 2. because the model is so new and the draft regulations seem so complex. the federal government will issue grants to states so the states can plan and establish American Health Benefit Exchanges and Small Business Health Options Program Exchanges.View points InDusTRy TRenDs Making over healthcare While there’s still a great deal of uncertainty around the specifics of healthcare reform. most employers are expected to require that a deductible of $400 or more be built into their health insurance plans. But they can’t just install them to get the stimulus money. They’ll need to demonstrate so-called meaningful use. However. providers as well as insurers must make changes to their administrative systems to support both ICD-10. Under the health reform law. In addition. Medicare is offering a new payment model in which physicians and hospitals can share in any savings generated. providers are carefully analyzing whether the program is worth the performance and financial risks. Insurance companies will spend a lot of time worrying about medical loss ratios. And 2011 is shaping up to be a makeover year for healthcare providers. which are online insurance marketplaces. health insurers. 5. Sources consumers are most likely to use for online healthcare information 12% Consumer-driven organizations 16% Health service and manufacturing companies 16% Government organizations 56% Media/information service companies Source: PwC’s Health Research Institute.2 Physicians. 40 percent of individuals said they would buy a personal health-monitoring device or pay for a monthly subscription to send health information to their providers. are demanding full access to health data. private equity investment is likely to increase. While 88 percent of physicians said they would like their patients to track their health information. patients want easy and widely available access to more and more health-related information. Also. December 2010. too. Some of those ventures—for example. healthcare suppliers’ acquisitions of providers or pharmaceutical and life sciences companies moving into patient care—would have been unlikely just a short time ago. The danger lies in whether short-term cost avoidance could lead to more-expensive conditions in the long term. Follow-me healthcare. Top health industry issues of 2011. 1 PwC’s Health Research Institute. In the digital age. Consumer Survey. 2010 PwC View issue 14 5 . 2 PwC’s Health Research Institute. 6. With healthcare undergoing considerable changes. But not just any information source will do. Consumer Survey. companies in all sectors of the industry will continue to pursue strategic mergers and acquisitions.and coinsurance levels push consumers to make hard decisions about how often to go to the doctor or what prescriptions to fill. Although healthcare organizations are investing resources to produce online content. 2010. individuals seek healthcare information from third-party media and information service companies three and a half times more than from any other online health-information source. Such activity is blurring the lines between providers and payers as they formulate post-reform strategies. That’s likely to be especially true in a slowly recovering economy. unlikely M&A deals. View points RIsk Combating cybercrime: The general counsel’s role Cybercrime is rising. Estimates of losses from intellectual property and data theft range as high as $1 trillion.1 Last year, a criminal hacker was sentenced to 20 years in prison for stealing more than 170 million credit and debit card numbers, making it the largest identity theft case the Department of Justice has ever prosecuted.2 With legal risks high, companies have to be diligent whenever a system is breached. Yet according to a recent report, the general counsel is often the last person to find out about a cybercrime.3 Cyberattacks aren’t just an information technology (IT) matter. Legal obligations, damages to the organization, and business relations with customers are all reasons that the general counsel must act promptly when a company’s systems have become compromised. This means acting after a breach is detected, not merely after data are actually stolen. Also, special rights exist for cybercrime victims if the victimized company initially investigates after a breach occurs. For instance, employers can obtain injunctive relief against former employees who improperly access a company’s digital information. Many times, general counsel isn’t even aware that a company’s systems have been compromised, which puts the business at risk for litigation and fines. Why are they often in the dark? Although IT professionals are usually the first to know when a breach occurs, they might not report the breach within the organization for fear of losing their jobs. And when the general counsel becomes aware of the system breach too late and investigations have already occurred, companies lose out on a privileged status, which helps protect breached companies if they get sued by external parties or investigated by regulators. Facing cyberthreats doesn’t have to be daunting. Acting in a timely way and creating better communication avenues with IT staff can lessen the risks associated with compromised information systems. General counsel can become better equipped to deal with cybercrime by learning more about technology trends, by establishing an information security council, by developing a response plan that includes periodic testing and clear guidelines on how to respond and when, and by having a cyber forensic investigator on retainer. There is no doubt that cyberattacks can be detrimental to a company and its reputation. But general counsel can play a pivotal role in protecting an organization if they are first—rather than last—on the cybercrime scene. 1 http://www.whitehouse.gov/assets/documents/Cyberspace_ Policy_Review_final.pdf. 2 http://www.justice.gov/usao/nj/press/press/files/pdffiles/ dojgonzalez0326rel.pdf. 3 PwC, Why cybercrime matters to general counsel, February 2011. General counsel can play a pivotal role in protecting an organization if they are first—rather than last—on the cybercrime scene. 6 PwC View issue 14 CEOs see shared commitments with government as a way to achieve public outcomes Percent of CEOs who believe the following should be top priorities for the private sector and the government. Government priority Private sector priority Source: PwC, 14th Annual Global CEO Survey, 2011 Shared priority 6 60% Creating and fostering a skilled workforce Improving the country’s infrastructure Ensuring financial stability and access to affordable capital 45% Generating innovations and safeguarding IP Maintaining the health of the workforce Reducing poverty and inequality 30% Securing natural resources critical to business Protecting consumer interests Addressing the risks of climate change sTRATegy & gRowTH Protecting biodiversity and ecosystems Seeking shared agendas with governments As businesses around the world recover from the economic crisis, governments are lagging behind. Facing a set of unprecedented financial challenges, governments, especially in the West, are looking at spending cuts and tax increases as a means of tackling fiscal deficits and public-sector debt. According to PwC’s recent global CEO survey, business leaders are showing some concern over that approach: 61 percent say the government response to fiscal deficit and debt burden is a threat to their businesses because those actions are believed to slow economic growth and potentially increase business tax contributions.1 At the same time, however, CEOs are looking to enter strategic and collaborative relationships with governments in order to pursue their own growth agendas. CEOs are looking beyond government’s fiscal responsibilities to its role as an enabler. By helping create jobs in the private sector and by investing in infrastructure, governments can create an environment conducive for growth, one that would support fiscal and financial stability in the long term. In fact, almost half of CEOs surveyed agree with that notion, saying that improving the country’s infrastructure and fostering a skilled workforce should be government’s top priorities. CEOs are also willing to share some of those responsibilities. More than 70 percent plan to actively support new government policies that promote economically, socially, and environmentally sustainable growth. For instance, over half of all CEOs surveyed say collaborative efforts will help combat global threats like climate change. The strongest area in which businesses see a shared agenda is in the need to collaborate to create a stronger workforce. Fifty-four percent of CEOs surveyed plan to work with governments and education systems over the next year to improve the talent pool. The global rise of charter, or trust, schools—public schools that are funded and managed by the corporate sector—is one example of the types of partnerships between government and business that are growing. Overall, CEOs understand that they and the public sector share a purpose: to create an environment of competitiveness as well as social well-being. 1 PwC, 14th Annual Global CEO Survey, 2011. PwC View issue 14 7 View points 82 48 63 23 37% 12 # 1 susTAInAbIlITy % 55 How credible is your sustainability reporting? Businesses increasingly want a second pair of eyes to verify their corporate sustainability reporting.1 Why? It’s important to give stakeholders comfort that the information is credible and to uncover areas for performance improvement. CEOs and boards are recognizing the benefits of corporate responsibility reporting: increasing their profitability, reducing supply chain risks and costs, and garnering sustainability ratings and recognitions, to name a few. Leadership and external stakeholders are setting higher standards for sustainability performance goals such as reducing water use, waste, or greenhouse gas emissions throughout the company and its supply chain; setting revenue goals for products that have environmentally friendly attributes; and lowering costs by improving energy efficiency. Therefore, on corporate websites, in press releases, in annual reports, and in corporate responsibility reports, companies are disclosing their own metrics on sustainability variables such as greenhouse gas emissions, safety records, and community contributions. Simply by disclosing commitments and performance goals, companies imply that the information can be used for determining a company’s health. But companies are still new at this practice and many are using rudimentary and manual methods to collect data. A more rigorous tracking and data collection process, then, will enable companies to better assess risks and opportunities at all levels of the business; to feel confident that their baseline measurements are accurate; to be able to enhance trust with stakeholders; and to ensure fewer errors and restatements. When companies use data that are outdated or when they restate key metrics from year to year, chances are their reporting programs are not reliable. Certainty with regard to ranges also matters. Half of the companies surveyed for the 2010 Carbon Disclosure Project reported greenhouse gas emissions within a 5 percent range of certainty. But 25 percent of those same respondents did not disclose information about uncertainty ranges, or they do not evaluate uncertainty at all.2 Equally important is the publication in which metrics get reported. Many executives are reluctant to publish sustainability data in their companies’ financial reports, fearing that stakeholders would scrutinize the sustainability performance metrics as carefully as they do the companies’ financial results. Those who do publish are implicitly 8 PwC View issue 14 companies need to be credible with respect to sustainability. Creating value from corporate sustainability: Does reported data get the respect it deserves? February 2011. September 2010. 1 PwC. 2011 2000 823 reports PwC View issue 14 9 .The rise of sustainability reporting Number of corporate responsibility or sustainability reports issued (global sample) 2010 4.579 reports sending the message that the environmental and social data have the same rigor as the financial data—but chances are they don’t. third-party verification. companies can also subject their sustainability data to independent. Ultimately. 2 PwC. Aside from building a process of disciplined data collection and analysis. that’s not the endgame. Carbon Disclosure Project 2010. Already. Source: CorporateRegister. two prominent rating organizations—the Dow Jones Sustainability Index and the Carbon Disclosure Project—seek some level of independent verification as part of their assessments. To win stakeholders’ trust.com. companies need this information to drive operational efficiencies and facilitate innovation. While reporting gives stakeholders visibility into company practices. How? New software programs exist that will enable companies to automate reporting functions and improve performance metrics. Cover story Striking the innovation balance Seeking value in a radically changing world 10 PwC View issue 14 . Sviokla helps you answer those questions and more. The good news is that innovation is climbing to the top of the CEO agenda as a primary strategy for achieving profitable growth in a post-crisis economy. In consumer markets. Samurai Miyamoto Musashi was a great innovator. the shift is from Western to Eastern dominance. innovation is rising to the fore. to succeed in a changing world. No need to name names. business strategy and innovation leader John J. You know who they are. In short. we are seeing a set of major shifts that are changing the underlying structure of competition on the world stage and establishing a new playing field. today’s leaders must excel at their core capabilities while cultivating broad skills and understanding in others. What characterizes the post-crisis economy? Our research suggests that a number of fundamental shifts are altering the nature of global commerce. Fast forward to today. Is your company innovating to its full potential? Have you thought about your innovation goals and about how to achieve them? In this article. Resources that once were plentiful are becoming scarce. and part-time architect. Historians wonder whether this samurai’s ability to balance hard fighting skills and artistic intellect enabled him to be a dominant force in the clan wars that characterized the tumultuous world of his time. where the majority of growth is occurring. Sviokla John J. His two-sword (nitojutsu) style of fighting made him victorious in many battles. Ignore innovation and watch your competitors pass you by. Like Miyamoto Musashi.By John J. including 60 duels. and watch your resources and efficiencies drain away. He also introduces the six tensions that most affect a company’s ability to innovate successfully. Successful leaders in the post-crisis economy also will need to strike a balance by simultaneously innovating for long-term differentiation and short-term efficiency. innovation has gained prominence among global chief executives’ strategic priorities PwC View issue 14 11 . As a strategy designed to help companies succeed in this new environment. He was also an accomplished calligrapher. The bad news is that the ash heap of business history is littered with companies that have failed to innovate. According to PwC’s 14th Annual Global CEO Survey. Miyamoto Musashi 1584-1645 Executives know that their decisions have consequences—none more powerful than in the area of innovation. in their senior executive teams. More countries are continuing to move away from planned economies to quasi-marketor market-based systems of competition. In strategy it is important to see distant things as if they were close and to take a distanced view of close things. Sviokla is a principal in PwC’s Diamond Advisory Services where he serves as business strategy and innovation leader. sculptor. Do it the wrong way. most important. 2011 (1. 2011 12 PwC View issue 14 . a normal reaction is to retreat to the known. But this is a dangerous assumption. Take the case of a conglomerate based in a developing nation that created a refrigerator specifically for the rural residents of its home country. they are using innovation to win battles on two fronts by simultaneously increasing new revenues and driving efficiencies.084). Open innovation or proprietary investment 5.198). the core of “innovation balance” can be achieved when leaders learn to reconcile the tensions within six aspects of innovation: 1. companies in any industry that are not paying attention to similar developments may be blindsided by a disruptive innovator who resets the competitive rules. (See Figure 1. nervously hoping that change will mercifully pass by without effect. No longer focused on generic products and services suited to all markets. The unit employs innovative technology to maximize affordability and functionality. Short-term results or long-term commitment 4. 14th Annual Global CEO Survey.No longer focused on generic products and services suited to all markets. 2009 (1. We now inhabit a world where threats may arise quickly and unpredictably. CEOs are basing their innovation efforts on their customers’ needs. sometimes almost by accident. CEOs say they are just as likely to focus on innovation to achieve growth as on exploiting existing markets. According to our survey.) But approaches to innovation need to keep pace with the dramatic changes occurring in the global business landscape. balancing innovation tensions Of course. 2010 (1. Low-cost products such as this will benefit the more than two billion developing-world consumers who have a limited amount of money to spend.201) Note: Percentage of CEOs who see the following as the main opportunity to grow their business in the following 12 months Source: PwC. as a means of boosting revenues and reducing costs. no firm is immune When people and companies face tumultuous environments. While competitors in the cooler or fridge business need to take heed. wherever in the world those customers happen to be.124). CEOs are basing their innovation efforts on their customers’ needs. This is why CEOs believe innovation is critical to their near-term success. Incremental or radical innovation Figure 1: CEOs have a new commitment to innovation 40% 37% 31% 38% 30 29% 23% 20 20% 21% 14% 19% 17% 15% 13% 10% 20% 15% 14% 11% 17% 14% 10% 2. wherever in the world those customers happen to be. relative to other goods in its class. for the first time.150). One innovation process—or two? Increased share in existing markets New geographic markets Mergers and acquisitions New product/service development New joint ventures and/or alliances Base: 2007 (1. Management or leadership 3. in this challenging environment. Organic or acquired innovation 10 13% 13% 0 2007 2008 2009 2010 2011 6. However. In fact. there is no cookbook approach to innovating successfully. 2008 (1. ” But. PwC View issue 14 13 . within each it is difficult to accomplish both objectives. their talent would have rejected the idea. those attitudes. and to do so sooner rather than later. But if you understand the tensions it can be done. innovation is always at odds with the key executive’s job. culture. products. an environment that fosters it. So. are anti-innovation. and the talent necessary to get it done. as Chris goes on to state. and services. Apple succeeded in doing this very thing because it had no vested customers in the music market. innovation. This is a fundamental job of the C-suite. Many of today’s leaders rose to the top by playing the existing game better than anybody else. That is. With increasing global competition and accelerated commercial improvement. most business school curriculums and management training programs foster such an approach. and even customers. The result is that companies reward those who make the current organization run smoothly. focusing on strategy and innovation. “The job of leadership is to make the current organization lean. Distribution partners. “If you look at the gross domestic product of the world over the last century—you see an exponential increase in the past 150 years due to the power of innovation. Tension 1 Incremental or radical innovation Should companies aim for incremental or radical innovation? The answer is both. After all. I suspect that if a major music label that serves artists had gone to its customers back in the 1990s with a value proposition of selling one song at a time instead of selling complete albums. the tendency is to treat it like incremental 1 Chris Wasden is a managing director in PwC’s Advisory practice. prefer the traditional path because they want tried-and-true solutions. first among them is that when radical innovation is on the table. while at the same time. admittedly. they understand the essential paradox of innovation: Because it injects tension into the organization. creating the organization of tomorrow. because that is the comfort zone where measurement is easy and return on investment is predictable. which. and it is not easy!” Why is embracing both radical and incremental innovation hard? There are many reasons. while necessary under certain circumstances. The leading firms navigate these complexities by combining action.Figure 2: Balancing innovation tensions Incremental innovation Radical innovation Leadership Management Long-term commitment Open innovation Short-term results Proprietary investment Organic newness Acquired newness Two innovation processes One innovation process These six tensions present core tests for leadership. more firms than ever have realized the urgent need to master these tensions. innovation can succeed only when there is a will to do it. Innovation powers all human progress. paradoxically. and performance to deliver ongoing innovation and value creation. As Chris Wasden1 points out. Unfortunately. is to foster that very tension. 000 employees of a global insurance carrier. These attitudes indicate that this company. the innovation space that a firm occupies is bounded by what the organization “thinks.” by the people with whom the organization regularly interacts. does not have the fundamental funnel process in place. If you read scores of books on innovation. funding them. progresses through selection and testing. My colleagues and I recently conducted a survey of more than 5. and they did not have faith that the organization could manage the process of listening to new ideas. their management teams. that company’s innovation will be constrained by what those innovators know. investors in innovation should diversify their risks. and by the customers with whom it does business. analysis.Figure 3: Innovation funnel Idea creation Selection and testing Scaling Tension 2 Management or leadership When it comes to innovation. and social sphere. as with any investment. but they did not know where to take their innovative ideas. If a company’s innovators compare their organization with others in its industry. 14 PwC View issue 14 . This involves several fundamental questions leadership needs to ask and answer: Am I hearing the best ideas? Are my people plugged in to the fact that a breakthrough idea may be coming from anywhere? Can I see what might strike our industry from an entirely different angle? Other critical questions are: What ideas do we consider? Whom do we interact with? Whom do we do business with? Put another way. can do so by applying the focus. does that person know where to take it? If the answer is no. All organizations need a funnel for innovation. companies need to decide how to strike a balance between managing the process and leading the context. and their organizations. whose job it is to fix this problem. This funnel begins with idea creation. money. A look at the history of entrepreneurs shows that they have deep hobbies and passions outside of work that find their way into new inventions or ideas. and commitment required. like many firms. But that’s the easy part. and building them. If they are in dialogue with those outside their firm. the chances of innovating are better. The trickier part is leading the context of a company’s top executives. They also believed that their organization could innovate. As with samurai Miyamoto Musashi mentioned earlier. and terminates with scaling. then the organization’s innovation process needs improvement. industry. The easiest way to understand this is to ask a simple question: If someone in an organization has a great idea. Most of the books will also speak to the importance of managing a portfolio of innovations—because. sorting them. and we found that they wanted to innovate. the image of a funnel will be embedded in your mind. a broad context can lead to competitive advantage. Leadership. a major investmentservices company. Tension 3 short-term results or long-term commitment Despite what pundits say. which allowed them to enable a customer to have multiple accounts across many mutual fund providers. The problem is not tolerating failure. investors who wanted to purchase new funds were required to pay a Schwab transaction fee to purchase a third-party no-load fund. Schwab had invested millions of dollars in the platform. They know that even as the teams in the firm create new and improved ways of doing things— everything from checking out at the local supermarket to improving the interface to a car’s navigation system—there will be from time to time a revolutionary approach to the market that might not immediately go as planned. Rather. organizations need not tolerate failure in order to innovate. Rather. It is this type of noble failure—well executed and seeking great value—that should be tolerated.Despite what pundits say. Senior executive teams that understand innovation also understand how to make an innovative difference in the marketplace. co-CEOs of Schwab. The organization was trying to create a no-load mutual fund marketplace. Yet. at the time. organizations need not tolerate failure in order to innovate. at the time. Schwab waived its fees at these test branches to see PwC View issue 14 15 . This was radical because. it is a matter of understanding that no revolutionary approach that I know of has ever been right the first time. Without yet having any other sources of revenue associated with these transactions. Let me offer an example involving Dave Pottruck and Charles Schwab. Despite the fact that Schwab had collected almost $2 billion in assets on this new platform over an eight-year period. it is a matter of understanding that no revolutionary approach that I know of has ever been right the first time. it was not the game changer that management expected. the firm continued to invest and to try to figure out how to make this good idea into a great idea. The problem is not tolerating failure. Pottruck and Schwab decided to do an experiment in which the firm did not charge its customers anything to purchase a new mutual fund within its portal. suppliers. That is the challenge for senior management. or talk with an executive at Procter & Gamble (P&G) to see the power of involving customers. see Two views on page 22. The idea was a huge success. traditional partners. and the stories are compelling. they had it wrong for years before they got it right. So. In determining how to achieve the right balance of open and closed innovation. Many institutions aggressively protect their intellectual property and stop others from using it—often to great advantage. No-Load Mutual Fund Marketplace was born.” At the same time. as Pottruck is quick to note. to computer software. even in this world of increasing openness there is a very valuable role for a closed approach when it comes to innovation. . to drug creation. As the saying goes. what customers would do. They found that customers flocked to Schwab because they had enormous choice without any extra costs. Pottruck and Schwab had in effect changed the entire nature of the pricing and power structure in its industry—and almost all companies have followed suit. However. they were willing to tolerate what Pottruck calls “noble failure” on their way to success. One need only look at iTunes.Even in this world of increasing openness there is a very valuable role for a closed approach when it comes to innovation. Thus. In other words. the No-Fee. Schwab then used this experience of enhanced volumes to negotiate with a pilot group of no-load funds to absorb Schwab’s fees. “No one is as smart as everyone. great fortunes are made in types of businesses that are extremely closed. there are three key questions to consider: 1) What parts of the project are open to whom? 2) For what purpose? 3) Who gets to extract the value? For a detailed discussion of each of these questions. and even some non-traditional ones in the process of innovating. resulting in the firm’s garnering hundreds of billions in assets. from investment banking. Tension 4 open innovation or proprietary investment There is much energy around the notion of open innovation. it also means a radical shift for the company itself and for the healthcare industry. we have to innovate just to stay in business. As Paul Nutting. Nutting explains: “We’ve always focused on providing innovative solutions and services to our customers. A key aspect of the program is technology innovation with a particular focus on mobile and social media. We have to be able to connect with that new consumer and understand their priorities. So for us as an organization. HCSC is focusing on using mobile devices to help physicians get the information and tools they need to provide personalized and cost-efficient care. Our objective is to be a partner for life.” After considering a number of alternatives. These tools are intended to empower our members with better information and to become better consumers of healthcare. rising costs become a problem for everybody.” While using technology in a new way means big changes for HCSC’s customers. “When we looked at our capabilities and at what we wanted to achieve. the mobile platform seemed the best means of achieving that goal. YouTube. these capabilities working together can start to dramatically change how healthcare is delivered. According to Nutting. can help to keep people healthier by encouraging and enabling prevention.Innovation at HCSC things that will fundamentally change the system. the mobile platform offers a unique opportunity for HCSC to engage with its customers and take costs out of the system. “Almost everyone has a mobile device that is dramatically accelerating communication and connectivity.” he says. They are also developing mobile applications that help people better manage and track their illnesses. “These things are a small subset of the innovation going on in healthcare.” HCSC’s mobile innovations include public sites that allow customers to shop for insurance and to find physicians and hospitals.” says McGuffin. and now technology is helping us to do that quicker and better. innovation is not a luxury—it’s a necessity. Healthcare reform and changing customer expectations are just two of the challenges facing large organizations like HCSC and their customers. As Nutting sees it. Everybody will benefit. “We’re using Facebook. and Twitter to take customer engagement to another level.” At Health Care Service Corporation (HCSC). electronic commerce notes. “We want to stay connected to our customers. which is information they can share with their physicians. “If we don’t innovate. Large employers cannot afford continuous cost increases and still compete in their markets. Addison McGuffin.” In response to these challenges. business technology innovation explains why: “Children today can’t remember a time when there wasn’t a Facebook or an Internet. the country’s largest customerowned health insurer. and can significantly reduce costs. the mobile platform seemed the logical choice. Features include the ability to check on claims and other coverage matters and to access information on specific conditions such as maternity care and on managing specific diseases such as diabetes.” Today. HCSC’s vice president. HCSC has launched an innovation program that it hopes will fundamentally change the way healthcare is delivered. Another is rapidly rising costs. “but they are enabling other PwC View issue 14 17 .” he says. HCSC’s senior director. 2010. Some organizations buy others to acquire strategic capacity. Still others acquire to expand their product lines. or P&G purchasing Gillette. Others do it to grab a position in a growing market before it is too late. 18 PwC View issue 14 . “US sources place merger failure rates as high as 80% and evidence indicates that around half of mergers fail to meet financial expectations. The vital insight in this increasingly competitive environment is to keep in mind that all innovation decisions are also build-versus-buy decisions. as they look at their own innovative capacity. Tension 5 organic or acquired innovation Most large organizations acquire that which they cannot build. a robust and continuing appetite exists for organizations to acquire their innovation in addition to building it. through investment. through investment. It is vital for all organizations. acquisition is always on the table—especially in a fastmoving world of competitive options.” November 30. It is almost always possible to acquire the innovation you might want. that which cannot be homegrown. 2 Cited by Toby Elwin. And they are manifest. It is vital for senior executives to keep in mind the ability to bring in.A robust and continuing appetite exists for organizations to acquire their innovation in addition to building it. to decide if they are better off living with the known risks of acquisition and integration. For most companies. it takes an enormous amount of managerial courage to acquire an organization within their “sweet spots” because of the underlying fear that they have been bested on their core turf. Whether it is Google buying YouTube for $1. “Mergers and acquisitions failures are project management failures. It is vital for senior executives to keep in mind the ability to bring in.com/blog/mergers-and-acquisitions-failures-areproject-management-failures#. or at least the germ of an innovation that your organization needs.”2 Nevertheless. that which cannot be homegrown. For example. at http:// www.65 billion in stock back in 2006.amajorc. and. 14th Annual Global CEO Survey. like George Hatsopoulos.78% of CEOs expect their innovations will lead to significant new revenue opportunities over the next three years. These might be on their way to figuring out how to reconfigure an industry. Source: PwC. but more radical innovations often need a separate structure so that the “mother ship” does not overwhelm the effort. or same set of partners to create both incremental and radical innovation. it is possible for an executive team to have a healthy and vigorous internal process for incremental and sustaining improvements. same investment committee. Many seasoned executives are accustomed to separating out new and different business ideas so that they have an ability to germinate outside the “normal” process. The implementation approach for incremental innovations is one that is compatible with an existing company’s systems. PwC View issue 14 19 . the existing capital budgeting and assessment systems of an organization are very good at incremental innovations but terrible at radical ones. Companies that are still run by their founders often are willing to fund new. or at least an ability to craft a unique solution when a product is created that has the potential to disrupt an entire industry. management needs to be willing to tolerate noble failure from these more radically minded groups—as long as they have not had a failure of concept or execution. at the same time. In general. the founder of Thermo Electron. In my experience. those executives who want both incremental and radical innovation must be willing to have two innovation processes. 2011 Tension 6 one innovation process—or two? The final. This innovative structure allowed Thermo Electron for a time to grow into a massively profitable. it is very unlikely. would spin out a new business every time someone had a good idea. Or at least. He managed to create an organization that delivered enormous value over the years. multi-billion dollar company. have a different process for radical improvement or change. it is not possible for the same people. As a general rule. and between spin-outs and acquisitions. Also. Some. the group grew to a few hundred companies. More simply. and perhaps most difficult challenge for senior executives is determining whether an organization needs one innovation process or two. In addition. breakthrough initiatives. a robust mechanism existed to fund the new companies with capital from the core company—allowing everyone to prosper. the good news is capitalism is winning. First they must decide how much they need to innovate and where growth will come from. Technology and globalization have combined in a crucible from which have sprung vast new networks of supply and As Miyamoto Musashi noted. The real leadership challenge is to understand how to achieve the right balance for any organization in its particular setting. Second. leaders must take a close view of distant things and a distanced view of close things. Third. and with more vengeance than ever before. With regard to innovation. and most important as well as difficult. faster. they need to create an innovation process. that’s also the bad news.winning the challenge Based on my experience helping companies to innovate. Ironically. management needs to assess where they are in terms of the six aspects of innovation I’ve discussed in this article. The important thing to remember is this: Innovation is coming to every industry. the challenge for the senior executive team is threefold. if one does not already exist. 20 PwC View issue 14 . But there’s another group of companies. customers will be rewarded by continuing to get more for less. as competition heats up. Leaders who leave behind a legacy of didactic thinking and normative advice are doing their organizations a huge disservice by dooming them to a future of mediocrity. On the other hand. And there’s no going back. leaders must take a close view of distant things and a distanced view of close things. if you will. Growth is a given. But the trajectory is clear. Leaders who prepare their organizations for the future by leaving behind a legacy of inquisitiveness and bold thinking assure their companies a lifetime of success. and everyone wants a piece of the action. People and ideas are more connected and are moving faster than ever before. On one hand. that brings something more to the table in the form of a legacy of curiosity and experimentation.demand. companies that innovate successfully will reward their shareholders as well. The speed of innovation and improvement is increasing—a phenomenon called the law of accelerating returns. This makes for a vibrant but also hyper-competitive business landscape. the best leaders are looking again at the innovation balance of their organizations and making sure that they are prepared to encounter both the promise and the peril of a world that is changing faster than ever before. In response. Are you among them? . an elite group. As Miyamoto Musashi noted. • Reduces time to market. Open innovation employs such techniques as crowdsourcing. by inviting customers. • Provides maximum control. partners. new drugs. Under the open innovation model. movies. share their knowledge when doing so does not jeopardize their own competitive positions. and other stakeholders to participate in the innovation process. • Projects not dependent on complex science or high levels of integration. conversely. • Examples: consumer products.” June 2004 at http://oreilly.Two views Until the early 21st century. and that closed doors stave off competition.3 2) minimum efficient scale. it occurred within the boundaries of an organization and was performed by the company’s own employees within its internal R&D function. both closed and open innovation practices can be selected and adjusted to accomplish your innovation objectives. • Projects that involve products that are small scale. • Examples: New weapons systems. • Places the broadest range of ideas on the table. These questions are actually derived from three design principles associated with innovation: 1) architecture of participation.” See his article. Why? Innovation is almost never an either/or choice. and more modular. and other Internet-enabled communications. beyond open and closed innovation While for discussion’s sake it’s convenient to consider these two models as discrete approaches to innovation. wikis. “The Architecture of Participation. and. • Projects where secrecy or protection of intellectual property is paramount. This model is based on a number of assumptions that have changed radically in today’s marketplace. companies can and should take advantage of the wealth of knowledge that exists outside of the organization. That is. depending on a company’s innovation goals. • Shares and therefore mitigates risk. Have you thought about which model is right for you? Closed innovation Open innovation Rationale • Exploits talent and knowledge that are known quantities. in 2006. they are rarely applied in a vacuum. and concerns. needs. Suitability • Projects involving complex science or a high level of integration. Open Innovation: The New Imperative for Creating and Profiting from Technology. • Cost effectively expands an organization’s talent base. • Provides insight into customer attitudes. 3 This term is used by computer book publisher Tim O’Reilly “to describe the nature of systems that are designed for user contribution. These include the notions that internal resources are most reliable and trustworthy and always superior. most innovation was closed. music. However. As most companies have discovered. • Keeps competitors at bay. So how is this mix configured? One approach is to analyze each innovation project through the prism of three questions: 1) What parts of the project are open to whom? 2) For what purpose? 3) Who gets to extract the value? If these questions are asked and answered in advance of an innovation project. infrastructure projects.com/lpt/a/5994. Both models are employed today and each has its place. the fact is. • Provides insight into the unique features of a new product/service. 22 PwC View issue 14 . more open. • Protects intellectual property. whereby large numbers of people are invited to contribute ideas around an innovation goal. • Projects where secrecy and/or intellectual property are not issues. their innovation goals involve a complex mix of closed and open innovation that is uniquely tailored to their innovation objectives. Open innovation is greatly facilitated by the meteoric rise of social media. blogs. the concept of open innovation was popularized by Professor Henry Chesbrough in his book. and 3) value extraction and control. paconsulting. Companies like Intel. The direction of that flow determines how open or closed the approach to innovation will be. investors. participants. For example.com/our-thinking/ what-does-open-innovation-mean-to-pharmaceutical-research-and-development-and-how-can-it-be-realised/. drug development. For example. such companies are not in the business of sharing their vast process and manufacturing knowledge in any truly open way. the approach will be very open and all of the value will go to consumer surplus (what’s left when value produced exceeds consumer cost). So. the classified ads section of a newspaper has a very clear architecture of participation. If. “What does open innovation mean to pharmaceutical R&D and how can it be realized?” at http://www. this is a set of rules governing who can participate in a system (in this case. Minimum efficient scale Minimum efficient scale involves the lowest cost at which a product or service can be produced and helps determine how competitive the product or service will be in a given market. if the innovation involves an open-source software product dependent on collaboration for development. for instance. the concept has broad application. platform hosts. See. about value.Innovation is almost never an either/or choice. and in particular R&D. value can flow to a number of constituents. market-based innovation always involves an architecture of participation. understanding this is essential if meaningful innovation is to take place. in reality innovation is a complex dance with many steps and rhythms that intersect and interplay as the process moves forward. 4 However. Depending on the product or service. including creators. for example. open only in a limited sense. spend millions creating new chip plants. for instance. In any organization. Products like Internet music and movie services also invite participation. The same is true with.4 Scale also comes into play when the cost of creation runs high. ultimately. the newspaper can exclude inappropriate content and controls the format. Not limited to innovation. so some sharing is bound to occur. however. but there are rules. The idea of minimum efficient scale can be related to many things. for example. their innovation goals involve a complex mix of closed and open innovation that is uniquely tailored to their innovation objectives. Depending on your product or service. Some sharing of risk occurred. Deciding how to use the optimal blend of open and closed systems to invite participation and innovation while maximizing economic value is the job of the highest levels of leadership. Architecture of participation Basically. As most companies have discovered. then the value derived is more dispersed and the approach is likely to be more of a balance between open and closed. but the innovation process was PwC View issue 14 23 . For example. where there is sometimes limited sharing but gated openness at best. the more open the approach to innovation. However. It is one way of determining how open or closed your approach to innovation can or should be. a huge amount of R&D investment was needed to get the first one out the door. if the innovation is likely to involve millions of dollars and result in an innovative product in a market with a large number of competitors. the approach is likely to be more closed than open. evidence is beginning to emerge that suggests pharmaceutical companies are moving to more open structures because their closed structures have failed them. The higher the level of participation. Value extraction and control Innovation is. when the CAT scanner was first invented. and customers. This impacts the innovation investment and how open or closed the innovation initiative will be. an innovation initiative) and in what capacity. users. the innovation involves a service that solicits customer ideas that are then approved and distributed. The bottom line is that while in theory it’s easy to silo approaches to innovation. While within certain bounds customers have control of content. InnoVATIon sCoReCARD Measuring innovation Lessons from the medical technology industry 24 PwC View issue 14 . focusing on strategy and innovation.By Christopher Wasden Christopher Wasden is a managing director in PwC’s Advisory practice. crucial supporting factors for innovation like powerful financial incentives and a supportive regulatory system.6 3. Previously.2 5. and where you want to be going forward. with 9 being the best rating possible for each dimension. we forecast their performance to 2020.8 8. With so many moving parts. PwC View issue 14 25 .0 6.” PwC. lessons from a country-level assessment Our first study. Japan. With innovation essentially being redefined. faster.3 8.3 5.8 1. are just as interested in seeing how they stack up: Are we competitive? What defines a leader—or laggard—when it comes to innovation in our domain? innovation pillar.9 1. China. innovation is born out of an organization in which the culture supports a dual-pronged approach to creating new value: 1) improvement-focused efforts and 2) invention-driven ones.6 Scores are calculated on a scale of 1 to 9. While focused on the medical technology industry. Medical Technology Innovation Scorecard: The race for global leadership. Other crucial partners in innovation. France. the insights and trends surfaced are valuable starting points for any company.7 4.2 2. one that prizes healthcare that is smaller.5 5. such as the academic research community or regional and national governments. the locus of the medical technology industry. looked at innovation from a country perspective.0 3. one logical question often bubbles up: How are we doing compared with other companies? This desire to benchmark innovation efforts against that of industry leaders and competitors isn’t limited to the private sector.) Based on this comprehensive data foundation. often selecting technologies—and assigning value—based upon features and functions but not necessarily on their ability to decrease healthcare costs while improving outcomes. In the new era of healthcare innovation. We assessed the capacity for innovation of nine countries—Brazil. the United Kingdom. 2011. PwC took this approach in a pair of recent benchmarking studies on healthcare innovation. Israel. consumers. or country to mere scores or bar charts? Yes. We collected and analyzed data for the 2005-2010 period.As businesses increase their focus on innovation.3 5.7 8. we believe you can—and should—measure innovation. or country serious about innovation. the Medical Technology Innovation Scorecard. as we explain in our cover story on page 10. Germany. (See Figure 1. and the United States—selected because of their strong medical technology market and innovation potential. then. industry. For many.8 7.0 6. as well as scores for each Figure 1: Medical Technology Innovation Scorecard sample This 2010 sample from the Innovation Scorecard shows how China and the US compare on 10 key dimensions. innovation might be characterized as an “I’ll-know-it-when-I-see-it” experience.5 9. governments. And. enabling delivery of care anywhere and helping to reduce healthcare costs. you can better cultivate and manage innovation. and private insurers are demanding a different kind of value. composed of dozens of metrics organized by what we call innovation pillars. India.5 3. can you really distill the investment and activities of a company. With a solid understanding of where you are now relative to your peers. and the full data set reveals that the US is experiencing the most rapid relative decline. we then calculated each country’s overall innovation score. see “Appendix. and less expensive.7 2. which has long been the United 1 For a detailed discussion of our methodology. the physician was the primary decision maker. Using these. United States China Powerful financial incentives Market incentives Healthcare incentives Leading resources for creative output Innovative resources Innovative output Supportive regulatory system Regulatory approval process Legal environment and impact Demanding and price insensitive patients Demand for healthcare Needs and infrastructure Supportive investment community Investment environment Medical technology 5. university.1 What did we learn? The very nature of industry innovation is changing—both the definition of what constitutes value and who determines it. institution. while China is accelerating most rapidly. they likely will move into emerging-market countries before taking on the United States’ challenging regulatory environment. by 2020. Devi Prasad Shetty in Bangalore who has perfected a $1. lessons from an academic research center assessment Our second study on healthcare innovation focused on academic medical centers and was conducted in partnership with Memorial Sloan-Kettering Cancer Center (MSKCC). 26 PwC View issue 14 . where the FDA struggles to keep pace with medical technology innovation. is also changing. For example.500 heart surgery by optimizing processes and applying supply chain principles—the same procedure with the same quality outcomes would cost more than 50 times as much in the United States.2 Universities represent an 2 PwC and Memorial Sloan-Kettering Cancer Center. Countries are finding that a superior regulatory process can create a competitive advantage. register new products. China. innovators refine process to the point that they can deliver high volume and high quality at a low cost. despite their comparatively less well-developed healthcare system infrastructures. Emerging-market countries such as Brazil. are quickly taking the lead in developing so-called lean innovation or frugal innovation.States. and begin earning revenue. If innovation isn’t measured can it be managed? How universities manage innovation through disciplined and novel measures. While at first glance. Today. with frugal innovation. and India. Such is the case with Dr. these insights may seem obvious to those in the medical technology industry—and many other industries—the significance of the Innovation Scorecard is that there is hard data to back up the assertions. While healthcare consumers will begin having greater influence on innovation than they have today because they are bearing more of the costs. The Scorecard also illustrates how the industry’s innovation pillars have changed and reveals a new set of factors that will be crucial for countries and companies as they seek to foster innovation going forward. compared with the United States. 2011. This new paradigm for the future will require medical technology companies to provide systembased solutions that deliver value—a radical departure from the current featurefocused approach that drives the system toward higher volumes rather than value. due to differences in the regulatory process in Europe and other regions. those in the United States may find themselves unable to readily access new products and services. Our study found that many companies are increasingly going outside the United States to garner clinical data. compared with the United States. they are going first to market in Europe and. and licensing. three major themes emerged: 1) Leading practices varied considerably across institutions in their approaches to patenting. universities. Measures of success Both Innovation Scorecard studies underscore why measuring innovation in an objective way and tracking progress over time are crucial parts of the innovation process. networking. That’s why the commercialization services of universities’ technology transfer offices (TTOs) are so important. very few companies. they often rely on incomplete measures. The corporate world is only now beginning to look for better ways to support and accelerate innovation and can learn from the leading practices and measures used in universities. marketing. these benefits are not fully realized. enhance the prestige of the institution. From our analysis. Below the scorecard compares nine organizations. 2) No institutions excelled in all innovation dimensions. Even with so much room for improvement. or countries measure innovation. they can better drive innovation in their organizations. and further advance research and development. funding structures.2 4.7 7 1 2 2 7 3 5. flagging the areas in which they ranked eighth or ninth as needing improvement. PwC View issue 14 27 . Overall score (9 = high 1 = low) 6. But by taking a comprehensive approach to measurement.5   9 4 3 3 6 8 6 6 4 1 7 8 8 3 5 3 7 5 5     8 8 4 1 2 2 1   Ranking (1 = high 9 = low) 2 2 1 2 2 4 4 9 5 9 1 6  1 5 4 5  8 6 6 6 6 9 7 2  9 1  8 3   4 9 8 3 9  7 5 7   9 7 8 Organization Organization Organization Organization Organization Organization Organization Organization Organization A B C D E F G H I Market Institutional Yield Productivity In/outreach Services Workforce Resources Needs  improvement essential component of the innovation value chain. we created an Innovation Scorecard that applied the same principles as our other study but was tailored to the academic research community. and. But why are some TTOs more successful than others? To find out. if they do.9 5. But until innovations are shown to have economic value.8 4.Figure 2: Innovation Scorecard example Businesses can use an innovation scorecard to understand their relative performance and identify which areas in their innovation process need improvement.1 3 5. Today.6 5. thanks to their resources and their knowledge of how to generate technologies that can improve people’s lives. We sought to identify the leading practices that can be applied— and then measured—to better manage the innovation process in the university setting. create commercial value. 3) No institutions have a robust system for measuring and managing leading innovation practices.7 4. resulting in measurable differences in workflow processes and outcomes.3 3. the university environment is ahead of most businesses in supporting and measuring innovation because of decades of open innovation and commercialization of their intellectual property. indicating that all could benefit from applying the leading practices performed at other universities. anywhere business opportunity How mobility is redefining the way organizations work 28 PwC View issue 14 .Innovation and technology The anytime. Pilots can more quickly access information. PwC View issue 14 29 . The company has worked closely with the Federal Aviation Administration and the application developer to rigorously test the safety of the device. 1 PwC. bookmark it for later reference. and reduce costs. commercial carriers such as Alaska Airlines3 have begun testing similar applications or are in the planning stages of doing so. But more than that. 2011. In this article. done. http://seattletimes. 46 percent say their information technology (IT) investments will be made primarily to support growth initiatives and take advantage of emerging innovations. or make relevant notes.By Thomas R. Businesses are reaping productivity gains in the near term—while paving the way for more-innovative business activity in the long term. 14th Annual Global CEO Survey. Johnson examines how mobility can transform business—and why formulating the right strategy for the organization is the first step. pilots can quickly zero in on the information they need. such as mobile devices and social media. March 5. business leaders nowadays are starting to take them seriously. Additionally. http://www. Instead.nwsource. the first in a series. it’s only a matter of tap. Johnson Thomas R. 2 Executive Jet Management press release. But those benefits are only the beginning: The real payoff comes when companies begin looking at the full spectrum of business mobility and how it can create new value for the organization. While just 12 to 18 month ago. enhance collaboration. for example. PwC Advisory principal Thomas R. When pilots at charter airline Executive Jet Management need to review a flight plan. paving the way for large commercial carriers to follow suit. iPad. 2011. PlayBook.” Seattle Times. No longer viewed as a strictly consumer phenomenon. Thanks to an Apple iPad mounted at knee level in the cockpit. Johnson is an Advisory principal in PwC’s Retail and Consumer practice.1 Take the airline industry. whose approval represents a significant milestone. smart devices enabled by wireless data networks are getting down to business. Meanwhile. and they no longer need to lug around 20 pounds of manuals or a heavy laptop.html. tap.2 Executive Jet Management is one of the first carriers to win approval for exclusive use of iPad-based navigational charts— no paper-based backups are required. 88 percent of US CEOs say they expected to make some change or significant change to their business strategies in the next three years because of consumers’ increasing use of mobile devices and social media.asp. and its customers.com/html/sundaybuzz/2014402413_sundaybuzz06.com/articles/pr20110211. they no longer wrestle with paper charts or access the information via specialized laptops. 3 “Alaska Airlines testing iPads in cockpits. and Xoom were barely on the corporate radar screen. In PwC’s most recent global CEO survey. smart devices like the Android. its partners. Companies operating within all kinds of value chains are embracing them to improve processes.executivejetmanagement. Eliminating industry-standard paper manuals or laptops is a productivity win for the airlines. but we believe that the current focus may not always yield the best results. Forward-looking business leaders across the board are considering mobile business opportunities from two perspectives: 1) How can we boost productivity in the next one to two years? and 2) Where can we add real value or make transformations in the next decade? busting mobility myths At present. To help ensure your company is looking at the full range of possibilities. and other externally facing activities. In our experience. interacting directly with the aircraft to handle routine tasks precisely and automatically according to the pilot’s instructions or the airline’s policies. here are four mobility myths to be mindful of. The danger is that they will not reap the biggest payoffs. such as GPS. In many organizations. customer touch points. The other side—mobility for internal or business-to-business projects—holds the an iPad in the cockpit opens up a world of possibilities—both in the near term to improve productivity and in the long term to transform an organization. What began as a more convenient way of accessing navigational information ultimately is creating a disruptive ripple effect for pilots. More-immediate payoffs include using tablets to accomplish tasks currently handled by other systems. And as carriers take a longer view.might design apps that serve as intelligent agents. airlines. While we believe consumer mobility initiatives are essential—virtually all consumer-facing businesses will need to develop the right strategy—they represent just one side of the coin. Myth 1: Mobility is about the consumer. and crew scheduling. business mobility may be garnering leadership attention. companies often look at mobility too narrowly or only through the lens of technology. even the whole industry: How can apps improve safety and service? How should pilots be trained to better utilize the technology? Do aircraft systems need retooling to better integrate with smart devices? And this kind of transformation isn’t limited to the airline industry. they . weather information. mobility is automatically pigeonholed as part of consumer marketing. Mobility is not just about data on a device. company leaders beyond the CIO will want to have a high-level understanding of the enabling technologies that make the mobile strategies realities. gaming. and key business users. A business will be just as interested in an expense-reporting app on a BlackBerry as it will be in a softwarebased agent that automatically reroutes a repair vehicle in response to real-time traffic data and notifies the registered customer of the new estimated time of arrival. Myth 3: Mobility is about the device. looking at mobility’s role both inside the business and in the consumer marketplace. . sensor-rich ones. which contains new possibilities for working and for creating new products and services. beyond smart devices and apps. bigger thinking yields better results. The linchpin here is operational data. and exploit real-time business events—often via the cloud—by using current business systems. see the second part of our series. Companies will be able to use mobile devices to access. This broader vision. such as highly calibrated restaurant equipment. as well as new. After all. including video. Myth 4: Mobility is about apps. analyze. And for their part. truck trailers.promise of being truly disruptive. is about the business prospering in the post-PC era. and rich media available? But these are decisions best made in support of a mobile approach that is integrated with a company’s primary business strategy. It goes without saying that technology is a fundamental part of a company’s mobility strategy. How will greater sensing capabilities and a variety of intelligent devices affect the way an organization works? Mobility runs the spectrum from apps to agents. aircraft. assets. combined with GPS location information and relevant rich media.” in the next issue of View. and e-books or any of a number of popular consumer apps to a business context. and searchable knowledge. trusted data. there are several important technology decisions to make: Do we standardize on a single device platform or support a bring-your-own-device model? Which app programming environment is right for us? How do we implement robust security? Do we have the wireless connectivity. suppliers.4 Myth 2: Mobility is about IT. “The anytime. and other devices with embedded systems. partners. it’s also about the capability to deliver interactive media in real time. Instead of wondering how to adapt digital newspapers. PwC defines mobility as an organization’s ability to digitally connect employees. and consumers from any location and in real time. Organizations that relegate mobility to the IT shop miss out on the broader perspective of the leadership team 4 For a detailed look at how businesses are using mobility to better engage customers and enhance their brand. high-definition images. Companies will want to take a balanced approach. they’re really just the tip of the iceberg. While smartphones and tablets are symbolic of the mobile opportunity. anywhere customer. For example. employees. in the field. data. The same goes for other early adopters in an organization. while the technology is rapidly maturing there remain questions around interoperability and security.why the time is now The picture of the anytime. on the floor Mobility efforts on the floor refers to those that focus on internal business processes: inside buildings and locations. the next generation of company leaders will be digital natives—those born in the digital age and who have so fully embraced smart devices that they’re already integrating them into their work lives. More specifically. What are the functional requirements. such as the Internet and e-commerce. disruptive technologies bring with them special challenges. and apps we need to get started? To begin along this path. and customers—maybe even boards of directors. In each instance. it’s helpful to think of the opportunities as falling into three domains—what we refer to as the “three Fs”: on the floor. but their lessons need to be considered and integrated into coherent strategies. albeit incrementally. The best managers will apply the lessons learned from the projects to other areas as the organization moves on to the next level of real productivity improvement. anywhere business is a compelling one. Nevertheless. If they haven’t already. they’re considering both the near-term and longterm implications of their strategies. but often it’s about rethinking the way work is done so as to take advantage of mobile capabilities. In the case of mobility. and in flight. Chances are that departments or business units in many organizations are already experimenting with one-off business mobility initiatives. too—will demand to know just what a company is doing with mobility. doctors have to log on to a computer and use 32 PwC View issue 14 . In some cases. among other long-term implications. In particular. the impact is already being felt. partners. The initiatives don’t necessarily need to be reined in. Like other recent business revolutions. For each patient on rounds. in our experience. more and more executives are discovering that businesses can’t afford to wait. How can we improve the productivity of our resources by eliminating routine tasks through smart apps and trusted data? And those in IT leadership roles will be asking. and the approaches they take need to be well thought out and disciplined. Also. operations leaders will be asking. that may mean adding smart devices to an existing process flow. many hospitals are addressing an all-too-common pain point for physicians: the fact that viewing up-to-date patient information is time-consuming and cumbersome. Several examples of that are already taking place in the healthcare industry. with or without corporate blessings. Physician Survey. radiology images. tablet. In our experience. the other top areas of physicians’ interest included prescribing medication and monitoring patients in the hospital. consultations over a mobile video network or using a physician’s mobile device to electronically prescribe medication. looking at how mobile technology could help its claims adjusters. thereby enabling secure display on a phone or tablet. They can use the EMR from any Web browser: via computer. It then turned its focus inward. partners. Consider the case of Nationwide. are adopting EMR applications that are cloud based. distributors. in particular. which was aimed primarily at its policyholders. a user group that has generally embraced emerging PwC View issue 14 33 . Healthcare providers are also piloting mobile apps that improve workflow. 6 Ibid. 2010 disparate systems to access test results. and customers. or customer service agents more effective in the field.000 physicians conducted by PwC’s Health Research Institute (HRI). In the HRI survey. some organizations are conducting 5 PwC Health Research Institute. chart information. (See Figure 1. Some organizations have built portals that pull data from other hospital information systems. after EMR access. And only half of physicians surveyed access electronic medical records (EMRs) while visiting and treating their patients. In a survey of 1. one-third said they make decisions for nearly 70 percent of their patients based on incomplete information.7 In the field Looking at how mobility can be used outside a company’s four walls is an important part of the mobility strategy. companies find a multitude of opportunities to boost productivity and generate value in the field.6 Other providers. For example.5 From small private practices to large health systems. have proved to be popular choices because they resemble paper charts in their look and feel and have been easy for physicians and patients to get used to. Providers are taking different approaches to enable clinicians to view patient data on wireless devices. Tablets. Healthcare unwired. 7 Ibid. It was the first insurance company to come out with an iPhone app. enabling companies to operate more effectively with field teams. service fleets. but doctors can access an integrated and up-to-date view of a patient as they make their rounds. They believe the greatest benefit of mobile devices will be to help them make decisions faster as they access moreaccurate data in real time. especially those in smaller practices. they look at how mobility can make their sales teams. The data reside on the core systems.) In current pilots. suppliers. or smartphone. mobility is being viewed as a way of giving doctors a comprehensive view of a patient from wherever they are in the hospital—or even outside it. with 56 percent saying mobile health would expedite decision making. and other relevant information.Figure 1: Physician interest in performing tasks wirelessly 86% 83% 74% 63% 60% 57% Access EMRs Prescribe medications Monitor patients in hospital Initiate/track referrals Communicate with patients Monitor patients outside of hospital Source: PwC Health Research Institute. 2010. and in turn can more easily and quickly enter their own data remotely so that everyone can get a clear picture of the sales pipeline. The benefit is that salespeople have access to up-to-date information. could then organize efficient routing to fix the equipment before it breaks. Nationwide developed a mobile app that agents use for capturing photos and data at an accident site and uploading it to the claims management system.” Technology Forecast. could access detailed product and service information for a range of products— not just the initial one that originated the service call to the customer’s house. While many retailers have focused first on consumer initiatives. Imagine the revenue potential if a field technician 8 PwC Center for Technology and Innovation. Many consumer product companies have begun to enable field sales staff to access the company’s customer relationship management system via mobile devices. and rotisseries that feed to technicians certain hourly updates on equipment performance. Field mobility is also important for supply chain collaboration. Instant access to the system via the cloud helps speed claims processing. Nationwide is considering how mobile devices can improve the way its agents work and interact with customers. freezers. Generally. such as those that let customers call up detailed product and inventory information on their smartphones. And that savings is in addition to gains realized from increased utilization of service techs. “Unleashing enterprise mobility. many are now looking at how to build upon those early forays to deliver more value. For example. For example.8 Looking beyond those immediate productivity gains. technology. they better position companies to embark on mobility efforts that can increase revenue and service opportunities. Another way mobility can help field service technicians is through optimized routing. such consumer efforts have been well-received by customers. For example. as exemplified by other early initiatives we’ve seen. 9 Ibid. by applying the lessons learned from consumer initiatives—such as how to program for the mobile environment and how to package and deliver a sizable amount of product data—hard-line retailers might look at how to grow their servicing business. but more important. . the company envisions an app that might take on some of the work a claims adjuster would do when assessing a hurricane-damaged house: Could an app take advantage of multitouch capabilities and the device’s GPS to start pulling in specific coordinates? Can an adjuster use the device to measure the size of a hole in a roof? How else can the device make the adjuster’s job easier and the interaction with the customer more seamless?9 Field mobility also opens up considerable opportunities for businesses in the consumer packaged goods and retail industries. or taking the train to Boston for a supplier visit.The real transformative application for workers on the go is mobility for reducing travel or changing what it means to be a worker on the move—whether traveling across the factory or to a distribution center. with the help of the app. The service techs. grocery retailers might install remote diagnostic sensors in refrigerators. 2011. enterprise resource planning. But PwC View issue 14 35 . or taking the train to Boston for a supplier visit. the real transformative application for workers on the go is mobility for reducing travel or changing what it means to be a worker on the move—whether traveling across the factory or to a distribution center. For example. followed by a new generation of smartphones. which is computing that benefits from human-assisted. unique business challenges. In flight For businesspeople across industries. For example. They also facilitate context-aware computing.” That is. driving out to see clients. sensor-rich mobile handhelds for timely location. they are in constant motion by moving from building to building. personalization. Beyond those productivity gains.Now. building your mobility strategy Business mobility will mean different things to different organizations depending on an organization’s industry. For example. Now. the idea of having an office in your pocket began to take hold. with the introduction of the BlackBerry in the late ’90s. cloud-based business applications for office productivity. a smart tablet could use sensing technology to automatically populate the device with only the SKU and promotional mix relevant to the store the rep was visiting. Employees could now get to e-mail and view basic documents. also accessible from their devices. The new smartphones and tablets take advantage of new classes of applications that facilitate easier commingling of knowledge and information sources on the public Web. Thanks to a social networking app and sensing technology. customer relationship management. employees have anytime access to external resources. however. but they were still at a considerable disadvantage when compared with working directly through corporate systems. all too often much of the workweek is spent “in flight. this has begun to change. and other business apps. or traveling by plane to visit global locations. It all adds up to a loss of productivity when decision makers are cut off from the business applications and information they need to guide their teams or respond to a crisis. the salesperson could instead instantly call up a list of potential targets and contacts available in the immediate vicinity for visiting. in the era of the smart handheld. Yet even more potentially powerful is employees’ ability to combine corporate information with rich third-party data. Of course. thanks to the combination of mobile- accessible. a salesperson about to visit a prospect’s headquarters can automatically learn about a local customer’s team and connections before walking in the door. Employees had access only to internal IT resources. Now. a store buyer could forgo site visits if factory or farm personnel could use the video capabilities of mobile devices to enable buyers to view and inspect products virtually. and level of investment. companies are exploring ways of adding functionality that takes on more tasks a field rep might do. Or consider if the sales call gets canceled at the last minute. Or new store managers could use tablets to access real-time store data and affordably take part in videobased interaction at their location instead of traveling to headquarters for training. Consider that traditional knowledge management hearkens back to an era in which the enterprise information system was all that was online. and environmental input. And as with other disrupters like the Internet. or 10 years. organizations can realize real business benefits in the near term. From enhancing productivity to transforming the business Mobility is set to transform business in ways we can only begin to imagine. the goal is to accomplish more tasks in the same amount of time. companies consider how to reduce the level of effort required to get the job done. and decision trees. organizations look at how mobility can help transform their value chains and how they can create apps that better integrate with their partners’ operations. when organizations reach the fourth level.regardless of the variables. To do this. and modularizing processes called digital transformation. the apps are simple and a primary component involves integrating mobile devices with the company’s core systems like enterprise resource planning or performance reporting. systems. Companies that develop sound. companies can’t afford to sit on the sidelines. Lean or Six Sigma methods can be useful for redesign of work activities that take advantage of mobility. Figure 2: Business mobility maturity model Level 4 Eliminating tasks • Value chain transformation • Value chain data integration • Value chain apps Level 3 Reducing level of effort • Digital transformation • Operational data integration with smart devices • Strategic apps Level 2 Level 1 Completing more tasks in same amount of time • Process redesign • Rich media over wireless • GPS location awareness • Tailored apps Reducing task time • Touchscreen • Wireless data • ERP/BI integration • Simple applications Source: PwC Role of technology Role of people 36 PwC View issue 14 . where the goal is the elimination of tasks. the role of technology needed to transform the organization becomes more important. Here they might totally change the way work is perceived and completed. At the same time. At the second level. the focus is on collaboration with partners. identifying where they sit today and where they would like to progress in 2. disciplined strategies and that have gleaned lessons from early mobility efforts will be wellpositioned in this new era of working. content. digitizing. the mobility initiatives are likely parts of a larger strategic effort to transform the organization by automating. in which mobility initiatives are used to reduce task times. At the third level. (See Figure 2. To begin. companies can consider the following maturity model for business mobility. embarking upon process redesign and creating tailored apps that may take advantage of device capabilities like GPS. technology is an enabler.) As companies ascend the levels. on the floor. Finally. companies look closely at workflow. Organizations also consider what additional external information or collaborations can serve to inform the best immediate decision making either in the field. the payback moves from productivity gains to value creation. The model identifies four distinct levels of maturity that focus on how mobility redefines the ways organizations work. certain common approaches can help any company best position itself to take advantage of mobility today—and in the future. At this level. but the productivity gains come from changes in the way that people work. At lower levels. While we don’t see the mobility opportunity reaching a steady state for a number of years. or in flight. required content. tapping into operational data in real time through smart devices and sensing technology. and data in real time. At this level. 5. At the first level. and workflows might change. look beyond the company’s four walls. Did the mobile solution make our company easier to do business with? and Did the mobile solution drive innovation in the ways people perform their daily routines? Practice risk mitigation. such as industrial engineers and process designers. Yet instead of engaging in blue-sky thinking that can be overwhelming. Another important user community to involve consists of business partners. As organizations are discovering. To evaluate the success of the strategy. They begin looking at concrete ways they can use mobility to reduce task times (Level 1 in the maturity model). they consider how mobility can help the organization address real pain points in the three primary business dimensions: on the floor. leading organizations consider several important actions. Likewise. they seek customer feedback as they think about consumer mobility efforts. With the right strategy team assembled. This is especially true when it comes to making technology investments. establishing milestones and metrics that will provide crucial data for making go-forward decisions is essential. bring together the right team. can be tempered with the intangible benefits that result in improvements in customer satisfaction. Additionally. they also consider the broader impact: What tasks or workflow are now possible? How will the organization be structured? Do we have the right skill sets? evaluate different kinds of payoffs. Executives in addition to the CIO will want to understand the tradeoffs when determining the company’s platform and application development strategy. among other considerations. businesses may uncover solutions they might not have thought of on their own. By focusing efforts on real scenarios. leading companies become able to determine how mobility can boost productivity. Even when a project turns out not to be the success hoped for. Beyond IT and leadership. The watchword in pursuing mobility is discipline— in everything the company does. such as suppliers or distributors. based on realized employee productivity gains or improved return on assets. By soliciting their points of view and collaborating with them. including early adopters of mobile devices.Business mobility essentials field. Traditional return-on-investment calculations. As organizations think about new ways of working or new products and services that become possible due to mobility. envision the future. progressing to more-advanced levels in the model. practices. By involving such communities early and connecting with them in their work environments. what emerges are brand-new ways of working. they select both quantitative performance measurements as well as softer business measurements such as. in the PwC View issue 14 37 . smart organizations take the time to analyze the outcomes. and competitive advantage. Another important riskmitigation technique is to focus initial efforts by using pilots or limited deployments. gleaning valuable lessons to apply to future projects. digital natives. As organizations begin—or progress along—their mobility journeys. mobility efforts are not simply about shrinking or streamlining existing processes. Leading organizations also consider the total cost of investing in the mobile solution in terms of both tangible and intangible benefits. Assembling a diverse group helps company leaders set the company’s mobility strategy. and subject-matter experts. such groups include business users who represent different groups in the organization. They ascertain how their current processes. because often. employee and customer retention. Most businesses tackle mobility on both fronts—companyfocused efforts and consumer-facing ones—but each strategy will likely share commonalities and together will support the company’s business strategy. the organization can create a future-state blueprint that is specific and attainable. They also consider individuals who can help assess changes to process. the group can begin thinking about what mobility means for the organization today—and what it could look like 10 years from now. and in flight. InnoVATIon AnD TeCHnology The technology powering business mobility 38 PwC View issue 14 . limited choice might be appropriate in areas where high degrees of rigor and consistency are required. BYOD is a good choice right now—for example. And in a BYOD scenario. but also help protect corporate data. New tools are making it possible to more easily manage devices that use a range of different operating systems. the rest of the leadership team will want to understand the choices and issues that pertain to the following technology building blocks. and for physical safety. in the finance sector. webOS. For some organizations. and applications in those circumstances. or it might slow down the organization’s ability to develop custom applications because custom applications must work with each mobile platform. While the chief information officer will lead the charge here. BlackBerry. such as in regulated environments. operating system. the diffuse nature of BYOD— there are six major operating systems in play (Android. security management tools. many IT components are in play: devices. security is the primary barrier to pursuing mobility. iOS. When it comes to business mobility. BlackBerry. Or. and Windows Mobile)—might require too many IT resources to manage. But as the old adage goes. and so on. the real power lies in the convergence of the technologies and in how each organization applies them to redefine the way it works. the business faces the challenge of managing access. and security across different devices. the whole is more than the sum of its parts. Symbian. for protected data. for security reasons. and the MobileIron server provide PwC View issue 14 39 . That is. For others.By Alan Morrison Alan Morrison is an analyst with PwC’s Center for Technology and Innovation and an editor of PwC’s Technology Forecast. MDM tools such as the BlackBerry Enterprise Server. or iPhone or let employees use what they already own—known as bring your own device (BYOD)? The first option gives the company the control it’s accustomed to having over corporate assets. Devices and operating systems Mobile devices and their underlying operating systems sometimes create a dilemma for organizations: Do we supply every user with a standard device such as an Android. operating systems. PwC research suggests that limited BYOD will become the rule more than the exception. wireless networks. usage. A variation on BYOD that might work best for many organizations is to limit employee choice to a few of the popular consumer devices that can be more easily integrated and supported. some organizations are limiting the choice of device. the Good for Enterprise suite. if the organization has user groups with distinct needs or is in a stage of experimentation. BYOD offers greater flexibility and embraces the personal empowerment that has helped make those devices so pervasive in the first place. app development platforms. security and mobile device management For many companies. The new mobile device management (MDM) tools not only allow cross-platform management. At least for now. Providing the devices at no cost to selected employees reduces clutter and ensures focus on a mobility strategy. should the device be lost. including front ends to enterprise– resource-planning applications. thereby providing an opportunity for businesses to test and use the capabilities over time. Organizations must decide how they will extend existing business applications to a mobile environment and how they’ll develop others that support new device capabilities and ways of working. thanks to its ability to separate the application and its data from everything else on the device. erasing any corporate information but retaining a user’s personal data on an employee-owned device. thereby ensuring consistent policy enforcement and providing auditing capabilities as well. Several virtualization methods can be used for developing and deploying mobile apps. 1. One important technology here is the forthcoming HTML5. Following are the three primary approaches. Even though many companies think that building so-called native apps—that is. Application development and integration Defining the company’s mobile app development strategy is a crucial consideration. apps designed to take advantage of a specific mobile operating system—is the best approach. And for organizations using devices that run on Apple’s iOS or Research In Motion’s BlackBerry. or compromised. stolen. have two primary advantages. the next generation of the widely used Web programming language that will support more featurerich mobile applications. they require no new technology on the mobile device. Another approach being developed to address this issue is virtualization. And second. businesses can adapt many of the Web applications created for desktop users. Virtualization. One important feature is remote wipe and lock. the management products can selectively delete data—for example.a central console for managing multiple devices with a common set of policies. To do so. 2. While HTML5 will not be finalized for several years. Understanding the range of options is especially important for developing new apps. human resources applications. however. Virtualization allows a single version of an application to run on any mobile device. but the most promising currently is thin-client virtualization. they would need to redesign the user interfaces to fit the mobile screen and to accommodate the touch interface’s lack of fine input positioning of the cursor. Web-based apps. such as those that take advantage of location data. It provides a high level of security. 40 PwC View issue 14 . major components have already been implemented in the most popular mobile and desktop browsers. because mobile browsers currently support HTML and JavaScript. Web-based apps. including cloud-based ones. and order entry applications. they might discover that less-resource-intensive approaches can meet their needs. First. which lets businesses create a partition between enterprise assets and employee assets. they are upgrading Wi-Fi networks in major offices so that a mobile device can automatically use the company’s own Wi-Fi when the Wi-Fi is in range rather than use the cellular network. As they plan for increased mobile use. cloud storage Common corporate applications such as ERP. (See Figure 1. routing tools that direct drivers to their destinations based on current conditions. Some businesses are also preparing internal facilities to accommodate broader use of wireless within the organization. businesses may wish to begin service contract discussions with carriers. Another considerable challenge is the ability to accommodate greater input and output capabilities—like printing spreadsheets and presentations—than are possible with mobile devices. for example. and proximity detection—that could be used for new classes of services and applications. wireless networks Another technology-related consideration is the cost of wireless communications as more and more corporate data traffic moves to mobile devices. In particular.” Technology Forecast. ambient light levels. Examples of new applications are those that scan products’ bar codes to get more information or check pricing elsewhere. CRM. However. Native app development lets organizations take advantage of the unique functional or interface capabilities that more-generic Web technologies cannot. environmental monitoring applications.Figure 1: Mobile application categories and development platforms Common smart handheld devices Texting. Wi-Fi. For example. mobilefriendly websites and Web-based apps will be able to address the majority of mobile enterprise needs. that includes the ability to handle common sensor data from the devices—such as acceleration. and visual heart-rate monitoring. reserving native development for new (no computer-based equivalent was in place) or sensor-enabled applications. chemical analysis tools Employee horizontal applications HTML5 only Competitive applications HTML5 + native SDKs Device-dependent applications HTML5 + native SDKs SDKs = software development kits Source: PwC. a native app might not be necessary at all. accelerometer Mass-consumption applications HTML5 only Content applications (news. video. books. especially in view of HTML5’s new capabilities. In many cases. While more such features will come from mobile vendors.) airline boarding passes. building automation systems. cloudbased office productivity tools Mobile payments with devicebased authentication navigation. PwC View issue 14 41 . In our view. Native apps. display the maintenance staff’s current status on work requests when they’re in the field. it’s likely that the majority of corporate apps will be Web based.) We see businesses choosing different development approaches depending on the specific application. to provide a direct incentive for cost control. and serve as remote controls for Wi-Fi-enabled devices such as TVs. We believe that once HTML5 matures. 2011 3. and security cameras. visual analytics Games.. companies can do a great deal to prepare and enable that capability by choosing display and printing facilities that work wirelessly. many companies are reimbursing employees a fixed or capped rate for smartphone communication usage. as well as to ensure that employees have access to their usage costs and can monitor them. many organizations today are spending money developing mobile apps that are native but don’t need to be. In the meantime. MRP. “Unleashing enterprise mobility. which can help control costs. Bluetooth. Examples of sensor applications are pedometers that calculate energy use.. If your company doesn’t need to develop an app that makes heavy use of the phone’s camera. camera. spatial orientation. either optimizing existing websites so that mobile device users can view them easily or developing a Web app is enough. Strategy and growth Defining a new CEO agenda Eight strategies for capturing opportunity 42 PwC View issue 14 . He also looks at those industries that are most affected by each.pwc. All statistics presented in this article are from the CEO survey unless otherwise noted. talent. Consumer goods companies. How do we enter new. and entering collaborative relationships with governments. regardless of location. Visit http://www. World Economic Outlook. India. As shown by the results of our 14th Annual Global CEO Survey. and other stakeholders. ever-changing markets with confidence? Across sectors. employment rates. CEOs across sectors and around the world are seeing brighter days ahead and are making strategic changes to capture long-term growth. suggesting that they are rethinking—reimagining. As we emerge from the recent economic downturn. consumers. 1. CEOs have a renewed sense of optimism about their companies’ growth prospects. With developing economies emerging as hotspots for opportunity. developed countries—which make up 52 percent of the world’s economy—are growing at only half that pace. operations. the following eight questions on emerging markets. and purchasing power. Estimates for shares of the world economy made on a purchasing power parity basis. risk. Heavily tied to changes in consumer behavior. But how will they achieve it? According to our survey. innovation. October 2010. emerging markets are booming. To succeed in these markets in a post-crisis world. In contrast. author Tom Craren recasts the numbers into questions that every CEO should consider when setting a new strategic agenda.2 percent.By Tom Craren Tom Craren is PwC’s partner-in-charge of Thought Leadership. and governance can help businesses chart a course for success. CEOs are priming their organizations for growth.201 interviews with CEOs were conducted in 69 countries during the last quarter of 2010. CEOs agree that tapping emerging markets is a key to capturing growth.1 about half of all CEOs are confident about revenue growth going forward. in particular. with forecasters predicting that China. PwC View issue 14 43 . 1 1 For the PwC 14th Annual Global CEO Survey.2 And that surge in growth is expected to continue. regulation.com/ceosurvey to learn more about the report. and Indonesia will grow more than 6 percent. As part of that process. if you will—paths to growth. Fear of the unknown is often a barrier for many organizations considering a move to emerging markets. sustainability. To help you determine your own growth imperatives. many businesses are refocusing their growth efforts to include markets away from home. While the International Monetary Fund forecasts overall global growth for 2011 at 4. are confronting this challenge. Despite the trying times of the economic downturn. CEO confidence has made a comeback. acquiring critical skills by bringing new talent on board. 2 International Monetary Fund. eight strategic priorities have risen to the fore. as our research revealed. business leaders are redesigning their growth agendas around a new set of strategic priorities including investing in innovation. But what growth means has changed in this new era of recovery. In making these strategic changes. evolving their people strategy to encourage key employees to move abroad. Part of Unilever’s marketing strategy is to support a sustainability agenda that may be pertinent to developing countries. They are focusing on two areas to help ensure success: performing due diligence of market demographics and collaborating with local partners. Unilever’s leaders stress the importance of knowing where consumer trends are headed in order to stay in front of those trends. they are working closely with retailers to learn how consumers behave at the point-of-sale and merging with local companies to produce consumer goods specialized for local markets. and issues stemming from overpopulation. As a result of these strategies. For example. Striking the right balance between these diverse worlds is a key challenge that requires effective overseas strategies. the company is aiming to make its brand of water purifiers available to 500 million homes so that families not only will have access to safe drinking water. a majority of CEOs say they are performing strategy makeovers and making more disciplined. Given that the company expects 70 percent of its business to come from Asia within 10 years. not including the country in which you are based. Moreover. they recognize that their culture and business model must evolve to reflect the changing demographics of their customers and the tremendous implications of this significant shift. such as chicken stock cubes. people face food shortages. do you consider most important for your growth prospects over the next three years? (Percent of respondents) 39 39 All industries Consumer goods 25 21 19 19 18 15 12 10 10 17 11 7 7 6 China United States Brazil India Germany Russia United Kingdom Mexico Driven in large part by changing dynamics between developed and emerging economies. consumer goods CEOs especially see the growth potential in developing markets. but also will be able to utilize other Unilever products. and embedding families in emerging markets to better understand local buying and eating patterns. Consumer goods organizations are also embracing critical tactics such as ensuring they have sufficient access to raw materials. targeted investments in unfamiliar places. a majority of CEOs say they are performing strategy makeovers and making more disciplined. Driven in large part by changing dynamics between developed and emerging economies. Fifty-seven percent of these executives anticipate having to make strategic changes to capitalize on the increasing prosperity of consumers in emerging markets. environmental problems. where. targeted investments in unfamiliar places. For example.Figure 1: Growth opportunities in the consumer goods industry Q: Which countries. in many cases. 93 percent of consumer goods CEOs surveyed expect 44 PwC View issue 14 . For instance. banking. Forty-two percent. compared with 29 percent of all CEOs. one of the largest chemicals industry parks in Europe. they know the importance that environmentally friendly products and services play in helping customers reduce their carbon footprints.) Chemelot. In some cases. More than any other sector. 64 percent of all CEOs agree with this change. This “greening” of innovation strategies is found across all industries. and will create competitive advantage. offers a clear example of this collaborative approach. Survey results also show that the consumer goods sector is not alone in understanding the growth potential of emerging markets. metals. The establishment Figure 2: Innovation insights from the chemicals industry (Percent of respondents) Our innovations will lead to operational efficiencies that provide us with a competitive advantage Our innovations will lead to significant new revenue opportunities We expect the majority of our innovations to be co-developed with partners outside of our organization We use M&A as a significant source of innovation We expect the majority of our innovations to be developed in markets other than the country in which I am based 29 42 39 36 33 39 All industries Chemicals 79 92 78 85 PwC View issue 14 45 . The industry recently adopted Life Cycle Analysis (LCA)— an approach that looks at the emissions generated during the complete life cycle of a product—to help document the impact its products have on the carbon footprint of customers.How do we remake our organization into a continually innovating one? CEOs across all sectors overwhelmingly agree on innovation’s importance: Almost 80 percent believe that their innovations will lead to new revenue opportunities. Innovation is being applied to every part of the business—from marketing to production to distribution and finance. plan to move the development of their innovation to other than home markets. will drive efficiencies. particularly China. Many companies are collaborating with partners or targeting innovation efforts at their supply chains.) Sixty-nine percent believe emerging-market businesses will drive company growth. Fortunately. to generate higher revenues over the next 12 months. with just as many anticipating increased revenues over three years— increases that can be driven by expansion into developing countries. going it alone isn’t the only option. the chemicals industry is investing heavily in innovation to garner a competitive edge. Other industries that placed a higher importance on emerging markets over developed ones include the automotive. an organization may not have sufficient capital and the right talent to innovate on its own. compared with 59 percent of CEOs across all sectors. oil and gas. Understanding how to engage today’s consumers could mean addressing cultural and organizational factors or rethinking what technology can do and for whom. Companies looking to be successful in global markets may need to localize processes to benefit new customers. chemicals. (See Figure 2. (See Figure 1. CEOs in this industry are also moving development processes closer to the customer. 13 percent more than all CEOs surveyed. and technology sectors. The bottom line of incremental innovations is to get closer to customers. Many are implementing changes at all levels of their operations to make innovation a viable growth strategy. 2 Chemicals CEOs are putting customers at the center of innovation. investment management. Ninety-two percent of CEOs in this industry believe that innovation will lead to operational efficiencies and competitive advantage. And it is not just about creating the next revolutionary product. Eighty percent of With confidence in economies on the upswing around the world.How do we identify. 46 PwC View issue 14 . Chief among organizations coping with this issue are automotive companies. But even with a surplus of eager candidates ready to rejoin the workforce. or partnerships. finding and keeping talent will be difficult: Two-thirds of CEOs believe there is a shortage of candidates with the right skills. where 70 companies share the facilities and have access to raw materials and peripheral services. and empower the talent that will distinguish our business from the competition? 3 combines research and production facilities in one location. the industry had to reduce headcounts considerably. localization.) Hit deeply during the economic crisis. But currently. and its core concern is emerging markets. engage. finding appropriate skills to bridge both foreign cultures and demographics with those at home is critical to success overseas. will be adjusting their strategies over the next three years. Companies are starting to hire again. Whether through market research. and. more than half of all CEOs surveyed say they expect their talent pool to grow over the next 12 months. more so than other sectors. the industry is on the rebound. With confidence in economies on the upswing around the world. and technology organizations are also turning to innovation for significant new revenue opportunities. Our survey indicates that besides chemical companies. Sixty-five percent of automotive CEOs believe emerging market consumers will drive growth for their companies. consumer goods. which collectively identify closing the global skills gap as a top priority (See Figure 3. as a result. with considerable opportunities in emerging markets. pharmaceuticals and life sciences. investment management. Additionally. business leaders in many sectors understand that focusing on business process innovation while tuning in to the needs of customers may offer the best opportunities to capture growth. But true collaboration lies in the method of communication between these companies—they use Twitter and Facebook to stay connected. more than half of all CEOs surveyed say they expect their talent pool to grow over the next 12 months. insurance. automotive. However. like auto components and parts supplier BorgWarner. many companies are moving beyond this strategy. Collaborating with governments and the educational system is increasingly important as well. Maintaining the right workforce may often mean considering non-traditional sources of talent or coming up with new ways to motivate staff. Sixty-four percent of automotive CEOs are seeking to improve local workforce skills this way. one of the fastest growing countries in the world. and transportation and logistics. The company grooms and retains local managers to run these manufacturing bases and then to supply the company with strong local talent. survey results show that finding the right people is a top priority across the board. In China.automotive CEOs are changing their talent strategies to deploy staff overseas. are nurturing local talent and are focusing on localization—manufacturing their products in the countries where their customers produce vehicles. companies often establish international assignments to train local talent and help support business relationships with domestic companies. insurance. This might include identifying new talent pools. The company has more people employed in China now than during its company-wide peak employment of 2008. But investing in the country was a priority for BorgWarner. a competitive compensation environment makes it particularly difficult to retain employees. investment management. Some. what are the key challenges you expect to face? (Percent of respondents) Limited supply of candidates with the right skills Difficulty in deploying experienced talent globally Providing attractive career paths in our industry Competitors recruiting some of your best people Understanding and forecasting talent availability in emerging markets Challenges in recruiting and integrating younger employees Talent with the right technical skills lack flexibility and creativity 40 50 54 46 44 40 45 58 50 50 52 50 66 82 All industries Automotive PwC View issue 14 47 . or finding new ways to incentivize workers. more than their counterparts in other industries. As a first step in securing global talent and maintaining corporate and operational practices overseas. While the automotive industry ranks high with regard to talent concerns. Figure 3: Talent challenges for the automotive industry Q: Considering the talent required for the success of your business over the next three years. entertainment and media. Industries that ranked highest in planning to change their strategies for managing talent over the next year include banking. How do we reinvent our operations to take change in stride while remaining disciplined about costs? 4 Figure 4: Collaboration initiatives for the entertainment and media industry Q: Which. 48 PwC View issue 14 . companies across many industries are finding out that partnerships can be fruitful. investment management. industrial manufacturing. and transportation industries. of the following restructuring activities do you plan to initiate in the next 12 months? (Percent of respondents) Implement a cost-reduction initiative Enter into a new strategic alliance or joint venture Complete a cross-border merger or acquisition Outsource a business process or function Insource a previously outsourced business process or function Divest or spin-off majority interest in a business or exited a significant market End an existing strategic alliance or joint venture Don’t know/refused 9 10 19 27 14 17 14 17 34 47 31 40 50 64 57 77 All industries Entertainment and media Keeping costs down is a priority for CEOs. While cost cutting can be viewed as a short-term survival option. if any. Eighty-seven percent of those surveyed expect some degree of organizational change.) As entertainment and media consumers trend younger and more tech-savvy. In the entertainment and media industry. More than in any other industry. insurance. entertainment and media. (See Figure 4. agility. or outsourced business functions. Operational structure changes like these are on the horizon for companies in the engineering and construction. joint ventures. Outdated industry models can’t meet the challenges of rapid change in customer demand and behavior. technology. where 78 percent of entertainment and media CEOs are looking to suppliers for product innovation. diversification. crossborder mergers and acquisitions. according to our survey. Those entertainment and media companies that embrace scale. pharmaceutical and life sciences. entertainment and media companies will have to provide content through new devices. and restructuring are more likely to survive and prosper. entertainment and media CEOs are likely to seek out external partnerships. retail. companies are collaborating with external partners to reshape their futures. Whether through strategic alliances. controlling costs through collaborative partnerships can better equip companies to face challenges that lie ahead and to manage costs over the long term. This is echoed throughout the industry. business leaders have embraced collaboration out of necessity. Partnering with outside organizations can help in that regard. and industry dynamics. But instead of slashing budgets. and currency volatility—marks a new era of risk resilience. and 40 percent are looking to incorporate more crisis-readiness drills.) For example. are you taking to improve the management of risks that accompany your change in strategy? (Percent of respondents) Entertainment and media Investment management Automotive Chemicals Consumer goods Allocating more senior management attention to risk management Formally incorporating risk scenarios into strategic planning Allocating more board meeting attention to risk management Formally designating executive responsibility for risk management Doing more crisis readiness drills Adjusting performance incentives to account for risk Re-examining capital structure Increasing the authority of the risk management executive Increasing risk manager headcount Insurance Utilities Global CEOs are gearing up to make changes across their businesses. For example.) But in the aftermath of the economic crisis. if any. if any. (See Figure 5. are factored explicitly in your strategic planning and risk management activities? (Percent of respondents) Entertainment and media Investment management Automotive Chemicals Consumer goods Political instability Scarcity of natural resources Climate change Natural disasters Terrorism Pandemics and other health crises Loss of biodiversity 52 30 26 22 20 20 5 58 54 18 18 8 8 2 37 51 34 19 15 10 3 48 39 29 23 14 23 8 58 35 26 26 23 32 10 49 38 55 38 19 11 0 46 12 35 46 25 44 2 Insurance Utilities Global 30 7 20 20 33 20 3 PwC View issue 14 49 . And a majority of these CEOs are also looking to more formally incorporate risk mitigation into strategic planning. 72 67 58 45 40 36 31 29 20 71 69 53 42 38 31 16 27 11 77 63 46 35 40 29 13 15 6 65 68 53 38 38 22 25 26 9 67 63 63 46 25 38 33 29 21 80 65 70 45 45 45 43 23 28 84 65 61 69 43 39 35 47 45 75 83 63 33 29 29 25 25 17 Figure 6: Global risks that CEOs are actively countering Q: Which of these global risks. Almost 80 percent of all CEOs surveyed say they plan to change their approach to risk management in the year ahead. as they cross borders to seek out new opportunities. they will face new tax regimes. (See Figure 6. and other local challenges. even so far as to include addressing global risks in their management strategies. C-suite leadership has taken a more comprehensive approach to risk. utilities company E.ON AG is trying to lessen its dependence on banks by looking for longer-term capital. And it’s no wonder why these CEOs want to work with governments on green initiatives—the chemicals industry’s top global risks include scarcity of natural resources and climate change. Some of the changes are designed to help them counter unfamiliar risks. Including these new risks enables organizations to remain flexible during downturns while still finding opportunity in a fast-changing world. For example. In the chemicals industry. laws. scarcity of natural resources.How do we become more resilient to new and unpredictable risks? 5 Figure 5: Changing risk management activities Q: What additional steps. management styles. This shift to including new and unpredictable risks—such as political instability. nearly 75 percent of CEOs surveyed will be looking to support government activity that is environmentally sustainable. 72 percent of CEOs plan to allocate more senior management attention to risk management. compared with 34 percent worldwide. and the US Foreign Account Tax Compliance Act (FATCA) are just a few of the regulatory challenges facing asset managers. such as the new way companies must account for leases. While major regulatory change is top of mind for today’s business leaders. (See Figure 7. Focusing on greater transparency and beefing up risk management are other ways that asset management CEOs are looking for opportunity in a highly regulated environment. pharmaceuticals and life sciences. regulatory changes could also lead to a more conservative risk appetite among institutional investors. More than 70 percent of asset management CEOs plan to rebuild their companies’ reputations in the coming year. Focusing more closely on risk is another way these leaders will earn greater investor confidence. oil and gas. They see opportunities in rationalizing operations and improving tax and capital efficiency.) Nevertheless. Nearly 90 percent of asset management CEOs are modifying their operating models to manage risk more effectively. Asset and investment management CEOs are no different. growth-seeking CEOs are not sitting still. Transparency can renew investors’ trust that there are appropriate controls across the fund value chain. European Union Alternative Investment Fund Managers Directive (AIFMD). Equally as important. regulation could increase expenses. national and regional differences and potential conflicts may negatively impact many financial services firms’ ability to manage increased regulation. survey results demonstrate that C-suite leadership is planning to extend their focus beyond dealing with constraints and preparing for compliance. waiting for these uncertainties to be resolved. and utilities. to the major structural overhaul of the health and financial systems—47 percent of US CEOs surveyed say they are rethinking their corporate Figure 7: Regulation is a top concern for the asset management industry Q: How concerned are you about the following potential economic and policy threats to your business growth prospects? (Percent of respondents who stated “extremely” or “somewhat concerned”) Uncertain or volatile economic growth Government response to fiscal deficit and debt burden Over-regulation 54 61 65 59 71 74 77 Exchange rate volatility Lack of stability in capital markets Protectionist tendencies of national governments Inflation 31 16 40 48 68 52 55 All industries Asset management strategies in response to regulation. Survey results show that the following industries view over-regulation as a top concern: financial services. compared with just 58 percent of all survey participants. It’s no surprise then that 77 percent of investment and asset management CEOs say they are deeply concerned about overregulation. In addition. almost 70 percent of asset management CEOs surveyed have initiated a cost-reduction initiative. In the aftermath of the financial crisis. Today’s changing regulatory environment brings with it uncertainties as to how companies will do business in the future. In the US—where regulatory change runs the gamut from the granular. 50 PwC View issue 14 .How do we see beyond constraints to spot the opportunities in the new regulations? 6 The specter of over-regulation is a major concern for business leaders around the world. To deal with this challenge. Though consumers are becoming more price-conscious. the financial services industries have become among the most regulated. which could challenge asset management CEOs as they attempt to achieve a balance between maximizing return and minimizing risk. The US DoddFrank Act. Nearly three-quarters of CEOs told us they will actively support government policies that promote “good” growth. These include banking. in the European retail segment—private households and small businesses—the company recognizes that consumers are equally as interested in energy optimization as in energy consumption. PwC View issue 14 How do we tap into growing customer and employee sentiment about sustainability? 7 Customers. demand for sustainable and eco-friendly products. And. businesses. Recognizing the importance climate change can have on their customers. climate change is particularly pertinent. For example. and services can only escalate. For the utilities industry. As a result.ON AG to market its services to various consumer segments. investment management. CEOs feel pushed to make eco-friendly changes to their products and processes. Figure 8: The utilities industry aims to tackle environmental challenges Q: To what extent do you agree or disagree with the following statements about your expectations regarding your company’s innovation over the next three years? (Percent of respondents) An important part of our innovation strategy is to develop products or services that are environmentally friendly An important part of our innovation strategy is to develop products or services that are environmentally friendly 64 64 70 70 Q: To what extent will you change your strategy in the next three years to the following potential changes to business’s purchasing behaviors? (Percent of respondents) Businesses will factor a supplier’s 54 environmental and corporate responsibility 60 practices into will factor a supplier’s Businesses purchasing decisions 54 environmental and corporate responsibility 60 practices into purchasing decisions All industries All industries Utilities Utilities 51 . and utilities. Globally. More than half say they have already factored climate-change risk into their strategies. as environmental conditions can impact utilities’ infrastructure and ultimately affect customer service. believing that the supply chain plays a critical role in innovation. growing food. processes. As social awareness continues to gather momentum. most CEOs are looking to their suppliers to help them generate new ideas for developing green products. while half are optimistic that collaborative government and business efforts will mitigate global risks such as climate change. Management views this transition as a challenge that will require it to adapt to new patterns of consumer behavior and embrace new technologies. compared with just 27 percent of all CEOs surveyed. 60 percent of utilities CEOs cite climate change as a risk that will impact their companies’ growth over the next three years. this shift is driving companies like E. and securing the natural resources so essential to business. and governments alike agree that sustainability is key to economic growth and competitiveness. engineering and construction. chemicals. powering cities and factories. Organizations across sectors are beginning to realize the importance of meeting the public’s high expectations—not only by changing their strategies today to capture stakeholder sentiment. Almost half of the CEOs surveyed expect consumers to factor environmental and corporate responsibility practices into purchasing decisions and say they will change their strategy in the next three years to capture customer and employee sentiment. In Germany. Survey results show that business leaders in some industries overwhelmingly agree that consumers will factor a company’s environmental and corporate social responsibility practices into their purchasing decisions. (See Figure 8. while a majority say they plan to address climate change over that same time frame in order to improve competitive advantage and enhance social wellbeing. The shift toward social responsibility is driving change in consumer spending patterns. companies are finding that their environmental and corporate responsibility practices are increasingly under the microscope. oil and gas.) Energy companies have been profoundly affected by changing consumer-spending patterns. but also by looking ahead for changes on the horizon. moving people and freight. 64 percent of CEOs surveyed agree that companies are becoming more transparent in reporting their financial results and tax obligations. Figure 9: Risk and transparency are top concerns for the insurance industry Q: In response to changes in the global business environment.How do we tell our company’s story in a way that helps stakeholders see the changes we’re making in a new light? 8 Recognizing the vital role that transparency plays in establishing trust with stakeholders and achieving growth goals. and the cash that they expect to generate as a result.) In the aftermath of the economic crisis. may have a valuable opportunity to increase their share prices. This is especially true in the insurance industry. where almost 80 percent of insurance CEOs say they are focusing on rebuilding their corporate reputations. and consistently. with some taking additional steps in risk management and transparency in an effort to improve their public standings. to what extent do you anticipate changes to any of the following areas of your company’s organization or operating model over the next 12 months? (Percent of respondents) 91 83 77 84 74 63 49 65 61 46 81 81 All industries Insurance Strategies for managing talent Approach to managing risk Organizational structure (including M&A) Focus on corporate reputation and rebuilding trust Capital structure Engagement with your board of directors 52 PwC View issue 14 . the risk they have assumed. Until then. it may be several years before the details are finalized. credibly. (See Figure 9. along with the level of cash being generated within companies. Many believe that their companies’ share prices fail to reflect the strength of the business—largely because most analysts and investors find it difficult to navigate through the complexities of the industry. especially since there is little comparability in the way results are being disclosed. the insurance industry faces the challenge of delivering favorable and sustainable returns. Our research confirms that analysts are particularly keen to see more information about risk. those insurers that can clearly explain the link between their strategies. The underlying solution may lie in ways of communicating performance and prospects clearly. As a result. many organizations are going beyond basic disclosure to make sure their stories are heard. While the planned overhaul of International Financial Reporting Standards for insurance contracts will provide a chance for insurers to put disclosure on a more coherent and comparable footing. logistics. with 65 percent of CEOs from the region reporting confidence for the next 12 months. CEOs. In fact. and Latin America. which are integral factors in CEOs’ sourcing decisions. 2011. they are not just tapping overseas markets but are now focusing on leading their own growing domestic markets. are on a journey whose ultimate destination is value. Hit harder by the recession than emerging markets. potential for sizable growth. the United States and Germany are thought to bring quality control. A recovery of confidence The results from our survey show that CEOs are very confident about companies’ futures in the short term and long term: 48 percent see growth in the next 12 months and 51 percent anticipate it over the next three years. innovations.Regardless of sector. as a result. As the survey results show. and existing relationships. entertainment and media. But this recovery of confidence isn’t evenly split across all regions and countries. CEOs around the world indicate that the United States is the second most popular country for sourcing (after China) and Germany is the fourth. With India’s quick recovery from the recession and continued booming economy. whether through talent strategies. Even more important. These levels indicate a return to confidence levels last seen during the boom years of 2006 and 2007. CEOs from emerging markets showed the highest levels of confidence. On the flip side. who’s the most confident? Across the board. Western CEOs seem more cautious but still optimistic about the future. India is projected to be one of the fastest growing economies in the world—according to estimates. Along the way. (See Figure 10. seizing opportunity The new business climate is marked by constant and unpredictable change that is driving new business priorities. or external collaborations. So. their organization deserves to be valued differently. The world in 2050. Though BRIC countries like Brazil. its GDP at market exchange rates will reach 83 percent of that of the US by 2050. and metals industries. this should come as no surprise. This is followed closely by the Middle East. and China are important sourcing hubs. Regionally. innovation. Western markets are not far behind. where 88 percent of CEOs feel very confident about their future.) The single country with the highest degree of confidence is India. those who embrace change will achieve a competitive advantage. Like many other emerging market countries. Asia. And though emerging markets are thought to be the hotspots for growth.1 Indian CEOs also understand this 1 PwC. markets. Figure 10: Who is very confident about their company’s prospects for growth in the next year? (Percent of respondents) 65 54 48 54 56 47 39 53 Global Africa Asia CEE Latin America Middle East North America Western Europe PwC View issue 14 53 . Other industries that are planning to focus on rebuilding corporate trust in the next year include the banking. India. they are setting new agendas designed to capture them. the winners of tomorrow will be those that can not only develop a clear strategy for value creation and market differentiation today. Those who don’t will be left behind. they are overcoming obstacles and discovering emerging opportunities. Western European and North American CEOs were the least confident about growth over the next year. And while these agendas will differ among companies and industries. they all share a common reality: In a post-crisis economy. Africa tops the list. but also clearly communicate how that strategy differs from that of their competitors and why. economics.Interview Taking the long view Historian Niall Ferguson looks at politics. and the “killer apps” that make or break civilizations 54 PwC View issue 14 . Civilization: The West and the Rest. I don’t think that’s actually a killer app.” In this interview. He is also a senior research fellow at Jesus College.com. explain Western ascendancy: competition in both economics and politics. A prolific writer and sought-after commentator. increase in life expectancy. and. modern medicine and the resulting 1 Available in the US on November 1. Dr. author and commentator Niall Ferguson gives a great deal of thought to the past—both the past as it was and the past as it might have been. in particular. I concluded that there were really six factors. Ferguson is a frequent contributor to major print and online publications. in my view. possibly. until well into the 20th century. Lots of countries have elections with universal suffrage. In trying to make sense of the present. finally. “That’s what historians do. the rule of law and. Newtonian science. rise again. Those are more important than democracy. democracy’s quite a late phenomenon. gZ: In your new book. taken together. It’s way too late. As a student of empire. Oxford University and a senior fellow at the Hoover Institution. Great Britain didn’t achieve universal suffrage. fall. and some don’t. The “killer apps” model as a metaphor is a very useful way to answer the big question about the history of the world after 1400: Why did the great civilizations of the East stagnate while a few little warring kingdoms in Western Europe took over the world? After a lot of thought and study. Some do well. Dr. 2011. including Newsweek and thedailybeast. including women. Ferguson brings this unique perspective to the major issues of the day—financial. and political. Interview by Gene Zasadinski Gene Zasadinski is managing editor of View magazine. The critical things. “That’s what sets historians apart from economists. a strong work ethic. are the rule of law and the notion of private property rights.1 you use a computer software metaphor to make the case that global Western dominance resulted from what you call six killer applications. a consumer society that led to an Industrial Revolution. by which time Western primacy had been long established. Stanford University. PwC View issue 14 55 . economic. and. and Civilization: The West and the Rest (available in the US on November 1. Would you explain? nF: Yes. In any case. he also offers his views on why civilizations rise. which.Niall Ferguson is a professor of history at Harvard University and a professor of business administration at Harvard Business School. to be that important. 2011). or applications. His most recent books are The Ascent of Money: A Financial History of the World. gZ: What about democracy? nF: If by democracy you mean a system of government where elections are held regularly for legislatures or executives. private property rights.” he says. really. One is that non-Western countries are replicating Western models. away from the core institutions and values that lifted it into a position of power in the first place. and it’s the peculiar fate of our generation to see that happen. it is one reason that the price of gasoline is higher than it was a year ago. though your specialty is economic history. Its impact in Europe is more immediate. Economists are in the model-making business. gZ: So. And some historians—by no means all— engage in thought experiments in which they construct alternative histories—what-if scenarios. To continue the metaphor. I think there are two things going on here. let’s apply the economic historian’s perspective to events currently unfolding on the world stage. How does that shape your thinking and differentiate your perspectives on these and other matters? nF: I think there’s an important intellectual difference between what economists do and what historians do. or is it being challenged by other cultures? nF: Part of the reason for writing the book was the growing sense that Western predominance was coming to an end on our watch. And when you look at some European countries and at certain aspects of the United States. And two. The second point is that like real software. The antivirus software can be run. although. and we’re seeing enormous flows of capital out of countries like Egypt into Switzerland and into London. and I think reform is possible. these applications can be upgraded. They don’t stop working by some natural process of decay. these apps can be deleted or corrupted. Historians accept the complexity of the human world and doubt that it can be simplified into a model. money is leaving as well. gZ: Is there any hope of getting that power back? nF: Yes. How is unrest in North Africa and the Middle East affecting American and other Western economies? nF: At this point. in a sense. but my sense is that we haven’t yet seen the full impact. So there are impacts already. That’s really what they do. the impact is fairly minimal in the US. One sees that very clearly in a whole range of areas. of course. so the migration problem has become very acute. 56 PwC View issue 14 . for example. They are. downloading these apps. people are leaving the region. including a decline in the work ethic and a rise in entitlements. Such changes represent a fundamental shift in the West.gZ: Does the West still have exclusivity regarding these applications. The wealthy of the Arab world are extremely nervous about what is happening. if you will—to try to understand the causal sequence of the one history that did happen. you see a civilization in which there is at least some corruption on the hard drive. because two things are happening. because this is a revolutionary crisis at a relatively early stage. One. gZ: You define yourself as a historian rather than an economist. say. In phase 2. or the radicals manage to gain control of the political process. In the 1870s. of which the Great Depression is the best known by far. that this could all last longer than most of us are conditioned by our own life experiences to expect. which would obviously have a serious impact on the global economy and on the strength of any economic recovery. My outlook is somewhat pessimistic about this. populism became a big part of politics after the 1870s. Like today. what else can history teach us about economic crisis and recovery? Is what we’re going through now similar to what has occurred in the past. are we in a recovery? nF: I think we are.gZ: What do you mean? nF: As history teaches us. again. I think we should bear in mind. the economies go into freefall. In phase one. There’s already a war in Libya. My feeling is that it’s better to locate these events in a much longer-term perspective that can take you back at least as far as the late 19th century. creating opportunities for political radicals. there was a five-year period of subpar growth that went on until 1878. It’s a very fragile recovery in the United States. Economists are generally fixated on a few well-known disasters. gZ: Political unrest aside. there’s an almost festive air of excitement when the tyrant is toppled. gZ: So from your perspective. gZ: Are there other ways in which this earlier crisis was similar to our own? nF: Yes. . which was the first great age of financial globalization. most revolutions of this kind play out over years and take place in four phases. Many banks failed. and it had its origins in real estate. But globalization didn’t break down. And we can learn as much from looking at the Great Depression of 1873 to 1878 as we can from looking at 1929 to 1932. a huge financial crisis occurred on both sides of the Atlantic. and the backlash against the crisis was very powerful in both Europe and the United States. In 1873. Japan in the ’90s or even further back? nF: Well. The Tea Party is a classic populist movement. In phase 3. and it has much more in common with movements in the late 19th century than with what happened in the ’30s. That could send oil prices skyrocketing. gZ: And what is the fourth phase? nF: In the fourth phase. in that the former is in many ways closer to our experience than the latter. The Tea Party is a classic populist movement. It slowed the growth of economies. but the war we really need to worry about is a Sunni-Shiite war. therefore. and it’s a very unimpressive one in Europe. And. because the money is pouring out of the country. much can be learned by looking back. and deflation continued after that for more than a decade. I think that’s exactly the right kind of question to ask because the best way to understand a financial crisis or an economic depression is by comparing it with others. there either is a shift toward restoration. but it didn’t cause anything like the collapse that occurred in the early ’30s. you end up with war. and it has much more in common with movements in the late 19th century than with what happened in the ’30s. but very large and very politically intractable. though it’s easy to start. Also. In the very blinkered world of monetary policymaking. And the second is the massive printing of money—the monetary stimulus that was given the appalling euphemism. Satan!” I sense a growing disbelief in the official mantra that inflation is low. CPI or core CPI is the thing that you implicitly target. the dramatic fall in the cost of personal computing might lead some to conclude that inflation is really low. and some European countries have come spectacularly to grief. But a moment of truth is coming. “Hey. you will get inflation. both fiscally and in monetary terms. What they were really saying implicitly was that it would be better to have negative real rates and transfer resources stealthily from savers to borrowers. core CPI. For example. which is partly structural and partly cyclical. quantitative easing. or we apply the brakes. and experience a fading of the recovery. It’s very stealthy. gZ: Is it right to equate inflation to the Consumer Price Index (CPI) or core CPI? nF: I think that your readers need to ponder how anachronistic our thinking is when we define inflation as the Consumer Price Index. possibly. possibly even too low. or. concentrated that much on essentials. Everything that we know about the history of inflation says it’s hard to stop. 58 PwC View issue 14 . It creeps up on you. for example.gZ: What are your concerns regarding the fiscal crisis? nF: My concern is that we’re only at the beginning of a very painful process in the United States—that of addressing this problem. It’s going to be a moment when we decide either to go further down the inflationary road. The first and most serious is the fiscal crisis that has been left in the wake of the banking crisis. gZ: Can inflation ever be a good thing? nF: It was certainly the belief of a generation of Keynesians in the 1950s and ’60s that a little inflation would oil the wheels of the system. And if somebody says. what about asset prices?” the answer is. gZ: And quantitative easing? nF: The problem is that if you print money almost without limit and hold interest rates at zero. the CPI deliberately ignores the extraordinary ups and downs in the asset markets—housing prices. But those who are relatively poor and worried about food would conclude the opposite because they’ve been hit by a doubling of prices in many foodstuffs in the last two years. And that is happening. and those whose expenditures are. Europeans are further down this road. gZ: Why is that? nF: The experience of inflation differs between those whose expenditures are not. But the benefits of inflation are usually outweighed by the costs as the inflation problem builds. in fact. It’s hard to detect. “Get thee behind me. gZ: What are the key factors affecting the recovery? nF: There are two problems. because inflation doesn’t begin with a bang. rather than just being neutral. The problem is. and these have to go. Money and trust I associate money and trust with a particular way of running financial institutions. networks aren’t always social. gZ: So what should Americans be doing? nF: I think Americans should fundamentally rethink their welfare model. And that’s a real risk. Its energy and its success have derived in large measure from the dynamism of its private sector. Currently. It does not account for the fact that the advances of a modern civilization. Rather. PwC View issue 14 59 . So I prefer the word “mash” to “clash. particularly in technology. I think the breakdown of trust in financial institutions is a huge problem. I think that would unleash two percentage points of GDP growth and help solve the fiscal problem in its own right. new communication networks. favor revolutionaries. Such thinking assumes that there is only one modern civilization. So. The problem with that assumption is that at best this technology is politically neutral. their approach to Social Security. history teaches us that the status quo power is generally not that good at exploiting new information technology and tends to use it for trivial purposes. and a whole bunch of other discretionary and nondiscretionary programs will have to be drastically reduced. It would be tremendously good to have a simpler system in which the form that you fill out is a couple of pages long. What are your views? nF: For the last seven or eight years. If the banks are no longer trustworthy. if I were targeting an enemy. social networking There’s a default assumption that social networking is good. Many people feel that the system is. . significantly below the comparable figures for Europe. in some measure.PeRsPeCTIVes Niall Ferguson on . it is about how and to what purpose these tools are being used. and I think that’s great. the differentiating factor is not so much about modernity. there are all kinds of absolutely unjustifiable loopholes and deductions. broadly speaking. You are going to have to dismantle Medicare as it’s currently constituted. We’ve come a long way from that world. and the relationship between banker and client was based on mutual trust. that it is an agent of Westernization or of democratization. because the revolutionaries have an aim. But I don’t agree. But here’s the bad news. then it’s very hard for the financial system to function. and in particular. what’s left? I think there is a kind of simmering disillusionment with the system that is partly what fuels populism. and equity. It can be used equally well by those who are profoundly hostile to freedom. This country is not a kind of giant transatlantic European Union. My own view is that the United States would be making a big mistake by becoming a European country. The debate between big and small government is beginning. Tax reform We urgently need tax reform in almost all Western countries.” I think what’s really impressive about the 21st century scene is that most all civilizations now have access to powerful tools for communication. I would be aiming to do. corrupt and that’s a very unhealthy state of affairs. if you can’t trust the banks and you can’t trust the government. Further. but the revolutionaries did. particularly because of unfunded liabilities in Medicare and Social Security. gZ: A debate going on in the US right now concerns the magnitude of spending in light of growing deficits. long-term unemployment. then government will have to shrink. can and are being co-opted by the less modern. It’s really something quite different. But we have to recognize that trust has implicitly shifted to the governments that bailed out the banks. So I think. And an attack on the network is a perfectly credible scenario and the kind of thing that. Clash—or mash—of civilizations Some think we are experiencing a clash of civilizations. But the worst danger is that the networks on which we grow so reliant are vulnerable to cyber attack. and healthcare reform. and we should aim for simplicity. The established authorities in France in 1789 had no idea how to manage the press. You could have a sociopathic network that serves to promote the cause of political violence. and everybody understands it. . In the 19th century the prudence of the banker and the privacy of the client were givens. I have been warning that the United States was on an unsustainable fiscal trajectory. Ironically. clarity. If Americans are to keep federal expenditures at 18 or 19 percent of gross domestic product. And Americans should be worried that they have such large. view Issue 14 editorial Editorial Director Tom Craren Managing Editor Gene Zasadinski Assistant Managing Editor Christine Wendin View points Editor Reena Vadehra Contributing Editors Serena Foong Benjamin Isgur Sandy Lutz online Jeffrey Dreiblatt Adiba Khan Scott Schmidt Jack Teuber Design Odgis + Company Creative Director Janet Odgis Art Director. 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The application and impact of laws can vary widely based on the specific facts involved. “PricewaterhouseCoopers” refers to PricewaterhouseCoopers LLP. Given the changing nature of laws.551 gallons of wastewater flow were saved 504 lbs of solid waste were not generated 991 lbs net of greenhouse gases were prevented 7. Rear view www. the less disciplined. see Demystifying innovation: Take down the barriers to new growth.com/view Are you aware of the following misconceptions surrounding innovation? { Innovation can be delegated. { Senior and mid-level managers are the natural allies of innovation. . 2011. { Innovation results from lucky accidents.pwc. For an in-depth discussion of these misconceptions. { Businesses know how much innovation they need. { Innovative talent works for the money. PwC. { Innovation can’t be measured. { The more open the innovation process.