Strategy - Business Summer 2021

PwC’S CEO SURVEY • ADAM BRYANT ON LEADERSHIP • FUTURE OF FAMILY BUSINESS
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editor’s letter
1
Value added
Pretty much every day, at some time, each of us is engaged in a search for value.
Investors picking a stock, managers allocating capital to a new plant, diners figur-
ing out if that $48 Wagyu cut is worth it, and shoppers assessing whether a $140
designer T-shirt is a bargain or a rip-off (I say rip-off): Their efforts are made
all the more difficult by the fact that standards for value (1) are often highly
personal, and (2) change over time, sometimes overnight. We live in a world in
which somebody was willing to pay US$69 million for an NFT (nonfungible
token) granting the owner the rights to display the digital image of an artist who
goes by the name…Beeple.
Many of the articles in this issue of strategy+business touch on the imperative
Illustration by Lars Leetaru
and mission to create, find, and develop value in new ways. In the cover story,
“A CEO guide to today’s value creation ecosystem” (page 74), PwC colleagues
Helen Mallovy Hicks, Aaron Gilcreast, Hein Marais, and Chris Manning argue
that although profits are essential, resilience and the ability to contribute to soci-
etal well-being are the keys to creating enterprise value.
editor’s letter
This point is reinforced at a granular level in “How organizations can de-

sign for agility and embrace uncertainty” (page 66), a case study of the French
cosmetics giant Clarins Group, by Stéphane JG Girod and Martin Králik of
IMD. In our Inside the Mind of the CEO interview, Andy Mooney, chief of
Fender, describes how the 75-year-old guitar company is mining value from its
heritage by ramping up marketing and leaning into an online riff-teaching tool,
Fender Play (page 158).
It’s always valuable to hear directly from corporate leaders on what they
make of the world. In “A leadership agenda to take on tomorrow” (page 92),
2
based on PwC’s 24th Annual Global CEO Survey, s+b senior editor Laura W.
Geller and PwC’s Spencer Herbst give us a window into the hearts and minds
of thousands of chief executives. The view is, overall, an optimistic one — albeit
one tempered by concerns over issues such as climate change and cybersecurity.
And in an excerpt from their new book, journalist-turned-executive coach Adam
Bryant and Kevin Sharer, the former CEO of Amgen, provide pointed advice on
how to balance the immense tensions modern leaders face (page 44).
More and more, value and values are closely linked. This is particularly the
case in family businesses, enterprises designed to be handed down from generation
to generation. But focusing excessively on preservation is a recipe for irrelevancy
in the 21st century. Instead, as Peter Englisch of PwC writes in “Sustainability
and digitization hold the key to long-term value for family businesses” (page 54),
businesses need to move with urgency to ensure they can remain family affairs.
Companies have to keep moving because the factors that created immense
value last year, or yesterday, can’t be relied upon to do the same next year, or even
tomorrow. Case in point: the business that used to be known as motion pictures.
In “Streaming energy” (page 138), Kim David Greenwood, Kate Kennard, and
Mark Borao of PwC chart a course for content-streaming companies to create
value as the dynamic industry moves into its next stage of maturity.
strategy + business issue 103
Daniel Gross
Editor-in-Chief
leading ideas 138
8 Simplifying cybersecurity
Richard Horne and Sean Joyce
Have our institutions become too
complex to secure?
15 Diversity and the case

for transparency
Tim Ryan
Vulnerability is a necessity if we
want to lead effectively.
20 China and the race for

the future of money
Wilson Chow and Vicki Huff Eckert
How digital currency could change
the global financial landscape. 37
27 Taxing times require a
new era of compromise
Carol Stubbings
Tax reform may well top government
agendas to help cope with COVID-19
spending, but every move could
require trade-offs.
32 Localization is the
new globalization
Tom Seymour and Richard Oldfield
Many factors are disrupting the
equilibrium multinationals have
enjoyed for decades. In response,
organizations must adapt both their
strategies and their tactics.
124
37 How business can bridge the
gap and achieve net zero
Celine Herweijer and Colm Kelly
Business leaders need to act now to meet
the demands of science, government,
investors, and society at large.
essays
LEADERSHIP STRATEGY
44 Can you master the inner 66 How organizations can design for
game of leadership? agility and embrace uncertainty
Adam Bryant and Kevin Sharer Stéphane JG Girod and Martin Králik
Conflicting demands and challenges Clarins Group’s organizational experiment
must be managed. Here’s how to do it. during the pandemic shows how a large
company adapts and becomes more
STRATEGY flexible when it matters most.
54 Sustainability and digitization
hold the key to long-term
value for family businesses
Peter Englisch
Though resilient in a crisis, family
businesses have not fully embraced the
ESG agenda or digital transformation,
according to a new survey.
features
STRATEGY STRATEGY
74 A CEO guide to today’s value 110 Practicing strategy in

creation ecosystem an uncertain world
Helen Mallovy Hicks, Aaron Gilcreast, David Lancefield
Hein Marais, and Chris Manning A modern strategy that works will
The drivers of enterprise value extend require leaders to learn new skills and
beyond financial productivity — and as apply new tools. Here’s a primer for a
disruption intensifies, businesses must refreshed approach.
adapt to avoid value destruction.
WORLD VIEW
WORLD VIEW 124 Asia-Pacific’s rebalancing act
92 A leadership agenda Raymund Chao, Christopher Kelkar, and
to take on tomorrow David Wijeratne
Laura W. Geller and Spencer Herbst As the power of traditional drivers
PwC’s 24th Annual Global CEO Survey of growth fades, companies need to
reveals the opportunities and threats develop more resilient and rebalanced
shaping company leaders’ outlook for supply chains to keep the region
2021 and beyond. moving forward.
GLOBAL E&M OUTLOOK GLOBAL E&M OUTLOOK
138 Streaming energy 150 Lost in translation

Kim David Greenwood, Kate Kennard, Derek Baker, Ravi Patel, and
and Mark Borao Alison Lisnow
After a year of explosive growth fueled Can CFOs help companies make
by the COVID-19 pandemic, streaming the most of their investments in
video companies have to embrace new digital advertising?
strategies to create value for viewers,
creators, and investors.
INSIDE THE MIND OF THE CEO
158 Fender hits the right notes

Bob Woods
CEO Andy Mooney riffs on the boom
in guitar sales during COVID-19
and rethinking business models for
the post-pandemic world.
BOOKS IN BRIEF
170 Battling the bots

Mike Jakeman
174 Bill Gates tackles climate change

Deepali Srivastava
177 Arguing your way to

better strategy
Theodore Kinni
ENDPAGE: RECENT RESEARCH
180 When molehills are

worse than mountains
Matt Palmquist
Small, persistent customer service
failures may pose a bigger threat
to customer retention than large,
isolated incidents.
Cover illustration by Chris Gash
Issue 103, Summer 2021

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leading ideas
Leading The articles in this issue’s

Leading Ideas are part of
PwC’s Take on Tomorrow series.
To read more, visit
pwc.com/takeontomorrow.
8
Ideas
Illustrations on pages 8–38 by Miguel Montaner

leading ideas
Simplifying cybersecurity
Have our institutions become too
complex to secure?
by Richard Horne and Sean Joyce
A
9
t a recent board meeting, the CIO of a major global corporation led
a wide-ranging discussion about the tools and practices needed to
fortify the company’s data and systems against breaches. The board
encouraged heightened investment and vigilance, then moved on to
its next agenda item, a financial committee presentation leading to a board vote
on acquiring shares to consolidate ownership in an enterprise in which the com-
pany held a minority stake. To the surprise of the CIO, who was still in the room,
there was no discussion of cybersecurity, even though the acquiree was operating
in a region where cyber breaches and criminal hacking were endemic. Happily,
the CIO’s fortuitous presence enabled a proper discussion of the impact of the
decision on the company’s cyber-risk profile, and a change in the acquisition ap-
proach aimed at bringing the acquiree more fully into the corporation’s IT and
operational infrastructure.
The board had not connected the dots between the two agenda items be-
cause its view of cybersecurity, as well as the CEO’s, was more focused on risk
dashboards and surveillance than on the security implications of business deci-
sions. It’s an issue we’ve seen variations on for years. Simply put, far too many
boards and CEOs see cybersecurity as a set of technical initiatives and edicts that
are the domain of the CIO, chief security officer, and other technical practitio-
ners. In doing so, they overlook the perils of corporate complexity — and the
power of simplicity — when it comes to cyber risk. We’d propose, in fact, that
leaders who are serious about cybersecurity need to translate simplicity and com-
plexity reduction into business priorities that enter into the strategic dialogue of
the board, the CEO, and the rest of the C-suite. Questions such as the following
leading ideas
can help catalyze this conversation:

• How does a full accounting of cyber risk affect our business model’s at-
tractiveness, and does that suggest the need for a “simplification agenda”?
• How transparent are the cyber risks and trade-offs associated with our ex-
ternal digital partnerships, and what would be the pros and cons of simplifying
our ecosystem to make them more manageable?
• How risky are our IT-enabled legacy processes, and how should we pri-
oritize investments to secure, simplify, and transform them to achieve com-
petitive advantage?
10
Leadership teams who grapple with questions like these and embrace sim-
plicity boost their odds of making the entire enterprise securable.
Creeping complexity
Even a decade or so ago, the technical operations, systems, and footprints of
many large companies had become extremely costly and complex. Breakneck
digitization in the smartphone era has exacerbated matters, as companies have
increasingly created ecosystems with a variety of new partners to help expand
their reach and capture new, profitable growth. They range from supply chain
relationships across goods and services (including IT services) to partnerships for
data, distribution, marketing, and innovation. Even more recently, the business
challenges of the COVID-19 pandemic have spurred faster adoption of digital
solutions that rely on data, digital networks and devices that are most often oper-
ated by companies outside the organization’s borders.
The technology architecture of many organizations, often made up of lay-
ers of legacy systems with multiple constraints on their flexibility, represents an
ever-expanding dimension of complexity. (By contrast, many “digital native”
companies of more recent vintage have a simplicity advantage. These companies
are built digital from the ground up, using more recent generations of IT, stan-
dards, and techniques meant to increase interoperability across systems.) Legacy
strategy+business issue 103
structures are often riddled with open seams and soft connections that can be
exploited by attackers, whose capacity to infiltrate sprawling systems has grown.
The pressures on these legacy structures have intensified as companies have
pushed their current IT to keep pace with the digital natives. Mergers often
leading ideas
A network of digital interconnectedness
In today’s hyperconnected world, companies need to consider multiple
areas of cyber risk throughout their ecosystem.
Industry related
Industry
Global Regulatory
11
Customers Suppliers
Environmental Enterprise Legal
Service
Consumers providers
Geopolitical Sociocultural
JV/
partners
Technological
Source: PwC analysis
multiply risks, by connecting already complex networks of systems, which

makes them exponentially more complex.
As a result, complexity has driven cyber risks and costs to dangerous new
heights. The numbers of significant cyberattacks globally are increasing and in-
clude potentially devastating criminal “ransomware” attacks and nation-state ac-
tivity targeting government agencies, defense, and high-tech systems by, for ex-
ample, breaching IT network-management software and other suppliers. Each
major incident exposes thousands of users (at both companies and government
agencies) to risk, and can go undiscovered for months.
leading ideas
Thinking about the trade-offs

As senior leaders revisit their growth strategies in the wake of the pandemic, it’s a
good time to assess where they are on the cyber-risk spectrum, and how signifi-
cant the costs of complexity have become. Although these will vary across busi-
ness units, industries, and geographies, leaders need good mental models for self-
assessing the complexity of business arrangements, operations, and IT.
One conceptual framework for thinking about complexity and the cyber-
risk spectrum is the Coase Theorem, formulated by Nobel Prize winner Ronald
Coase. He posited that companies should use external contractors to supply goods
12
and services until the transaction or complexity costs associated with those ar-
rangements exceed the coordination costs of doing the work in-house. A similar
dynamic may be at play in cyber-risk assessment. Cyber risk (whether generated
through a supplier relationship or customer relationship or internal arrangements)
is a sort of “external” cost — one that has risen as cyberattackers get better and
become more pervasive. At the same time, the “transaction” costs within the en-
terprise of establishing multiple nodes of partnerships (where risks are hidden)
have actually gone down, thanks to the ubiquity and lower cost of digital interac-
tions. The upshot: a new environment where the costs of failure have risen mark-
edly while the costs of creating complexity have gone way down.
Tackling complexity in three areas

Leaders seeking to strike a better balance can start with some basic principles.
One is ensuring that strategic moves won’t increase complexity risk and make the
current situation worse. Another is understanding that simplification of company
IT may require more than minor rewiring of systems, and instead may demand
more fundamental — and often longer-term — modification to IT structures, to
make them fit for growth. In our experience, the challenges and opportunities
fall into three areas.
1. Business models. We have seen that companies often respond to break-
downs in cybersecurity with a nod to their gravity, but take actions that are nar-
rowly focused and which are ultimately patches on a broken process. The new in-
tensity of threats, however, often requires rethinking at a higher level: coming to
grips with problems and risks enmeshed with business models. At one company
leading ideas
we know (and the situation isn’t atypical), there were high levels of autonomy in
most things digital. Regional and business unit leaders had nearly a free hand in
choosing digital partners, deciding on systems and networks for customers, sup-
pliers, and more. After a minor cyberattack in one region, IT leaders attempted to
provide all geographic areas with guidelines and best practices for reducing risks,
including rules for selecting partners and suppliers. They found, however, that
the proposed mandates were beyond IT’s scope. The new approach required the
CEO to modify what was, in effect, an element of the company’s business model:
the freedom granted to business unit executives, which had enormous implica-
13
tions for digital complexity and cybersecurity.
2. External partners. More typical are challenges involving ecosystems and
supply chains — whose opaque complexity has outstripped efforts to manage
them securely. When a new operations director took charge of the function at
one global retail organization, she was alarmed to find customer data potentially
at risk from what she termed “a chaotic supplier arrangement.” In one instance,
her predecessor had engaged six different vendors to manage customer contacts
as the company’s mix of customers and product lines shifted over time, and it
entered new markets. Two of the vendors had histories of data breaches, so the
operations director felt action was needed. With input from the CEO and board,
she reduced the number of vendors to two of the most capable and innovative
players in the industry, thus allowing for both diversity and resilience that built
trust. The reduced complexity allowed for greater transparency, which enabled
all parties to better understand their individual roles in protecting their supply
chains from cyber disruptions. Senior leaders signed off on a backup system for
all customer data, as well as new guardrails for access to customer information.
The operations director added key positions to her own staff to keep a closer
watch on vendor security practices. Ultimately, the customer-data ecosystem be-
came more securable, with the company having a firmer handle on its own and
its vendors’ responsibilities, a better demarcation of individual accountabilities,
and new technologies for increased monitoring.
3. Internal systems. In-house processes and systems are likely to require a
close inspection for the complexity and risks they harbor. A case in point: At
many financial institutions, payment systems have been built over several years
leading ideas
with a combination of recent and legacy applications. Outages that knock out
system availability (sometimes leaving customers unable to complete transactions
for several days) are often linked to legacy technology in core payment systems.
In truth, the cause often isn’t necessarily the nature of the older technology itself,
but rather the outdated processes it supports. Traditionally, these processes have
been structured to close transactions over a multiday payment cycle. As busi-
ness has moved to a demand for real-time completion of transactions, ever-more
complex workarounds have had to be built into legacy systems, with technology
that back-fits “instant” payment into the multiday process. This complexity has
14
led to an increased likelihood both of major failures and of smaller breakdowns
cascading into significant incidents. (Complexity and “close coupling” are often
the drivers of catastrophic events, from airline crashes to nuclear power plant fail-
ures.) Replacing these systems requires tough business decisions, sizable invest-
ments, and the will to overcome an attitude of “if it ain’t broke, don’t fix it.” The
rising costs of complexity may shift the balance.
Although the benefits of simplification are large, extending far beyond cy-
bersecurity, we’re under no illusion that they are easy to realize. Reducing com-
plexity while establishing a framework for governance and shared responsibility
demands deliberate action, over the long and the short term. It also demands the
attention and energy of CEOs and boards who understand its value and are ready
to invest in changing mindsets, across the management team, about the benefits
of simplicity. Leaders who are ready to step up and set the tone will create a better
blueprint for a securable enterprise. +
Richard Horne Sean Joyce PwC US director Michael Versace

richard.horne@pwc.com sean.joyce@pwc.com also contributed to this article.
is a recognized leader in the field is the global and U.S. leader for
of cybersecurity and has advised cybersecurity and privacy at PwC.
governments, companies, law He helps scale the firm’s cyber
enforcement, and regulators offerings worldwide, and advises
globally. He serves as chair of on digital threats, best practices in
PwC’s U.K. cybersecurity practice. risk, and how to use cybersecurity
Based in London, he is a partner as a business enabler. Based in

with PwC UK. Virginia, he is a principal with
PwC US.
leading ideas
Diversity and the case
for transparency
Vulnerability is a necessity if we want to lead effectively.
by Tim Ryan
15
B
usiness leaders who persevered through a trying 2020 got some af-
firming news when Edelman released its latest Trust Barometer in
January 2021. Not only is business, for the first time, the most trusted
institution in the world, it also is the only institution seen as both com-
petent and ethical. To be sure, the doubts about government, non-governmental
organizations, and the media reflected in this year’s Barometer are nothing to
celebrate. But there’s also no doubt that today’s trust dynamics create an oppor-
tunity — and a responsibility in many cases — for business leaders to take tough
stands on issues that affect society.
One critical priority: diversity, equity, and inclusion (DEI). While many in
the business community have been focusing on DEI for several years, the data
indicates there’s still plenty of room to improve. In fact, I’d suggest that with
trust in business running high, there has never been a better time to be transpar-
ent about our data as a way of holding ourselves accountable for the progress we
seek to make, and that our people, investors, customers, and other stakeholders
expect from us.
Last year, we tried a version of this at PwC. On August 26, 2020, we pub-
licly released our diversity data, including racial and gender representation, at all
career stages, for all of our offices in the United States. While we were proud of
progress in some areas, such as the progress we’ve made in diverse recruiting of
late, we were admittedly disappointed by some of the things that data said: Our
representation of women and racially and ethnically diverse people at senior levels
is not what we would like, and we also wonder how many people in communities
leading ideas
that self-identify (such as those who are LGBTQ+, who are veterans, or who ex-
perience disabilities) felt comfortable doing so.
Although some of the numbers gave us pause, they ultimately made us even
more determined to go faster. Transparency grounds everything, and shining
light on where we can improve makes tough challenges impossible to ignore.
That was certainly the case for us. In the months following the release of our
data, we found:
Stakeholders care. Our people appreciated our candor. So did our clients,
and many other companies; my partners and I have received hundreds of requests
16
for advice from other organizations looking to share their numbers. This was
gratifying, but that wasn’t the impor-
Transparency grounds tant thing. What mattered most was
everything, and shining light that the enthusiasm of our stakehold-
on where we can improve ers, particularly our people, gave us en-
makes tough challenges ergy to accelerate our efforts. We want-
impossible to ignore. ed to, not out of fear of how it would
look in the future if we did not progress
as quickly as we wanted to, but because it so obviously mattered to so many
people who matter to us — and because we were confident we could do better.
We’re working harder and smarter. We were working hard prior to the re-
lease of our diversity data. But we’re working harder now — and smarter, in part
because of how we tackled the data collection and reporting effort. We didn’t just
say, “Here’s where we are, and here’s where we want to be.” We also collected data
about the employee experience, and used that to help generate ideas about credi-
ble, new interventions to enhance experiences, improve retention, and create more
direct paths to leadership.
For example, we are focusing intently on the way we handle deployment
around client engagements so that our people — with a particular emphasis on
our women, Black, and Latinx employees — are experiencing a variety of chal-
lenging assignments, which, our data tells us, are correlated with advancement
and retention. We’re also strengthening our relationships with Historically Black
Colleges and Universities (HBCUs), Hispanic Serving Institutions (HSIs), and
community colleges. And we’re reviewing requirements for four-year degrees as
leading ideas
prerequisites to join certain parts of our businesses, to help us to more readily
source talent and, in some cases, decrease obstacles that a four-year degree may
present to those from underserved communities. Importantly, too, we are focus-
ing on fostering a culture of belonging rooted in thoughtful introspection, with
an emphasis on allyship and critical dialogue, so that everyone at the firm can
reach their full potential.
We’re more outcome-oriented. As we move with fresh energy, we’re in-
nately aware of the difference between activity and outcomes. Both are impor-
tant, so when people ask me how we’re doing, I say we’re encouraged, but our
17
leading ideas
Opening doors
Believing that transparency can contribute to progress, in 2020 PwC shared detailed
data on the diversity of its U.S. employees.
16%
Racially/
ethnically 40%
diverse
18
50%
82%
White 58%
Chose not to of PwC’s U.S. leadership

provide: 2% team are women
Entry-level Partners and/or racially/ethnically
hires and diverse individuals
principals
Source: 2020 PwC Diversity & Inclusion Transparency report, Building on

a culture of belonging
results show us that we are not where we want to be yet. What will the results
of our next promotion cycle, six months from now, show? How about the
following one, which is 18 months away? The fact that we’ve started down
the road of transparency makes these checkpoints very real — and for me,
very exciting.
In a sense, we’re simply providing the same kind of scorecard for our diver-
sity efforts that we’ve long provided for our day-to-day operations. Said differ-
ently, DEI should be treated like any other business issue, and we are treating it
as such. Most organizations that stay in business for meaningful periods of time
do so because they are living, learning, evolving entities. We want that same
spirit of adaptation to pervade our diversity efforts, at all levels, because everyone
can see exactly how we are doing.
leading ideas
People, myself included, often describe diversity as a journey. I suppose that’s
true, in the sense that it’s not the work of a moment; at PwC, we’ve been at it for
more than two decades. But it’s also a business issue that demands focused atten-
tion, testing, learning, scaling what works and stopping what doesn’t. A journey
can sound like a grand adventure with no known destination. That’s not diver-
sity, and business leaders aren’t just along for the ride. They’re navigators, who set
direction, check progress continuously, and turn around when they hit dead ends.
They also need their people up and down the line to do the same, because course-
correcting involves a multitude of actors. There’s no substitute for clear, widely
19
shared information in that endeavor. Uncomfortable though transparency may
be at first, I’m convinced that vulnerability is a necessity if we want to lead effec-
tively on diversity — and as the business community has the greatest share of
trust we’ve had in recent memory, now is the time. +
Tim Ryan
tim.ryan@pwc.com
is the PwC US chairman and
senior partner, based in New
York. He has been the CEO
Action for Diversity & Inclusion
steering committee chair since
its inception.
leading ideas
China and the race for

the future of money
How digital currency could change the
global financial landscape.
by Wilson Chow and Vicki Huff Eckert
20
P
ingyao, in Shanxi province, was once the financial center of Imperial
China — the birthplace of banks that led the world in remittances
and settlements using “tickets” that were a sort of tokenized legal ten-
der. The People’s Bank of China honored Pingyao, now a UNESCO
World Heritage Site, in 2019, with a set of silver and gold commemorative coins.
Even as it honors the past, though, China is focused squarely on the financial

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future. In 2020, the country began testing a digital renminbi (RMB), which
could have revolutionary implications for the future of money. Although a vir-
tual RMB probably hasn’t blipped on many CEO radar screens, particularly
given the disruptive effects of the pandemic, it’s time to start tracking how the
financial environment could shift.
China started with several urban pilots of the digital RMB — known for-
mally as digital currency electronic payments (DCEP) — and is studying moves
to broaden the trial to additional areas. DCEP is a fully digital version of the
RMB, downloaded using authorized apps (digital wallets). The currency may
21
incorporate secure technologies such as blockchain, as well as near-field commu-
nication (NFC) capabilities that allow offline money transfers when two wallets
(typically mobile devices) touch.
Since 2009, when bitcoin arrived, a variety of cryptocurrencies has arisen,
launched first by startups (like Ethereum), but more recently by established play-
ers such as Facebook, whose Diem partnership looks to create a new global digi-
tal ecosystem. The People’s Bank of China is likely to be a pioneer in the launch
of a digital fiat currency, potentially ushering in a new era in the digital economy.
A small selection of digital currency initiatives around the world

Although China is among the leaders, monetary authorities worldwide are piloting digital currencies.
Completed pilots Ongoing pilots Official launch
Eastern Caribbean Central ECCB: Phase 2 delayed

Bank (ECCB): Phase 1 by COVID-191 (July 2020)
Uruguay: Limited
mobile-based pilot Sweden: 12-month pilot
with option to extend
South Korea: 22-month pilot
Ukraine: Multi-phased pilot China: Five pilots launched; additional

locations under consideration
Thailand: Cross-border pilot
The Bahamas: First

country to roll out a
CBDC
Nov. Feb. Mar. Feb. Mar. Apr. Jul. Oct. Feb.

2017 2018 2019 2020 2020 2020 2021
1) Phase 2 included a planned rollout to four member countries.

Source: Bank for International Settlements, central banks, PwC analysis
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(For more on China’s efforts, see PwC’s report The business implications of China’s
digital RMB.)
For CEOs and their top teams worldwide, the rapid changes in the virtual
currency landscape should prompt questions about their readiness to operate and
seize opportunities in the new environment. For example:
• Have we thought through the implications for supply chains when more
transactions in some regions are denominated in digital currency?
• What are the implications for our financing and currency operations as
adoption grows and a new digital currency infrastructure develops?
22
• How could we better serve our customers by reducing friction in digital
currency transactions?
• How up-to-speed are we on the new regulatory frameworks that monetary,
securities, and tax authorities are beginning to build out?
If you’re not wrestling with questions like these now, it’s time to start.
Digital dynamism
China’s boldness isn’t surprising given its position as a nearly cashless society, and
its evolution as a digital society. In 2000, China had about 23 million internet
users; today, that number has swelled to more than 900 million, substantially all
of whom use the technology solely
with a mobile phone. The impetus for The rapid changes in the virtual
that progress was the size and spread currency landscape should
of its population along with the high prompt questions about CEOs’
costs of building a comparable “physi- readiness to operate and
cal” communications infrastructure. seize opportunities in the
One consequence was the emer- new environment.
gence of China’s hugely successful e-
commerce and online-to-offline platforms. From these platforms, two pioneering
digital payments systems coalesced — Alipay and Tenpay, with its WeChat Pay
service — allowing nearly friction-free shopping and a proliferation of uses, in-

cluding such everyday transactions as accessing public transportation.
There are a number of other potent, parallel trends that will continue driv-
ing the demand for digital payments and, by extension, digital currencies. Busi-
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nesses worldwide continue to digitize, and the post-COVID world will result in
even more commerce processed on social platforms. We see this in the KPI data
reported by U.S. and Chinese platform companies. Whereas previously the focus
was on monthly active users, the attention now is increasingly on daily commer-
cial transactions. This intensifying move to conduct commerce on the platforms
is driving demand for digital payments, which has led to growth in the number
of digital payment companies. The digitization of commercial transactions and
payments also creates opportunities for digital currencies, given their potential to
speed up transactions; enable lower-cost, more streamlined monetary pathways;
23
and log transaction information instantaneously.
Gaining momentum
Market momentum has prompted monetary authorities worldwide to begin ex-
ploring digital currencies, which are now being studied or piloted by more than
85 percent of central banks. In October 2020, the Bank for International Settle-
ments released a report in collaboration with seven large central banks — among
them, the European Central Bank, the Bank of England, the U.S. Federal Re-
serve, and the Bank of Japan — assessing the feasibility of central bank digital
currencies (CBDCs). The report focused on principles for how digital currencies
would coexist with cash and other types of payments, what would be required so
adoption would do no harm to financial stability, and which features would in-
crease financial innovation and efficiency. Some smaller nations, such as Sweden
and Thailand, are staging their own digital currency trials, and the Bahamas
recently launched the first national CBDC.
Continued progress in China could accelerate these efforts. During 2020,
there were several million DCEP transactions, totaling hundreds of millions of
dollars; and by one estimate, the digital RMB could account for 15 percent of all
Chinese electronic payments in 10 years. China’s tests ran across thousands of
businesses and also engaged consumers directly — through, for example, a lot-
tery-based distribution in January 2021 of 100,000 digital currency “red enve-
lopes,” each worth 200 RMB, for holiday gifts.
And the business case for deploying digital currency is strengthening. Face-
book’s Diem reflects the aspirations of platform players. Elsewhere, opportunities
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for trading virtual currencies (largely cryptocurrencies) are growing with backing
from financial institutions, and investors are becoming more at ease with portfo-
lio holdings in cryptocurrencies.
As the world becomes more digital and commercial transactions shift even
more forcefully to digital platforms, the potential for DCEPs will increase. To-
day, Chinese currency accounts for about 4 percent of global transactions. DCEP
could further lubricate domestic and, over time, global commerce for Chinese
companies. It could also provide safeguards against fraudulent transactions.
Broad uptake could raise the RMB’s profile in world money markets against the
24
dollar and the euro.
Looking ahead: The evolving landscape

Momentum for virtual currencies is building across different arenas — crypto
and private digital currencies, as well as DCEP. Here’s a quick executive scan of
what’s developing in the cryptocurrency sphere and China:
Regulation is one factor stoking expansion of the cryptocurrency environment.
Monetary authorities and regulators are continuing to provide clarity in this area.
Hong Kong, for example, is exploring a framework for cryptocurrency exchang-
es. In the U.S., the Office of the Comptroller of the Currency has given the green
light to federally chartered banks and thrifts for verified transactions in digital
“stablecoins.” As financial centers and large economies move forward with rules
for digital assets, it opens pathways for industry growth and innovation — for
example, a central bank “sandbox” launched by a startup, which helps regulators
shape the infrastructure by streamlining approvals and enabling transparency —
while providing comfort to traditional financial institutions contemplating ways
to enter the arena.
Banks and other financial institutions are likely to be on the front lines of
change. Adapting to cryptocurrencies will require rewiring systems, along with
funding up-front operational and compliance costs. Some banks are accounting
for that by creating revenue-producing units around virtual money operations.

Seizing the regulatory momentum, they are both building crypto trading plat-
forms and launching asset management offerings, custodial operations, and cur-
rency advisory and research groups. As our colleagues have noted, greater integra-
leading ideas
tion between the software and apps powering fintech offerings and mainstream
banking operations will be necessary. Virtual currencies laden with transaction
information will open up opportunities for an array of innovative financial offer-
ings — as well as increasing investor demands for them.
Transactions in virtual currencies are poised to rise sharply. The best digital
transactions are intuitive, needing only a finger swipe or mobile phone tap. Suc-
cessful payments players in China, where mobile payments far outstrip those in
other countries, have been active participants in these dynamics. As the use of
virtual currencies grows, and China’s
25
Virtual currencies laden DCEP effort progresses, pressures will
with transaction information intensify on companies — financial
will open up opportunities and nonfinancial alike — to offer more
for an array of innovative digital payment options and better ex-
financial offerings. periences to their customers. To that
end, Facebook’s Diem aims to make
sending money around the world as easy as sending a text message, while also
helping to reduce transfer and remittance fees, which often are costly.
Advances in the B2C sphere will set the stage in company-to-company trans-
actions in-country and across borders. China’s banking system likely will be a
first mover in providing capabilities for widespread B2B payments. Merchant-to-
merchant transactions may already be trending: The data suggests growth in
digital B2B commerce between Latin American buyers and exporters from Asia.
The added security, lower cost, ease of tracking payments, and commercial part-
nerships enabled by digital currencies will increase the attraction for global com-
panies looking to improve supply chain performance.
Leaders need to become more comfortable on the new terrain. Now is the
time to start laying the groundwork for how companies will move into the
digital currency era. Some company treasurers are already making early moves
in response to changing dynamics. Firms ranging from tech players like Mi-
croStrategy to insurer MassMutual are increasing their holdings of cryptocur-
rencies — seeing the potential for rising portfolio value, for a hedge against in-
flation, or for cryptocurrency options to support consumer purchases. The
trading infrastructure is maturing quickly, prompted by regulatory actions. Ex-
leading ideas
changes for futures trading and derivatives of cryptocurrencies are multiplying,

with hedge funds supplying additional liquidity. Innovative investment vehicles
in cryptocurrencies and new financing strategies could, over time, arise from
these developments. Meantime, M&A activity among crypto players is acceler-
ating. As privately organized digital money offerings and existing cryptocurren-
cies (and their ecosystems) gain ground, players are recruiting talent with deep
financial-services knowledge. Increased surveillance and understanding of cryp-
tocurrencies by regulators and tax authorities, ultimately, will make for a more
certain market space.
26
Finally, it seems extremely likely that the China operations of many compa-
nies will soon be operating in an environment where larger numbers of transac-
tions will be denominated in the new digital currency — and competing with
Chinese companies embracing such transactions. Leaders should keep a close
watch on how Chinese pilots evolve, on changes in China’s regulatory regime, and
on the pace of company adoption. Over time, the web of individual transactions
via DCEP could evolve greater B2B usage with broader operating implications.
There’s a long way to go, but the direction of travel seems clear: 2021 will
be the year when China is a test lab for the mass adoption of digital money. Then,
2022 could mark the global unveiling of its progress, at the Winter Olympics in
Beijing, where, according to reports, global athletes and event attendees will be
using the digital RMB. As Olympians go for the gold, the potential of a much
bigger global economic prize may, for the first time, be on full display. +
Wilson Chow Vicki Huff Eckert The authors would like to thank
wilson.wy.chow@cn.pwc.com victoria.huff@pwc.com PwC’s Henri Arslanian, John
leads PwC’s global technology, the West Region vice chair of Garvey, and William Gee for their
media, and telecommunications PwC US and PwC’s global leader contributions to this article.
(TMT) practice. Based in Hong of new ventures and innovation.
Kong, he is a partner with Based in San Jose, Calif., she is
PwC China. a partner with PwC US.
leading ideas
Taxing times require a
new era of compromise
Tax reform may well top government agendas to help cope with
COVID-19 spending, but every move could require trade-offs.
by Carol Stubbings
27
W
hen governments came together at Bretton Woods, N.H., in
1944, they relied on a spirit of compromise to found the interna-
tional institutions that would help rebuild a devastated world.
Even as the Second World War raged on, leaders looked ahead to
a brighter future, and agreed to a monetary system aimed at avoiding future trade
wars. As we strive now through vaccination to put the global pandemic in our
rearview mirror, are we at a Bretton Woods moment for the global tax system?
A global red tide

In the face of COVID-19, governments around the world have taken on levels of
debt not seen for decades.
Historic and projected government debt, % of GDP
Advanced economies Emerging market economies

Global COVID-19
World War II financial crisis lockdowns
140
120
100
80
60
40
20
0
1937 1940 1943 1946 1949 1952 1955 1958 1961 1964 1967 1970 1973 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 2006 2009 2012 2015 2018 2021
Note: The aggregate public-debt-to-GDP series for advanced and emerging market economies are based on a constant sample of 25 and 27 countries,
respectively, weighted by GDP in purchasing power parity terms.
Source: IMF, Fiscal Monitor, Oct. 2020
leading ideas
The perennial question

COVID-19, like war, created human, economic, and fiscal carnage. Deficits,
which were already large at the start of 2020, now stand at levels not seen for
more than 80 years. And even when we start to return to some semblance of nor-
malcy, governments will need to continue investing substantial funds to repair
the pandemic’s damage, while also laying the foundations that will enable societ-
ies to tackle longer-term challenges, such as income inequality and climate change.
More debt is the obvious short-term option with interest rates so low, but tax
will be important in rebuilding national balance sheets in the long run. The pe-
28
rennial question remains: What should be taxed, and how? Even before COV-
ID-19, debates about tax were fractious. Mounting fiscal concerns haven’t helped,
and discussion seems stalled at both the national and the international level.

leading ideas
I took up the role of global leader of tax and legal services at PwC mid-
pandemic. We advise companies and individuals across the full spectrum of tax
issues, working to understand the obligations within the tax system and ensure
they are met. This gives us a rare insight into broad-based concerns and priorities.
Looking at this landscape, my concern today is the confrontational nature of
many discussions of tax systems.
To ease these frictions, I believe we need to embrace the idea of compromise
in the spirit of Bretton Woods. Compromise is likely to yield a more stable tax
equilibrium that will engender the certainty executives yearn for. More than
29
1,000 business leaders who attended a series of regional symposia we hosted on
tax toward the end of last year said uncertainty — not rates — was their single
biggest concern. They’re more likely to get certainty if they strive to shape the tax
system in collaboration with policymakers, who also must work with one an-
other to harmonize national and international interests.
2021 should be a year of building back better. Tax systems can help address
the crucial concerns of governments, businesses and citizens, if they are predict-
able and easy to comply with. Near-term priorities include a better balance be-
tween national and global interests, a fairness agenda to help us recouple social
and economic progress, and smart digital taxation.
Global vs. national

Tax can be seen as a largely domestic issue; after all, most tax rules set by a gov-
ernment apply to individuals who live in that state and businesses that operate
there. But governments always have an eye on the international landscape. They
may want to attract investment, encourage people to work, or use tax policy to
influence cross-border trading patterns by either encouraging or discouraging
certain transactions.
Understanding how a country’s tax system is seen internationally, the impact
it has on other countries, and its potential to create harmony or division is critical
to having a tax system that generates trust and promotes certainty. Some of the
thorniest tax issues relate to cross-border trade and companies that operate in dif-
ferent jurisdictions. The taxes in question generate outsized media and political
attention compared to the revenues they raise, and achieving compromise here
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would increase the capacity of negotiators and those at the table to concentrate on
more strategic areas that have greater potential to increase revenue.
Short-term policies set by one country can end up doing more harm than
good in a hypermobile world. Discussions about aligning tax systems interna-
tionally have been going on for decades, and now more than ever as we start to
recover from the multifaceted effects of COVID-19, there is merit in compromise
to improve trust and certainty for individual and corporate taxpayers around the
world. Frankly, looking at national tax policy through an international lens might
bring a more clear-sighted approach to policymaking.
30
A fairness agenda
Fairness, and the perception of it, is vital in designing tax systems for the future.
If taxpayers do not view taxation as fair, they are less likely to comply voluntarily
with their tax obligations. This increases the time and effort that has to be spent
on enforcement and deprives governments of tax revenues.
The amounts of tax companies
Fairness, and the perception pay and where they pay them is al-
of it, is vital in designing tax ready an emotional issue. The evi-
systems for the future. dence shows that the long-term effec-
tive tax rates of many large enterprises
are approximating statutory corporate tax rates in OECD countries. Still,
perceptions remain among members of the public that corporations aren’t pay-
ing their share, to the detriment of schools, hospitals, and other underfunded
public goods.
Many people believe the debt levels created by the pandemic could create a
political environment more amenable to making significant changes to tax sys-
tems. Responding to the pressure to be more transparent about tax is one area
where progress can definitely be made, particularly when it comes to environ-
mental, social, and governance (ESG) metrics. And greater transparency will
help toward building trust. Although there is no common global standard for
how businesses should report their ESG metrics, the World Economic Forum,
with support from PwC, Deloitte, EY, and KPMG, recently published a univer-
sal set of stakeholder capitalism metrics that includes tax contribution reporting.
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The digital effect
More than 135 countries are coming together under the auspices of the OECD
to tackle international corporate income tax issues, but it’s only a start. The mat-
ter of how to tax in a digitizing economy is still hotly debated, and showcases the
obstacles and tensions inherent in tax policy discussions.
If implemented, the OECD plans could raise up to US$100 billion world-
wide. This sounds substantial, but it’s a drop in the ocean: The U.S., to name just
one country, spent more than $3 trillion on COVID-19 stabilization and relief in
2020. Nevertheless, global consensus about a redesign of the system is key if we
31
are to avoid tax chaos. The OECD just completed the latest round of discussions
on this redesign, and there still is considerable debate and uncertainty.
Tax is complicated and interconnected. Balancing competition and consen-
sus is hard. And governments have significant incentives to undertake short-term
actions that are driven by local demands at the expense of international collabora-
tion. Nonetheless, the specter of years of wrangling over tax should serve to
bring people together. Heavy-handed tax rises in one area can lead to problems
in the future. Better to compromise now and stop the patchwork of isolated ac-
tions that lead to tit-for-tat tariff wars — which undoubtedly hurt people more
than companies and slow the rate of progress. +
Carol Stubbings
carol.a.stubbings@pwc.com
is PwC’s global tax and legal
services leader. She has more
than 25 years’ experience helping
large multinational organizations
deal with their most pressing
strategic challenges. Based in
London, she is a partner with
PwC UK.
leading ideas
Localization is
the new globalization
Many factors are disrupting the equilibrium multinationals
have enjoyed for decades. In response, organizations must
adapt both their strategies and their tactics.
by Tom Seymour and Richard Oldfield
32
T
he decades following World War II saw a proliferation of multilateral
organizations and alliances aimed at aligning interests for efficiency
and the greater good: NATO for military and security affairs; the
OECD and World Bank for taxation, regulation, and finance; inter-
national trade organizations; and the World Health Organization. Countries
and companies that embraced the order created by these global efforts have

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thrived. After years of impressive growth, exports now represent about a quarter
of global output. Multinational corporations (MNCs) have placed global trade
at the center of their value creation strategies. From 2000 to 2018, US$6.7 tril-
lion of the $9.2 trillion in growth of assets of MNCs has come from foreign
affiliates. The average MNC in the OECD is physically present in 28 countries
and digitally present in 34.
Of course, the benefits of the global efforts haven’t been shared equally —
within countries, within industries, or within trading systems. In recent years,
those inequities, combined with fundamental changes in the nature of goods
33
and services traded, have led to a growing wave of international backlashes and
conflicts over the distribution of value. And there’s more to come, as COVID-19
has sharply amplified the reaction. As we look to 2021 and beyond, it’s clear
that companies will be reckoning with a host of territorial disputes surrounding
taxation, trade, regulation of vital industries, and supply chains. Is localization
the new globalization?
Overseas expansion
Multinational companies have capitalized on globalization by expanding rapidly outside
their home markets in the last two decades.
Growth for UNCTAD’s top 100 nonfinancial enterprises1
Foreign Domestic
Employment,
Assets, US$ trillions Sales, US$ trillions millions of employees
17.5
15.5
14.3
9.6
9.2 9.4 7.1
6.3 5.6
2.6 4.8
6.3 2.4 7.1 7.9
3.7 2.4 3.8
2000 2018 2000 2018 2000 2018
1) Defined as the 100 nonfinancial multinationals with the most assets outside their home country
Note: Figures may not add up to totals shown due to rounding.
Source: United Nations Conference on Trade and Development; used with permission of the U.N.
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Global disputes — whether they are physical military conflicts or clashes

over trade and tax — have always inevitably been linked to value, from the wars
fought by European powers over control of trade routes to the Americas in the
18th century to the so-called cod wars of the 1950s and 1960s waged over access
to North Atlantic fishing grounds. The good news is that the predominant means
of dispute has shifted from physical military confrontations over the control of
resources to a more nuanced set of disputes surrounding data, information, and
other intangible assets.
It’s common to hear people say that data is the new oil. That’s true, and it
34
also reflects a longer shift in value from tangible to intangible assets. In the 1970s
and 1980s, the most valuable resources lay in the ground in specific geographic
territories, and companies had to be physically present in order to extract value
from them. In the 1990s and 2000s, fixed infrastructure networks, like telecom-
munications networks, became extraordinarily valuable. Again, generally speak-
ing, telecom infrastructure was tied to particular geographic areas and had sub-
stantial physical plants.
Today, information, data, and technology are the primary sources and
stores of value. The most valuable companies in the world don’t really own
much in the way of reserves or physical assets. They own intellectual property,
patents, R&D, and their brands. They distribute their products and services via
the internet and mobile networks. Alibaba, Alphabet, Amazon, Apple, Face-
book, Mastercard, Microsoft, Tencent, and Visa all have immense revenues and
cross-border business. A great deal of their vital infrastructure resides in the
cloud or is distributed broadly. Consider one of the most valuable single prod-
ucts in the global marketplace: the iPhone, with annual sales of about 200 mil-
lion units. Trade statisticians treat the ubiquitous phone as a good. Most of its
value, as we know, lies not in the metal, glass, and silicon used to make it, but
in the brand, IP, software, and other intangibles. The two global superpowers
in intangibles today are the U.S. and China. So it’s no surprise they are clashing
on a range of trade issues.

Sovereign states, whether they are democracies or authoritarian regimes,
work to advance their self-interest on economic development, security, and the
environment. And with the rise of global trade in data and intangibles, we’re see-
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ing a sharp increase in the measures that countries are taking to try to protect
their citizens, their industries, and their national security.
In the tax arena, for example, as the Tax Foundation has reported, “About
half of all European OECD countries have either announced, proposed, or
implemented a digital services tax (DST), which is a tax on selected gross rev-
enue streams of large digital companies.” Such taxes tend to fall mostly on U.S.-
based companies.
In trade, fundamental conflicts between major trading powers seem to be
the order of the day. The U.S. and China, the two largest economies in the world
35
by GDP, remain mired in a series of trade disputes that have involved tariffs,
challenges to market access, and bans on specific companies. The new adminis-
tration of President Joe Biden has pledged to enact “buy American” programs as
part of its proposed investment program.
Whether it was for Standard Oil in 1911 or AT&T in 1984, regulators have
historically intervened to break up powerful companies that dominated vital
technology industries. Today, regulators in many countries are weighing actions
aimed at constraining the activities of the large platform companies. As they do
so, they balance their desire to regulate the sector with the need to encourage the
development of competitors that can compete against the dominant U.S.- and
China-based players. (It is an interesting question as to why Europe has not pro-
duced major technology platforms.)
When it comes to supply chains, localization has taken on a different flavor.
Due to the pandemic, countries have taken steps to build national stockpiles and
encourage the domestic manufacture of critical goods such as medical supplies,
PPE, and ventilators — precisely so they won’t be dependent on international
trade to fulfill basic requirements. Meanwhile, countries large and small have
taken steps to secure adequate supplies of vaccines for their own citizens. The
moves, while completely understandable and in most instances necessary, will
have the effect of further reshaping established trade links and supply chains —
not just those surrounding pharmaceuticals and healthcare but also those for
energy and food.
Taken together, the moves toward localization are disrupting the equilibri-
um multinationals have come to enjoy in recent years. Localization may not be
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with us to stay; as countries focus on promoting economic growth, they will

likely return to globalization as a path to prosperity. But in the interim, this is
the new reality.
So what does this mean for leaders operating in a global context today?
A few things. Both strategies and tactics will have to evolve to be effective in
the new realities. Don’t assume that the forces that have led your organization to
fantastic global growth in the past will propel similar growth in the future. The
global economy is still expanding, and new relationships and markets are con-
tinually being forged. But leaders must be prepared to negotiate a world in which
36
there are more local conflicts, considerations, and barriers. Companies may have
to evaluate carefully when it makes sense to shorten supply chains, even if some
efficiencies may be lost temporarily. In this new world, leaders will have to dig in
more deeply to develop the ecosystems that will enable localization to succeed.
That includes engaging with governments about the policies and structures that
encourage resilience.
On what is an already crowded agenda, CEOs have to become more dialed
in and attuned to regional and national changes in policy and their implications.
And they may have to take a more selective approach to the appealing and vital
imperative to break into new markets: They should invest internationally only if
they have the acumen and capabilities to compete and thrive in a more geopo-
litically charged world. +
Tom Seymour Richard Oldfield

tom.seymour@pwc.com richard.oldfield@pwc.com
is CEO of PwC Australia. is a partner with PwC UK and
the global markets leader for
the PwC network.
leading ideas
How business can bridge
the gap and achieve net zero
Business leaders need to act now to meet the demands of
science, government, investors, and society at large.
by Celine Herweijer and Colm Kelly
37
W
ithin the past year, a rapidly growing number of household-
name businesses have announced net-zero targets. Their pledges
punctuated an immeasurably difficult year with hope; there is a
powerful symbolism when major players in oil and gas, automo-
tives, airlines, and other industries with a traditionally high carbon footprint
commit to rapid decarbonization.
These decisions are critically important steps, but we also recognize that
much more is needed. Recent PwC analysis shows that as of February 2021, only
about 8 percent of the world’s largest companies represented by the Global For-
tune 500 have pledged to become net zero. This sobering statistic leaves the over-
whelming majority of companies out of the climate action narrative and imperils
our ability to mitigate the worst effects of the crisis. The disconnect between
high-profile pronouncements and low participation rates is just one of a series of
gaps between our climate hopes and on-the-ground realities and needs. Bridging
these gaps must be a priority for business leaders in 2021.
The current pace of change is far behind the pace we need. Emissions levels
remain too high. By 2030, global carbon emissions must be cut in half, yet be-
tween 2009 and 2019, average emissions rose by 1.5 percent per year. Com-
pounding this challenge, the rate of decarbonization is still too slow. New analy-
sis from PwC’s Net Zero Economy Index, which tracks progress among the G20,
shows that a decarbonization rate of 11.7 percent is required to keep warming
within 1.5°C. To get there, countries with the highest rate of decarbonization in
leading ideas
38
2019 will need to double their efforts moving forward, and those with the lowest
rate may need up to a 10x improvement.
Business commitments to net zero lag those of government. Already, more
than 50 percent of countries, states, and cities, amounting to more than 50 per-
cent of global GDP, have set targets to achieve net zero by 2050 — and more will
likely make pledges in the months and years ahead, including the U.S. under
President Biden. Moreover, many countries are taking steps to introduce policy
interventions directed at business. Examples include bans and phaseouts of pol-
luting activities, fossil fuel subsidy reforms, tax reforms, new product and fuel
standards, and mandatory ESG and climate risk disclosure. And it is clear that
there is more — much more — to come.
The reality is that a country cannot meet a net-zero commitment without

transforming its economy and industries therein. With regulation evolving hand-
in-hand with investor pressure, businesses are increasingly coming forward with
net-zero commitments. Others should assume that they will be required to do so,
leading ideas
in one form or another, as governments move to deliver on their commitments
and as shareholders and customers increase their demands for such action. And
success can’t be judged solely on emissions reductions: Governments and busi-
nesses will also need to ensure a “just transition” for those sectors, regions, and
communities that will be most negatively impacted.
Some business leaders may feel that they should wait and see or postpone
bold action and investment. But there will likely come a time in the not-too-
distant future when the countries in which they operate will have little choice
but to make these decisions on their behalf. The pressure to act will continue to
39
grow exponentially.
Boardrooms are being asked not just for targets but also for climate transition
plans. Already, more than US$50 trillion assets under management (AUM) —
The green innovation boom

Between 2013 and 2018, venture capital investment in climate tech increased 4,200%,
though 2019 experienced a small drop-off, concomitant with wider VC investment trends.
VC climate tech investment, US$ millions
18,227
16,270
GHG1 capture and storage
Climate/earth data generation
12,157 Built environment
Energy
Heavy industry
Food, agriculture, land use
5,616 Mobility and transport
418
2013 2016 2017 2018 2019
1) GHG = greenhouse gas

Source: PwC analysis on Dealroom data, adapted from PwC report The state of climate tech 2020
leading ideas
close to half of total AUM — is currently held by investors that have pledged to
drive decarbonization. Corporate boards and banks are being asked to present not
just targets but their transition plans to reach net zero. Asset owners and manag-
ers are increasingly awake to the threat of significant value erosion and multiple
compression on carbon-intensive assets, and to the value creation upside for com-
panies pioneering products and services aligned with a net-zero future.
To address these demands, business leaders need a credible approach — and
even those with existing net-zero commitments need a plan to tackle the toughest
decarbonization challenges. Many, for example, are notably vague when address-
40
ing how the company will transform their value chain emissions, such as down-
stream emissions from products, services, and investments. Of the 160 compa-
nies in the Climate Action 100 initiative (chosen for their significant greenhouse
gas [GHG] emissions), 43 percent now have net-zero pledges in some form. But
just 10 percent of these companies’ targets directly address their most material
Scope 3 (value chain) emissions — which means most will need to go further.
This requires a wholesale transformation, one that touches every part of a
company’s business and operating model. Building on a net-zero ambition,
companies have to ensure accountability at the top, realign their corporate
growth strategy with net zero, adapt their operating model and supply chain to
support the transformation, invest in innovation, provide the necessary financ-
ing, and prioritize transparency and engagement. Success will require that the
CEO, the CFO, the chief innovation officer, the chief risk officer, and other top
corporate leaders join the sustainability chief, alongside a substantial investment
in the right skills.
Although the magnitude of change required may seem staggering, technol-
ogy has the potential to upend the status quo and catalyze radical improvement.
Net-zero commitments can boost the odds of those breakthroughs taking place,
because each commitment represents a new customer in need of solutions to help
meet its goals. Consider, for example, the One World Alliance of airlines, which
committed to net zero by 2050. Making that pledge meant betting on zero-
emission aircraft technologies that don’t yet exist at scale, in this case commercial
passenger aircraft that can be run on sustainable aviation fuels and green hydro-
gen in the next 10 to 15 years.
leading ideas
The technology we need will come from a wide array of organizations, in-
cluding new and emerging companies. Notably, as we found in a recent study, the
rate of early-stage investment into climate tech is growing fast — in fact, five
times faster than the rate of venture capital investment more broadly. During the
past seven years, the aggregate funding for climate tech companies, the rate of
startup creation, and the average size of funding have all increased. Between 2013
and 2019, early-stage venture funding for climate tech companies reached $16.3
billion — an increase of more than 3,800 percent. Corporate investors are be-
coming particularly important actors.
41
This embrace of innovation offers a path to progress, and that’s good news
as we embark on what will be the decisive decade for climate action. Society will
expect business leaders to act: According to the Edelman Trust Barometer 2021,
66 percent of respondents believe CEOs should take the lead on creating change,
instead of acting only when governments impose change. Achieving aggressive
net-zero goals will build on this momentum (whereas failure to act will erode it).
Leaders will have to pull the future into the present in order to execute a pro-
found and rapid transformation the likes of which the world has never seen,
but urgently needs. +
Celine Herweijer Colm Kelly

was formerly a partner with colm.r.kelly@pwc.com
PwC UK. is PwC’s global leader for
purpose, policy, and corporate
responsibility. He is also the
chair of the Foundation for Fiscal
Studies, an independent nonprofit
dedicated to promoting study and
discussion of issues related to
fiscal policy. Based in Dublin, he
is a partner with PwC Ireland.
The challenges
of tomorrow
need a fresh
perspective today
Now is the time to drive growth from new opportunities,
to take action, transform and move forward. Imagine a
greater future for your business, customers and society.
Our new perspective series - Take on Tomorrow, is the

latest thinking from across our global network, delivering
bold insights for bold leaders.
Are you ready to
Take on Tomorrow?
pwc.com/takeontomorrow
© 2021 PwC. All rights reserved.

essay leadership
LEADERSHIP
44
Can you master

the inner game of
leadership?
Conflicting demands and challenges must
be managed. Here’s how to do it.
by Adam Bryant and Kevin Sharer
essay leadership
N
iki Leondakis, a veteran hotel-industry CEO, started managing peo-
ple in college when she was promoted from waiter to shift supervisor
at a restaurant called the Hungry U near the University of Massachu-
setts. She took the job seriously, but in that role, as well as in her first
management job out of college, she made a mistake common to many young
leaders: She was too friendly with the people she was managing and had to learn
the appropriate boundaries and necessary distance that managers have to keep
from their teams. “I think people fall into one of two camps,” she said. “Very few
people become a supervisor or a boss for the first time and know exactly where
45
the right balance is. Both with myself and all the young managers I see, people
seem to swing to one end of the pendulum or the other — overzealous with
power or, ‘I’m everybody’s friend, and I want them to like me, and if they like me,
maybe they’ll do what I ask and then it’ll be easier.’”
As she started advancing in her career, she adopted a more rigid and authori-
tarian style that she saw many men use, thinking that their approach was what
successful leadership looked like. “That was in the early eighties,” she recalled.
“For women in general at that time, we all thought that to be successful or to
be considered equal, you tried to really dress like men, act like men, and ensure
people knew you were tough-minded and could make the tough calls and be
decisive.” But then a moment arrived when she recognized that she had swung
the pendulum too far. She had to discipline someone on her team she liked and
admired, and Leondakis’s boss could tell she was struggling with how to have the
conversation. Her advice: Tap into who you are and relate to her with compassion.
“That was sort of an epiphany for me,” Leondakis said. “I thought that being
tough-minded and decisive and all those qualities and traits that I thought I was
supposed to exhibit meant that I couldn’t show compassion. It was just a different
experience for me to relate to this person with compassion and accountability at the
same time and balance the two. From that point on, I became aware that there was
this balance I could strike with being myself, being compassionate, and holding peo-
ple accountable. They were not mutually exclusive. Looking back, it took me a good
10 years before I really found my center and learned how to be true to my values.”
Though many people are loath to admit it, except to perhaps friends, fam-
ily, and trusted confidants, leadership is hellishly difficult. Faced with the ever-
essay leadership
shifting variables of leadership, people understandably latch on to one approach,

telling themselves that they have developed their own leadership style and that
others need to accommodate it. But anyone who goes into a leadership position
with a brute-force, do-this-my-way style will soon be frustrated that the world
is not bending to their will. Insecure in the shades of gray and contradictions of
leadership, they harden their approach and become the terrible managers that
everyone hates, because they don’t listen, they’re uncaring, and they’re short-tem-
pered with anyone who doesn’t give them what they want. Their approach may
work in certain situations, but not most, and they will quickly lose their most
46
talented employees.
Then there are other leaders who seem preternaturally clear-eyed, calm,
and confident. It’s not that they think they have all the answers; they often are
the first to admit that they don’t. But as they describe their approach to leader-
ship and key lessons learned, it becomes clear that, like Leondakis, they have
spent many years working through different approaches to arrive at a balance
point that resolves the core challenges of leadership, so that they understand what
it means to be a leader.
James Hackett learned this important lesson when he took over as CEO
of the office furniture company Steelcase at the young age of 39, the start of a
nearly two-decade run in that role. During that time, he was widely credited with
turning around the company’s corporate culture and spotting early the trend of
shifting from cubicles to more open work environments. Shortly after becoming
CEO, he was introduced to Bill Marriott, whose tenure as CEO of Marriott
International ultimately spanned four decades.
Hackett, who later ran Ford Motor Company for three years, recalled: “As
we were talking about strategy, I remember being struck by the look in his eyes
as he talked. I understood in that moment that he knew who he was. I wanted
to have that quality as a leader, where it’s really clear who you are and what
you stand for. What does a CEO look like and feel like? What’s the texture
of what you’re supposed to be? Since then, I’ve met just about every CEO
who runs a big company. The ones I’m most impressed with do not seem
packaged. They have this sense of peace, this self-awareness, that says, ‘I under-
stand who I am.’”
essay leadership
What does it take to reach that level of comfort and self-awareness? Expe-
rience is the best teacher, of course. But our overarching framework to master
the inner game of leadership is to embrace leadership as a series of paradoxes.
It’s the first step to making sense of all the whiplash-inducing advice you will
find in this field.
For every expert who urges you to “lead from the front,” you can find another
who insists that the best approach is to “lead from behind.” Or that confidence is
key — “Never let them see you sweat” — except when you should be vulnerable.
When taking on a new leadership role, many argue, you should make quick deci-
47
sions to show urgency and impact. Others counsel patience, so you can listen and
really understand the root issues. The
Our overarching danger lies in slavishly following any
framework to master the one-size-fits-all approach. It’s better to
understand that the thorniest aspects
inner game of leadership
of leadership are hard because they are
is to embrace leadership paradoxical. Is it this or is it that? The
as a series of paradoxes. answer is often both. What’s needed is
to flex one way or the other depend-
ing on the subtleties of the situation. Every one-on-one interaction, every team
meeting, requires a different approach to suit the moment, whether it’s to push
or hang back, to be demanding or understanding, to project brash optimism or
acknowledge sobering challenges. Such moments, in a sense, are like skiing —
you have to know the balance point, and constantly adjust and lean in different
directions as conditions and terrains require.
Here are seven paradoxes that are hallmarks of a leader’s life and must be
mastered to improve your chances of making good decisions and effectively lead-
ing the people who are relying on you.
Be confident and humble

As a leader, you have to have a clear vision, because the organization and all
its stakeholders need you to inspire confidence. And confidence, in its healthi-
est manifestation of being authentic and credible, stems from a track record of
demonstrating good judgment and engendering confidence in others. However,
essay leadership
confidence cannot be allowed to morph into arrogance, and the best safeguard is
humility — acknowledging to your team that any ambitious effort is going to be
difficult and will carry risks and the possibility of failure.
“One problem is people who are always overly optimistic and overconfident,”
said John W. Rogers Jr., the founder and co-CEO of Ariel Investments. “You
want people who are appropriately humble, open to explaining their mistakes,
and not always creating the sense that they have all the answers. You want people
who are open and honest about their strengths and their weaknesses personally,
and the strengths and weaknesses of the organization, and are not always seeing
48
everything through rose-colored glasses.”
Be urgent and patient

Leaders who understand this paradox spend their time in ways that reflect the
balancing act between now, soon, and later. It requires continuous fine-tuning of
speed and being able to live with the fact that you will get it right one day and
wrong the next. It means recognizing the need to slow down, bring people along
by sharing context and rationales, and make sure there are proper processes and
resources in place, even if you as the leader are feeling the weight of the world
to achieve some target quickly. Move too slowly, however, and a competitor will
blow past you.
“Your strength can really be a weakness at some point in your career,” said
Carla Cooper, the former CEO of Daymon Worldwide, a retail consultancy. “I
embraced this idea of getting things done through other people and figuring out
how to counsel associates so that they can motivate themselves, but it takes a lot
of time and patience. So my patience is seen sometimes as being not aggressive
or forceful enough about telling the team what to do. I constantly struggle with
the balance of being patient and saying, ‘Here’s the mountain, here’s where we’re
going, here’s what I need you to do, and here’s why I need you to do it.’ The bal-
ance is where the magic is.”
Be compassionate and demanding

Leaders often set a high bar for their people. But their demands for exceptional
performance have to be balanced with a sense of compassion and the under-
essay leadership
standing that their team is made up of human be-
ings. People do their best work when they are treated
SIGN UP
AND
more like volunteers than mercenaries. Everybody
is struggling with something in their lives — an
ailing parent, a child having difficulties at school,
REACH
NEW
a marriage under strain — and there are moments
when understanding and appreciation are more im-
portant than a tough conversation about meeting
next quarter’s target. Compassion isn’t about being
HEIGHTS
soft; rather, it’s about acknowledging that we are all Get s+b’s best
human. The tricky balance for leaders is to know ideas delivered
to your inbox
when to push and when to be empathic. twice a week.
Lucien Alziari, the chief human resources officer
strategy-business.com/
at Prudential Financial, captures this paradox in an newsletters
approach he uses to give feedback to his team. “I tell
them right up front, ‘Look, I grew up with tough love
and you’re going to experience tough love,’” Alziari
said. “It’s really important that you remember both
sides of that phrase, because if you’re just experienc-
ing tough, it’s going to feel like the dark side of the
moon. But know that I’ve got your best interest at
heart, and the only reason I’m doing this is because
I believe in you, and I want you to be even better
than you are.”
Be optimistic and realistic

firms, each of which is a separate legal entity. Please
©2021 PwC. All rights reserved. PwC refers to the
Leaders are expected to be optimistic and to build

see www.pwc.com/structure for further details.
PwC network and/or one or more of its member
energy, enthusiasm, and passion for the ambitious

goals that they’ve laid out for the organization. The
balancing act for leaders is to share the risks, build
contingency plans, and put everyone on high alert
that the plan may not play out as expected, yet also
create a wide landing zone for success. How transpar-
essay leadership
ent should you be about the business challenges you’re facing? You want to keep
people inspired and focused on the long-term goal, but if you share too many of
the storm clouds, people may start thinking they should look for another job.
On the other hand, your staff shouldn’t be blindsided by bad news, and sharing
a challenge will invite them in to help. The best approach is to let people know
about the big challenges (ideally paired with a plan for addressing them) while
not overwhelming them.
Chris Barbin, the former CEO of Appirio, an information technology
company, said: “I don’t think a lot of leaders are great at true transparency.
50
Transparency can mean, if things aren’t going well financially, just being blunt
and direct about it. The only way a team can get out of a jam or a negative envi-
ronment is by being very transparent.
Successful leaders Call it a red light. Don’t call it yellow
develop a system for or green, but call it red when it’s red
and have everyone row against that
listening to learn what
new goal. There is a lot more upside
people are thinking and to being open and honest and sharing
saying at all levels of everything than the downside associ-
the organization. ated with hiding and masking it. The
upside is that you build a level of trust
and respect and support. To think that everything’s perfect and up and to the
right all the time for everybody is just not true. There’s way too much happy
talk in business, but then on Day One of the next quarter, there are layoffs and
cuts, which creates a whipsaw effect where you blow up trust, respect, and loy-
alty very quickly.”
Read the weather and set it

Successful leaders develop a system for listening to learn what people are think-
ing and saying at all levels of the organization. It is the skill of reading a room
at an organization-wide level and being able to pick up on the nonverbal cues of

body language to understand the subtle emotions at play. CEOs need to be able
to sense the mood — to, in effect, “read the weather” — in meetings or as they
walk the hallways or visit stores and factory floors. Yet leaders must also recognize
essay leadership
that they play an outsized role in setting the weather, because they establish the
tone through their body language and energy.
For example, Lisa Falzone, the CEO of Athena Security, learned that she had
to pay attention to employee morale, but couldn’t let it guide her. “You always
have to be focused on the vision and what you’re trying to accomplish, because if
you focus too much on what’s going on around you in the moment, sometimes it
can tear you off your course,” she said. “You always want to have composure in
front of your employees. They can tell if you’re stressed, and then they feed off
that. So if I’m ever stressed, either I try to not show it to my employees, or I go
51
work in my office for a little while. I didn’t realize this so much when I started,
but everything stems from you.”
Create freedom and structure

The nature of a leader’s work is going to affect the balance of this paradox. In
some areas, such as running nuclear power plants and performing surgery, the
margin for error is incredibly low, and the culture is necessarily less about free-
dom and more about structure, more about safety and compliance than creativity
and improvisation. In others, like advertising or television, there is much greater
need for new ideas, which emerge only if there is a certain amount of chaos. Big
companies may have a mix of both, with more of a process-driven manufactur-
ing arm and a marketing department that demands fresh thinking. For leaders,
that means allowing for some work that may appear unproductive, with side trips
down blind alleys and seemingly unproductive brainstorming. The challenge is
knowing when to let the conversation unfold and knowing when to step in to
redirect the discussion.
Marjorie Kaplan, the former president of global content for Discovery Inc.,
said: “Organizations have a tendency to be self-censoring, always moving for-
ward and making decisions at the exclusion of a kind of tolerance for confusion
that I think you need for creativity. You don’t want a confused organization all
the time. But you can’t have an orderly organization all the time, either. Real
creativity comes from the ability to tolerate the confusion and to be able, in the
right moment, to land the decision and then move forward with that decision in
a structured way. My ability to tolerate confusion has grown. Creativity is fright-
essay leadership
ening and messy. You’re not going to get a big, game-changing idea from trying
to do what you’re doing now, but just a little bit better. You must find a way to
try ideas that don’t seem like they make any sense, to let certain people just go
spiraling off for a while, because that’s their process. And then decide when it’s
time to reel them in.”
Be selfless and focus on your well-being

Now for the final paradox: The very best leaders are selfless — it is not about you,
but rather what you can do for the people you lead and for your organization. Yet
52
if you aspire to be that selfless leader, then you must learn to take care of yourself
first; otherwise, your physical and emotional energy will be compromised, limit-
ing your ability to help others.
Winning the inner game means answering the following questions, among
others: How do you manage your ego, which the trappings of leadership have a
way of inflating, so that you don’t become overly confident and start communicat-
ing in ways that are off-putting to people? How do you handle all of the stresses
from the endless demands, the weight of expectations, and the consequences of
your decisions? How do you remain calm on the outside when you may be in tur-
moil on the inside? Where do you get the stamina to be your very best, in every
encounter, through days of back-to-back meetings with different groups, all of
which have outsized expectations of you? How do you make time for yourself so
you can reflect beyond the demands and pressures of today to peer over the hori-
zon? How do you nourish yourself in some intellectual or cultural way so that you
can feel inspired, to better inspire others? How do you find someone who has no
other agenda than to help you and can be a trusted sounding board for your ideas
and is willing to simply listen to you vent? How do you take care of your health?
While these pressures are particularly magnified for CEOs, every person in
a leadership role experiences them to some degree. By understanding how chief
executives navigate the most critical challenges they face, we believe everybody
can be a more effective leader, regardless of their title. Many factors beyond your
control, like luck, timing, and personal chemistry, may keep you from achieving
the title you want. What is within your control, however, is how you will lead
others. Ultimately, that is defined by your choices, not the choices of others, and
essay leadership
how you would answer the following questions in those quiet moments when it’s
just you and the person in the mirror:
• What values are bedrock for you and will never be compromised, regard-
less of the challenges you face?
• Will you see the people who report to you as assets to help you achieve
your goals, or will you see your role as unlocking skills and talents that they
may not see in themselves?
• Are you able to embrace all the demands and paradoxes of leadership
and recognize that you must be intensely self-aware and see growth as a life-
53
long journey?
• Are you willing to take full accountability for results, always strive for
improvement, and not instinctively blame others when you miss the mark?
• Do you understand that trust is binary and that people either trust you or
don’t, based on how you act at every moment?
• Do you have the guts and wisdom to make tough and unpopular calls?
• If employees could choose their managers and leaders, would they choose
you? And if so, why?
• Do you understand that, despite all the attention leaders get the higher up
they go, ultimately it’s not about you?
This realization is the final CEO test, the one that will determine whether
you succeed, on the terms that only you can set for yourself, in becoming the
leader you want to be. +
Adam Bryant Kevin Sharer Adapted from The CEO Test: Master
adam.bryant@merryck.com is the former CEO of Amgen, the Challenges That Make or Break
is managing director of Merryck & one of the largest biotech All Leaders, by Adam Bryant and
Co., a senior-leadership develop- companies in the world. After Kevin Sharer, published on March
ment firm. He is the author, with leaving the role in 2012, he joined 2, 2021. Reprinted by permission
Kevin Sharer, of The CEO Test: the faculty of Harvard Business of Harvard Business Review
Master the Challenges That Make School, where he teaches strategy Press. Copyright © 2021 Adam
or Break All Leaders. and management. Bryant. All rights reserved.
essay strategy
STRATEGY
54
Sustainability and
digitization hold the
key to long-term value
for family businesses
Though resilient in a crisis, family businesses
have not fully embraced the ESG agenda or digital

transformation, according to a new survey.
by Peter Englisch
essay strategy
N
ot every family business begins with ambitions of multigeneration-
al longevity, but that’s where the most successful land, even though
the odds are stacked against them: Only one in 10 family businesses
makes it past the second generation. The COVID-19 pandemic and
the global recession brought home just how much hard work it takes to create a
legacy and how important agility is. And the response from family businesses has
been impressive.
Many organizations — such as Nuqul Group’s US$1 billion hygiene prod-
ucts division, a third-generation business based in Jordan — managed to pivot
55
quickly. Led by Ghassan Nuqul, the company designed and manufactured su-
per-high-protection face masks just eight days after the World Health Organi-
zation officially named the new coronavirus in February 2020. And in Portu-
gal, Alfonso Líbano Daurella, also from the third generation, quickly moved
to shore up his family business, Grupo Cobega, which owns the Nespresso
franchise in Spain and parts of Africa, by going online. “We essentially trans-
formed from a retail business into an internet delivery business in less than four
months,” he said.
According to PwC’s 2021 Family Business Survey of more than 2,800 lead-
ers of family businesses, which was conducted in October–December 2020, the
vast majority did not have to dilute their family holdings or go deeper into debt
to keep going. We define a family business as one in which the family owns 50
percent of the business if it is private and 30 percent of voting shares if it is public.
And though about half of those surveyed expected sales to decline in 2020, 86
percent are projecting growth in 2022. But our survey also showed that family
businesses have two key blind spots that could jeopardize these rosy projections
and their legacies. In a world where environmental, social, and governance (ESG)
credentials and strong digital capabilities are becoming determinants of success,
family businesses are lagging on both counts.
Catching up will challenge old ways of doing business, but family businesses
have one key attribute that can help them drive better performance in those ar-
eas: values. They instinctively connect values to value.
That they survive and succeed is important not just for their own legacy but
for the world economy. Family businesses account for more than half of global
essay strategy
GDP (by some estimates) and two-thirds of employment. The top 750, based on
revenues, have combined annual revenues of $9 trillion and employ more than
30 million people. In some industries, such as beer and cable communications in
the U.S., they own whole sectors.
Family businesses account Just as family businesses played
a central role in helping the world get
for more than half of
back on its feet in 2010 after the finan-
global GDP and two-thirds cial crisis, their resilience in the wake
of employment. of COVID-19 will be crucial to the
56
economic recovery. So it’s a matter of
some urgency that they embrace ESG and build up digital capabilities. Family
businesses recognize the latter as a priority, even though their progress is too slow;
the former, however, is barely on their radar (see chart below).
Diversification and improved digital capabilities — not sustainability —

are the top priorities of family businesses
Question: Which, if any, of the following are the company’s top five priorities for the next two years?
Expanding into new markets/client segments 55%
Improving digital capabilities 52%
Introducing new products/services 50%
Increasing use of new technologies 49%
Rethinking/changing/ 39%
adapting the business model
Protecting our core business — 37%
covering costs/survival
Pursuing strategic acquisitions or mergers 30%
Increasing investments in innovation and R&D 28%
Increasing next-gen involvement in 24%

decision-making/management
Increasing collaboration with other companies 21%
Increasing organization’s social responsibility 16%
Reducing organization’s carbon footprint 15% Company priorities by topic (net percentage):
Expansion, diversification: 82%

Reducing dependencies along the value chain 11%
Digital, innovation, technology: 80%
Reimagining our approach to 10% Evolving/new thinking: 65%
how we measure success
Sustainability/local community: 39%
Supporting our local community via 8%
increased investment/activity Other: 11%
Base: All global respondents (n = 2,801)

Source: PwC, Family Business Survey 2021
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essay strategy
Blind spots
The importance of ESG has grown exponentially as the social, financial, and
regulatory context in which all companies operate has changed. The Business
Roundtable’s 2019 statement about the importance of ESG to stakeholders is
seen as a landmark event, but it only underscored a trend that was already on a
fast track: In 2020, one of every three dollars under professional management
in the U.S. — $17.1 trillion — was managed according to sustainable investing
strategies, up 42 percent over two years.
Publicly traded companies tend to be more vocal about their ESG record,
58
partly because legislation increasingly encourages them to be, but also because
they know that their long-term survival and, perhaps more important, their ac-
cess to capital depend on it. But when we look at family businesses, sustainability
is far down the list of priorities, which is perhaps counterintuitive given that ESG
is nothing if not values-led. A busi-
Family businesses are ness model that embraces ESG shows
not making ESG principles the company’s impact on the world, is
part of their core operations. apt to attract top talent, and is likely to
make the business more profitable and
Just 37 percent have an efficient in the midterm and long term.
articulated sustainability It is astonishing, therefore, that long-
strategy. term-oriented family businesses cur-
rently do not recognize these benefits.
Today, big businesses have whole departments dedicated to these issues, and most
publicly traded companies have ESG scores that not only affect the cost of capital
but also provide a snapshot of their priorities. S&P Global, for example, collates
more than 10,000 corporate ESG scores for investors.
Family businesses, the majority of which are privately held, may be consid-
ering ESG principles instinctively — over 80 percent of the respondents in the
survey said they engaged in some form of social responsibility activities, and 42
percent said they gave back directly through philanthropy — but they are not
making it part of their core operations. Just 37 percent have an articulated sus-
tainability strategy, and overall, less than half (49 percent) said sustainability was
at the heart of their work. There are regional differences: In China, Japan, and
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Taiwan, for example, the ESG message appears to have resonated. More than 75
percent of businesses in these countries say sustainability is at the heart of every-
thing they do, compared with less than 30 percent in the U.K. and the U.S.
Do these results indicate a reluctance to speak out about what they do or
simply a lack of action? Jakob Topsøe, chairman of the Danish chemicals tech-
nology company Haldor Topsøe Holding, thinks it’s primarily the former. “The
business dynamics are no different for private and public companies,” he said.
“We all live in the same markets. But listed companies have a bigger need to com-
municate around ESG because they know where this is going and are more in the
59
spotlight. It’s always been the nature of family businesses not to communicate so
much. That has to change.”
Even family businesses with a strong track record on ESG, such as the Indian
multinational supply chain services group TVS Supply Chain Solutions Limited,
which aims to be carbon-neutral by 2025, accept that they need to rethink their
fundamental approach. TVS managing director R. Dinesh, a fourth-generation
family member, said the company’s hesitance to signpost its ESG achievements is
ingrained: “The way we were brought up, I was told never to talk about what the
company did [in terms of giving back to society] because if you flaunt it, you lose
the benefit of it. We have to change that mindset.”
We discussed the survey results with three panels of family business own-
ers and executives, representing a mix of businesses and industries from around
the world. They agreed that family businesses are not translating core family
values into actions that publicly demonstrate their commitment to ESG — and
that closing that gap is critical to their long-term success. Sara Hughes of the
Brazilian industrial conglomerate Lwart Group was among those who said the
approach had already changed: “In the past, ESG was something we would do
as part of continuous improvement, but without the titles or focus. Now we need
to structure the decisions and incorporate ESG into the way we make decisions,
from sustainability to governance issues.”
Young voices speaking up

This is an area in which younger family generations could hold the key. Fourth-
generation businesses, which are likely to have more young family members en-
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tering the business than less mature firms, are somewhat more inclined to embed
sustainability into decision-making (60 percent compared with 55 percent for all
respondents) and are more likely to have a well-developed sustainability strategy
(40 percent versus 35 percent).
Hind Seddiqi is the third-generation chief marketing officer of her family’s
business, Dubai Watch, a luxury watch and jewelry distributor based in the Unit-
ed Arab Emirates. She is not alone in believing that the younger family members
hold the key to a more embedded ESG approach. “At a recent panel discussion
on sustainability in the luxury watch industry,” she said, “it was very obvious that
60
the companies with younger CEOs are really concerned about sustainability and
were taking steps within their company to address it, while those with older man-
agement were less clear on what to do. We need to share ideas, across industries
and generations. Small steps, like having panels to bring these issues out in the
open, can make a big difference. But in some regions, like the Gulf states, it will
take governments to ensure things happen.”
We would argue that if businesses wait for legislation, it will be too late.
They need to show they have already started on their ESG journey. That means
developing a clearly articulated ESG strategy — which might define a pathway
to net zero, diversity and inclusion efforts, waste reduction, or pursuit of sustain-
able value chains — with explicit milestones and transparent reporting. It is pos-
sible to measure ESG progress and future risks and make that part of everyday
business, not simply a component of a mission statement.
Digital lag
The pandemic has demolished any lingering doubts about the benefits of digital
transformation. Those businesses with an established digital presence generally
fared better; those without one struggled and fell further behind — particu-
larly in retail and hospitality, if they didn’t have an online sales option. And
life won’t go back to normal: The global e-commerce market, for example, is
expected to reach $6.2 trillion in 2022, up from $4.2 trillion in 2020, given the
boost the pandemic has produced and the loosening of the barriers to engag-
ing in the online world some might have previously felt. But it’s not just retail.
The consequences of digital disruption illustrated by the rise of such companies
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as Amazon, Uber, Airbnb, WeWork, and numerous fintechs have already re-
shaped whole industries over the past decade. Companies with strong digital
capabilities have proven more competitive as their costs have shrunk and their
flexibility increased.
Our survey has for many years reported that digitization is a stated prior-
ity for most family businesses, but this year, again, we see that progress is slow.
Although four out of five respondents (80 percent) named “digital, innovation,
technology” as one of their top priorities, only 19 percent of respondents de-
scribed their digital journey as complete; in fact, 62 percent described their digi-
61
tal capabilities as “not strong.”
The survey was in the field at the end of 2020, as the second wave of the
pandemic was intensifying in many places. Remote working was by necessity
the modus operandi for most of our re-
A staggering 29 percent spondents, yet a staggering 29 percent
said that even though still said that even though they rated
their digital capabilities as weak, they
they rated their digital
were not focusing on improving them.
capabilities as weak, they This finding contrasts sharply with a
were not focusing on global survey of chief financial officers
improving them. (mostly at public companies) in June
2020: Only 11 percent were consider-
ing cutting digital transformation spending, compared with 82 percent who ex-
pected to cut capital expenditures and facility costs.
A family business that doesn’t invest in digital won’t get a pass because of
its ownership structure or a reliance on old ways of working. Those that have
invested are already reaping rewards and should be seen as role models. “Our in-
vestment in digital in the years before the pandemic really paid off, because our
employees could just go home, plug in, and carry on,” said Nina Østergaard Bor-
ris, chief operating officer of Denmark’s United Trading and Shipping Company
(UTSC). (She is the daughter of Torben Østergaard-Nielsen, owner and CEO of
Selfinvest, of which UTSC is a subsidiary.) With revenues of $11 billion, UTSC
operates in 95 countries. It quickly connected its offices around the world and was
able to keep track of employees’ well-being and offer support when needed.
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It is not surprising that family businesses in which the younger generation

is more involved said they were digitally strong. After all, they have digital na-
tives with direct links to the corner office. In 2019, we asked “next gens” how
they thought they could best contribute to their family businesses: 64 percent
said they had the skills to help develop a business that was fit for the digital age.
Østergaard Borris was appointed COO of UTSC in 2020 at the age of 36. “I
am more aware of the agenda around [digitization] and ESG, but my father is
good at listening and asking the critical questions. As [the next generation], you
have to be mindful not to throw out the good things because you are focused
62
on something new. My father has valuable experience; I have a more forward-
looking mindset,” she said.
The digital trends that were accelerated by COVID-19 are likely here to stay.
Eighty-three percent of the CEOs we surveyed expected to increase their tech-
nology spend. If family businesses stay behind the curve and don’t act on their
own stated priority, it will threaten their legacy. And their legacy, said nearly two-
thirds (64 percent) of the survey respondents, is their top priority.
The value of written values

The good news is that family businesses are well-placed to catch up, because
they have what many non-family-owned public companies do not: core val-
ues shared by their owners that build trust in both their employees and their
markets. They also have longer-term horizons for investments. In the 2021
Edelman Trust Barometer research, it was only business that managed to have
positive scores in both competence and trust, compared with other institutions
such as government and NGOs. And in 2019, when the Edelman barometer
took a specific look at family businesses, they scored higher than businesses
in general.
The family behind German logistics company Dachser went through the
process of writing down the company’s values together with the management a
few years ago. Every executive joining the company — just like any employee
— receives a special booklet that explains the values. “I see the written values
as a gift,” said Burkhard Eling, the nonfamily CEO. “They act as glue between
the family, executive board, management board, and all employees. They give
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all employees a clear understanding of where the strategy needs to lead the com-
pany in a sustainable way. Values need to be the common ground on which a
company is built.”
It’s surprising, then, that so few of the respondents to the survey have fol-
lowed the Dachser family model. Although 70 percent said the family had a core
set of values guiding their business, only 44 percent had those values in a writ-
ten form, and less than half had simple governance mechanisms in place such
as shareholders’ agreements (47 percent). Even fewer (15 percent) had formal
conflict resolution mechanisms.
63
Nevertheless, as Eling said, values can be a way to ground strategy and can
help businesses define their future and put in writing, for example, their ESG
commitments. We found that those
We found that those businesses that committed to their
businesses that vision in writing reported better per-
formance; they also said that they ex-
committed to their vision
pected greater growth in 2021: Com-
in writing reported better pared with businesses without written
performance; they also mission statements, the numbers were
expected greater growth. 58 percent and 69 percent, respectively,
versus 52 percent and 61 percent. The
lesson here is not that companies should change their core values but that codify-
ing them can affect results as well as behaviors.
Our survey results were an eye-opener, as they were, in part, counterin-
tuitive. They confirmed the power of values. As the Edelman Trust Barometer
suggests, people instinctively trust family businesses: Their reputation as good
employers and good community citizens — the backbone of local economies
— has been earned over time. Therefore, one would expect them to be leading,
instead of falling behind, in ESG.
They still can. Haldor Topsøe Holding chairman Jakob Haldor said, “If
you don’t embed sustainability in everything you do, you will find yourself out
of business, whatever sector you are in. It’s just a matter of when.”
Acting on their digital ambitions will also be key. Family businesses have
the financial strength to make these investments — as noted, many weathered
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the trials of 2020 without extra capital — and they now need to put their digital
transformation strategies into action. The world is changing fast, and the role
of business is being redefined. Businesses cannot expect their past performance
and ways of working to guarantee a legacy. That security will be a matter of
matching actions to words. +
Peter Englisch
peter.englisch@pwc.com
is the global family business and
64
EMEA entrepreneurial and private
business leader at PwC. Based
in Essen, he is a partner with
PwC Germany.

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essay strategy
STRATEGY
66
How organizations
can design for agility
and embrace uncertainty
Clarins Group’s organizational experiment during the
pandemic shows how a large company adapts and
becomes more flexible when it matters most.
by Stéphane JG Girod and Martin Králik

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B
efore the pandemic, global cosmetics giant Clarins Group was making
headway in its digital transformation. A family-owned business found-
ed in France in 1954, with annual sales estimated at US$1.5 billion to
$2 billion, the company had launched its own e-commerce sites and
invested massively in a new customer relationship management (CRM) system.
But it also had rigidities to tackle: Clarins’s approach to customer relationships
was heavily reliant on intermediaries such as retailers and department stores world-
wide. It was also slow to invest in digital marketing — in an industry in which
startups and new brands innovating on that front were popping up everywhere.
67
Fast-forward to the outset of the COVID-19 crisis, when Clarins Group’s
senior management realized it had to ramp up the company’s modernization
efforts. In a highly experimental move, the company rolled out an organiza-
tional initiative focused on flexibility. With no time for messy restructuring,
leadership formed three types of virtual, cross-functional teams it called squads
(using agile terminology) that would
The pandemic firmly work in parallel and with the support
established the of the mainstream organization. It was
a decision that would prove vital to the
importance of agility, yet
company’s ability to respond rapidly to
increased the roadblocks unprecedented market shifts.
to embedding it within Clarins’s experience illustrates a
the organization. need of which many businesses are all
too aware: They have to accelerate the
transition to organizational designs that enable flexibility and adaptation. Of
course, amid a crisis, the most pressing challenges are often cash preservation and
survival — which is not the ideal environment for experimentation, and is even
less ideal for a sudden implementation of agile methods. In short, the pandemic
firmly established the importance of agility, yet increased the roadblocks to em-
bracing and embedding it within the organization.
Responding to uncertainty
To better understand these challenges, in May 2020 we surveyed 550 executives
in a variety of industries about their perception of agility. We found that al-
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though 64 percent of respondents reported that agility was a priority, 36 percent

were confused about what agility really meant; they thought of it as a buzzword.
We also found that 66 percent of respondents defined agility as “fast adaptation
to uncertainty.” Yet our research shows that speed is only one dimension of or-
ganizational agility. Agility is the flexibility large companies achieve when their
organization allows them to be simultaneously nimble and stable as well as simple
and complex in response to high levels of uncertainty.
Our survey findings underscore the fact that shedding organizational rigidity
is no easy task. The senior management team at Clarins Group faced this pressure
68
in the spring of 2020. As the pandemic unfolded, it needed an organization that
would allow for an unprecedented degree of improvisation and external focus. Yet
management was also conscious that greater nimbleness would have to be achieved
without sacrificing the internal stability that had long served the company well.
Top executives also recognized that Clarins Group was a large incumbent
with clear market positioning, a global brand reputation, and a very loyal consum-
er base. Not everything would change during and after the crisis. Some decisions,
particularly the ones related to how the company would have to adapt to founda-
tional changes in distribution, competition, and technology, would require time
to make and embed. These leaders saw the need for speed (to become nimble),
but also the need for caution and conservatism in uncertain times (to stay stable).
Clarins’s leaders also knew the company’s traditional geographic structure
— which enabled it to be highly responsive locally in “normal” times — would
inevitably create silos and inefficiencies. These silos could potentially derail ur-
gent initiatives intended to accelerate digital programs, to make coordinated de-
cisions to protect the brand, and to save money during the crisis. The company
was pressured to create more cross-border commonalities and efficiencies. But at
the same time, these initiatives had to be balanced with local relevance. Likewise,
the drive to create savings and efficiencies (simplicity) had to be reconciled with
the need to accept the right level of redundancies (complexity).
The Clarins experiment

To manage these competing priorities, Clarins’s leaders set up the company
squads. The first squad was made up of the executive committee, including the
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CEO, the main functional heads, and the heads of the three business divisions,
plus a few other non-C-suite executives. It focused on the question What now?
to ensure business continuity during the crisis. This squad had five missions:
protecting the health and safety of clients and employees, enabling staff to
work remotely, keeping morale high among employees, preserving the top line,
and retaining cash.
To boost efficiency, the first squad made instant decisions applicable world-
wide, short-circuiting the internal bureaucracy and country managers’ preroga-
tives. As the squad met remotely, the team members soon realized they needed
69
a shorter, more decisive, and more continuous approach to suit the new digital
working format. They started to focus on shorter meetings structured around
disseminating information, defining problems, having discussions, making deci-
sions, and communicating on the spot to the organization to give employees a
sense of direction and create a basic sense of stability.
The two other types of squads set up across the organization, designed to
be small, cross-functional, and cross-hierarchical teams, were tasked with liaising
with consumers, public authorities, retailers, distributors, suppliers, and other
stakeholders to learn and continuously adapt Clarins’s responses accordingly. For
quicker and more locally relevant decisions, every country where Clarins ran a
division formed a second and third squad. Each of these squads included digital
talent to enable its mission.
In the second type of squad, employees focused on the question What next?
These squads had two roles. First, they were accountable for determining when
and how operations could be resumed in their country after lockdown. These
squads worked on issues such as defining the conditions for reopening physical
stores, offices, and plants; rescheduling new product launches; and rebalancing
investments between conventional and digital media. Second, they would update
other squads in countries that were at different stages of the pandemic. For ex-
ample, lessons learned in Europe could be transferred to the Americas.
The third type of squad focused on the question What if? and prepared for
various contingencies — both offensive and defensive — when there were strong
unknowns. Again, each squad had to determine which contingencies would ma-
terialize in its country and to share its insights with the other squads globally.
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For example, what if the country did not reopen within three weeks? What if
customers needed to wear masks in stores: Would it reassure them or put them
off altogether? What if 30 percent of intermediaries disappeared? These squads
were also scanning for the more fundamental changes in consumer behaviors,
competition, and technology that would affect Clarins’s strategy once the health
crisis receded.
For instance, in the United Arab Emirates, the local What if? squad decided
at the outset of lockdown to move all the inventory from the now-closed stores to
a temporary warehouse. In only three days, using the CRM system put in place
70
pre-crisis, they were able to switch from store pickup to home delivery to avert a
sales free fall. The squad also created an online appointment option so that bou-
tique sales staff could provide regular personalized beauty advice to consumers
via their mobile phones.
In France, the What if? squad came up with a digital-to-human solution to
keep consumers engaged. Clarins France unveiled an appointment system on
its website to allow consumers to book consultations with Clarins beauty advi-
sors via Apple FaceTime or Microsoft
Teams. By using these conversations to The journey toward agility
recommend relevant products to con- means building on the
sumers, the advisors kept selling prod-
power of established
ucts despite constraints on in-person
interactions.
businesses’ scale while
Although it is perhaps too early emulating startups’
to declare victory, the Clarins experi- nimbleness and simplicity.
ment is an encouraging sign that this
type of organizational innovation, up to this point largely experimental, could
bear lasting fruit. Moreover, the company has been able to strengthen its direct
relationships with consumers and to protect some of its revenues by mobilizing
the collective power of employees at all levels of the organization. Christian Lau-
rent, president of Clarins Group’s travel retail and export worldwide division, told
us, “Many companies ignore uncertainty or remain paralyzed by it. Rolling out
the three squads allowed Clarins to place the external uncertainty at the core of
our organization.”
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Agility lessons learned
In our research, we found that large, established businesses tend to be rigid
because they are usually too stable and complex to deal with the uncertain-
ty and pace of change surrounding them. The journey toward agility means
building on the power of their scale while emulating startups’ nimbleness and
simplicity. But many executives in search of agility will default to popular agile
methodologies such as scrum. Although these may be useful, they cannot be
assimilated quickly in a crisis — com-
panies can and should be agile, with-
Companies can and 71
out necessarily “doing” agile.
should be agile, without Although it created the three
necessarily “doing” agile. types of squads, Clarins Group did
not adopt a specific agile method; in-
stead, it designed its organization around the eight fundamental principles of
agility (see chart). To strengthen its nimbleness, it designed an organization
that empowered employees in small cross-functional teams (the What if? and
What next? squads) to experiment fast by learning from customers and from in-
dustry trends. At the same time, the What now? squad was laying a foundation
for stability.
The eight principles of organizational agility

How companies can embrace both stability and nimbleness, and complexity and simplicity.
STABLE The organization is PREPARED for an uncertain future NIMBLE
1. Clear and well-communicated 3. Disciplined, aligned, and

strategic direction accountable execution
2. Faster, customer-centric 4. Small cross-functional
experimentation teams empowered with
transparent information
COMPLEX The organization is SOPHISTICATED in its response to uncertainty SIMPLE
5. Differentiated 7. Culture of continuous

organizational choices learning and networking
6. Minimum viable bureaucracy 8. Minimum viable hierarchy
(fewer but common processes) (flatter, fewer silos, collaboration)
Source: Resetting Management, by Stéphane JG Girod and Martin Králik (Kogan Page, 2021)
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Clarins also simplified how the company worked while allowing for the right
level of internal complexity. Its move to bypass the traditional bureaucracy and
country silos was designed to streamline the organization by creating commonly
enforced decisions. But company leaders also had to respect the complexity of its
global footprint across advanced and emerging markets by differentiating some
decisions at the country level. Indeed, every business should design its approach
in ways that suit its strategy, industry, and overall performance. The level of
uncertainty and speed of change might differ from business to business or even
within a company.
72
Leaders also need to take a holistic approach. Yet in our research, we found
that many companies do not seek to shed their rigidities in a sufficiently holistic
fashion. For example, when companies introduce scrum or lean startup, they fo-
cus on the ceremonies and processes, but they often forget to realign incentives,
leadership style, rewards, and so on. Contrast this with Clarins Group. Although
the company didn’t embark on a formal restructuring, through its squad experi-
ment it aimed to align key elements of its organizational design so they would
reinforce one another: developing global processes, increasing its use of digital
communication and collaboration tools, introducing new incentives and metrics,
and focusing on leadership buy-in.
Finally, Clarins Group executives are aware that once a certain degree of
normality returns, the company might fall back on old habits — and they are
mitigating this risk in several ways. For example, they have treated their squad
experiment as a pilot from which they and the whole organization will learn, and
they are planning a company-wide review after the pandemic recedes to assess
how the organization should continue to evolve.
Another mitigation tactic is related to leadership style. To promote nimble-
ness, the leadership team has been working on how to create what we call a secure
base for employees to experiment — making failure an acceptable and indeed
critical part of the path to success — and leaders have been supporting middle
managers to build this base, as well. The learning network put in place at Clarins
enabled employees to share what worked well (and what didn’t). By providing a
clear sense of direction and ensuring rigorous accountability, management also
created a sense of reassurance and trust. They knew they needed to model the
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change for the transformation to take hold.
We’re often told by senior leaders that their greatest fear when it comes to
agility is chaos. Although agility does require leaders to pursue bold experiments,
the goal is to gain flexibility while retaining stability. Leaders do this by under-
standing what agility is and building a comprehensive approach based on its core
principles, rather than defaulting to agile methods. It’s not a matter of losing
control, but rather creating an environment in which companies can change with
the times and respond to uncertainty in a way that balances what they are with
what they want to be. +
73
Stéphane JG Girod Martin Králik This article is adapted from Reset-

stephane.girod@imd.org martin.intercultural@gmail.com ting Management by Stéphane JG
is a professor of strategy and is an IMD external research Girod and Martin Králik, © 2021.
organizational innovation at associate. Reproduced with permission from
the Institute for Management Kogan Page Ltd.
Development (IMD) in Lausanne,
Switzerland.
74
feature strategy
A CEO GUIDE
TO TODAY’S
VALUE CREATION
ECOSYSTEM
The drivers of enterprise value extend beyond
financial productivity — and as disruption intensifies,
feature strategy
businesses must adapt to avoid value destruction.
by Helen Mallovy Hicks, Aaron Gilcreast, Hein Marais,
and Chris Manning
IN THE BLINK OF AN EYE, COVID-19 disrupted the business

environment and illuminated a profound, sometimes overlooked
truth: that to create, protect, and sustain enterprise value,
executives must consider a set of stakeholders much wider and
more diverse than just shareholders. 75
Disruption and the breadth of the value creation ecosystem
are, in fact, connected. In recent months, as supply chains have
faltered, channels to market have evolved, and companies’
roles in caring for their customers and employees have been
magnified, it’s become clear that the pursuit of financial
productivity and profitable growth, long the core of traditional
Illustration by Chris Gash
value creation models, is inadequate on its own. Companies

must do more. Those looking to create enterprise value — a term
we’ve chosen intentionally over shareholder value — must also
cultivate resilience and contribute to the well-being of society,
both now and in the future.
Helen Mallovy Hicks Aaron Gilcreast Hein Marais Chris Manning
helen.m.mallovy.hicks aaron.gilcreast@pwc.com hein.marais@pwc.com christopher.manning
@pwc.com is the incoming global is the global value @pwc.com
is the outgoing global valuation leader for creation leader at PwC. is a leading practitioner
valuation leader for PwC and oversees ESG He advises clients on with Strategy&, PwC’s
PwC. She led a global initiatives in the U.S. how to create value strategy consulting
task force to study the firm’s deals business. He through the buy and sell business. He helps
impact of ESG attributes advises clients in value- side of M&A. Based in clients redefine their
on enterprise value and based strategy, corporate London, he is a partner strategic positioning in
helped her clients make finance, business model- with PwC UK. the face of challenging
better decisions based ing, and complex valua- or changing industry
on value. She is a partner tions used for hard-to- structures and dynamics.
in the deals practice of quantify value attributes. Currently based in the
PwC Canada. Based in Atlanta, he is a U.S., he is a partner with
principal with PwC US. PwC Australia.
Even before the pandemic, the Business Roundtable’s August 2019 “State-
ment on the Purpose of a Corporation” — signed by almost 200 CEOs to ex-
feature strategy
press their commitment to serve not just corporate shareholders but all stake-
holders — reflected an evolution in the way leaders were thinking about how to
run their companies. For many years, creating and protecting enterprise value
has meant managing a diverse ecosystem of financial, societal, environmental,
and other factors. That reality hasn’t changed. What has changed is that the
COVID-19 pandemic has highlighted the fragility of relationships throughout
the ecosystem and the dynamism of change within it. It’s also amplified and ac-
celerated the connections among financial productivity, resilience, and society.
And it’s accentuated the danger of ignoring any of these parts of the value cre-
76 ation ecosystem. The pandemic has exposed leaders’ blind spots and put many
companies on the defensive.
In all these ways, COVID-19’s impact has been acute. But other long-brew-
ing disruptions — including the quickening pace of technological development
and growing concerns among investors and consumers about issues such as cli-
mate change, racial inequality, income disparities, and political polarization —
have the same implications. As these forces escalate, some will have a substantial
and rapid effect on enterprise value.
Now is the time for leaders to analyze these varying impacts and turn dis-
ruption into an offensive weapon by reinventing their planning processes, re-
framing their strategies, and revising their ways of working. And in taking these
steps — which might include creating new supply chains, new products, new
Organizations need to recognize that disruption
and value creation are inextricably linked, and
although disruption is continually posing risks to
corporate value, it’s also presenting opportunities.
people policies, or even new standards of transparency in decision-making —

organizations need to recognize that disruption and value creation are inextri-
feature strategy
cably linked, and although disruption is continually posing risks to corporate
value, it’s also presenting new opportunities. Some of the levers businesses can
pull will help them win in their industry, and others will help them win in so-
ciety. Crucially, some will do both. In this article, we’ll describe what we think
are the most important actions for creating long-term enterprise value in today’s
value creation ecosystem.
Understanding the current value challenge

Companies setting out to create and grow enterprise value in today’s value cre-
ation ecosystem first need to fully understand its topography — and the trade- 77
offs, tensions, and balancing acts that are inherent within it. The ecosystem con-
sists of three interrelated components:
• Financial productivity. Capital markets have long rewarded companies for in-
vesting to drive growth while also improving efficiency to make that growth more
profitable. As a result, companies have always had to carefully balance spending
money and saving money, with the added consideration that investing for growth
is a long-term enabler in building resilient assets. Organizations have responded to
the capital markets’ focus on financial outcomes by becoming very good at mea-
suring and communicating their financial productivity, focusing much more on
that than on nonfinancial aspects of their performance and impacts.
• Resilience. A truly resilient organization can both respond to and adjust
effectively to external shocks (that is, it has defensive adaptability) and flex and
stretch to seize new opportunities (offensive agility). COVID-19 has amplified
the value of being resilient in areas such as supply chain and digital platforms.
And the increased need for resilience in these areas has captured the attention
of capital markets — in turn creating new imperatives for leaders seeking to
build enterprise value.
• Society. An organization also creates enterprise value by addressing broad
societal challenges and by considering in its decision-making a wider range of
stakeholders beyond shareholders. This approach can, for instance, avoid the
value destruction that can result from climate risk or boost value by attracting
and retaining more talented, engaged, and productive employees via diversity
and inclusion programs. And actually, the interests of shareholders and other
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stakeholders are, in many cases, converging. Shareholders’ perspective on value is

becoming more long-term and more holistic. In recent months, the interdepen-
dencies and widening inequalities highlighted by COVID-19 have further inten-
sified the pressure on companies to deliver, measure, and report on longer-term
value creation for society.
For some years, the balance among these three sources of enterprise value
has been shifting. Long before COVID-19, companies whose strategies and as-
sets were over-indexed on efficiency were struggling. For these businesses, a fo-
cus on near-term returns often has meant trading off the long term — an im-
78 balance that the digital era has made more obvious. Reconfiguring to compete
successfully in the 21st century requires a business to flex and upgrade critical
capabilities such as strategic direction-setting, resource allocation processes, and
governance, which together enable the deployment and recalibration of operating
assets. Stretching these same capabilities is also crucial for leaders if they are to
make their companies more resilient and more purposeful contributors to society,
thereby creating, or at least avoiding the destruction of, enterprise value.
Getting on the right side of COVID-19 trade-offs

The pandemic has thrown the trade-offs among financial productivity, resilience,
and society into sharp relief. Those on the right side of the trade-offs include the
companies that responded quickly to the disruption of business as usual — perhaps
by repurposing their production facilities and supply chains to maintain some
level of activity while also generating societal value.
feature strategy
Consider the France-based luxury goods maker LVMH. In March 2020,
the company retooled three of its high-end perfume and cosmetic manufactur-
ing facilities to produce hand sanitizer, which it distributed to the French hospi-
tal system at no charge. It then helped address France’s surgical mask shortage,
using its global distribution network to secure an order with a Chinese indus-
trial supplier. All this took place during a calendar year when LVMH’s mar-
ket capitalization rose by about one-third. There are many similar examples of
companies redirecting their resources to help address the pandemic. In Japan,
electronics giant Sharp repurposed the clean rooms in a TV factory to make
150,000 surgical masks a day, which grew to 600,000 as the company expand- 79
ed its production capacity. In Spain, the “fast fashion” group Inditex, owner of
Zara, made its logistics and procurement capabilities available to help buy and
transport health equipment.
Automakers also rallied to the cause. Ford’s contribution included using its
3D-printing capabilities to make face shields and its manufacturing expertise to
help Thermo Fisher Scientific ramp up production of COVID-19 testing kits.
And General Motors announced plans to start making ventilators at a facility
in Indiana, even before being directed to do so by the federal government under
the U.S. Defense Production Act. Through such actions with broader stakehold-
ers during the pandemic, these companies enhanced their brand and reputation
— and hence their enterprise value.
However, COVID-19 has also presented pitfalls. In the U.K., for example,
several of the country’s largest supermarkets initially accepted the government’s
offer of relief on property taxes despite being allowed to stay open during lock-
downs. A storm of criticism on social media and from politicians was heightened
when some of those companies continued to pay dividends to shareholders. In
December 2020, five of the biggest U.K. supermarkets said they would repay a
total of more than US$2.3 billion in government relief.
The pandemic isn’t the only reason companies have found themselves strug-
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gling recently in the value ecosystem. In July 2020, advertisers pulled millions
of dollars from a major social media network to pressure it to do more to tackle
harmful content such as hate speech. Again, the message was clear: If a company
fails to act with purpose, it risks destroying enterprise value.
Reinvigorating your value creation strategy

We’ve identified five actions that we believe business leaders and their organiza-
tions can take to help shape and execute effective strategies in the context of the
broader value creation ecosystem.
80
1. Apply “visionary valuation”
If a strategy is disruptive — take Toyota’s launch of the Prius two decades ago, as
a bridge to electric vehicles, or Apple’s creation of the tablet market with the iPad
— it can be difficult or even impossible to measure its value creation potential
with any certainty prior to execution. In fact, any attempt could end up block-
ing innovation and, ultimately, value. Instead, leaders should look to achieve a
“visionary valuation” by clarifying the forms of value they’re trying to create, un-
derstanding how commitment to those types of value will drive enterprise value,
and developing a set of key performance indicators (KPIs) to track value cre-
ation across this broader ecosystem. Then, while executing the strategy, the busi-
ness should measure the outcomes continually, using the results to recalibrate,
Both the destruction and the creation of value,
including value-associated issues such as climate
change and social upheaval, are accelerating.
course-correct, or even replace the strategy, and to report, listen, and respond to
stakeholders in a feedback loop.
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Organizations need to do these things against a global backdrop in which
both the destruction and the creation of value, including value-associated issues
such as climate change and social upheaval, are accelerating. In such an environ-
ment, the only way to communicate effectively with stakeholders is by translat-
ing critical corporate priorities through a value lens and representing the effects
of strategic decisions and subsequent actions in a unified value framework. Such
a framework will reinforce linkages between a company’s purpose and its strat-
egy; between its strategic priorities and transparent reporting of all its results,
including nonfinancial ones; and between its agenda for corporate transforma-
tion and societal renewal. It also will help communicate interconnections within 81
the value creation ecosystem and clarify enterprise value drivers that historically
might not have made their way into a calculation of net present value.
Unilever puts sustainability at the heart of its strategy. An instance of a busi-
ness making these linkages explicit arose in December 2020, when global con-
sumer products giant Unilever announced it would put its climate transition ac-
tion plan before shareholders for approval, reportedly becoming the first major
global company to take such a step. The move strongly underlined the conver-
gence of the shareholder and wider stakeholder agendas. Unilever CEO Alan
Jope commented, “We have a wide-ranging and ambitious set of climate com-
mitments — but we know they are only as good as our delivery against them.
That’s why we will be sharing more detail with our shareholders, who are in-
creasingly wanting to understand more about our strategy and plans.”
In measuring and reporting on its progress on reducing carbon emissions,
Unilever says it will continue to take an iterative and transparent approach, up-
dating its plans on a rolling basis in response to outcomes and being clear about
challenges across its value chain.
This approach echoes the company’s strategy over the past decade with its
Sustainable Living Plan. Launched in 2010, the plan targeted three objectives,
each aligned with the U.N.’s Sustainable Development Goals: First, improve
health and well-being for more than 1 billion people by 2020; second, halve its
environmental footprint by 2030; and third, enhance the livelihood of millions
of people by 2020. Marking 10 years of the plan in May 2020, Jope stressed the
iterative nature of the company’s actions in response to its KPIs: “As the Unilever
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Sustainable Living Plan journey concludes, we will take everything we’ve learned
and build on it. We will do more of what has worked well, we will correct what
has not, and we will set ourselves new challenges.”
By aligning its purpose with that of its customers and consumers, Unilever
strengthens its reputation and brand value — and avoids alienating its customer
base and destroying value.
Like several other companies, Unilever also undertook a high-level assess-
ment of the potential material impacts on its business arising from the 2- and
4-degree Celsius global warming scenarios for 2030. Its analysis confirmed that
82
The value creation ecosystem
An organization creates enterprise

value by addressing broad societal
challenges and considering a wider range
of stakeholders beyond shareholders. Society
Capital markets have long rewarded

Enterprise Financial
productivity
companies for investing to drive growth
while also improving efficiency to make
value that growth more profitable.
A truly resilient organization can both respond

to and adjust effectively to external shocks and Resilience
flex and stretch to seize new opportunities.
Source: PwC analysis

The gathering force of the ESG imperative will
create enormous opportunities for disruption and
self-disruption, just as the digital revolution did.
both scenarios presented financial risks to its business, including rising costs of
raw materials and packaging in a 2-degree rise and chronic water stress and ex-
feature strategy
treme weather in a 4-degree rise. For Unilever, the assessment confirmed the im-
portance of understanding the critical business dependencies of climate change
and having plans in place to mitigate risks and prepare for the operating envi-
ronment of the future.
2. Think like a disruptor

To rethink strategy in the face of disruption, businesses in any industry can ask:
If we were coming into this marketplace today as a new entrant, unburdened by
legacy infrastructure and assets, what strategy would we adopt? This blank-slate
mindset enables leaders to anticipate new competitive threats and opportuni- 83
ties and potentially formulate, evaluate, and fine-tune a strategy that could turn
them into actual, not hypothetical, disruptors.
Organizations that have fully deployed and executed a blank-slate strategy
are few and far between. But among those that have, several have succeeded in
creating sustainable new operating models that have significantly boosted enter-
prise value — and some are extending that value creation far across their eco-
system. We’d suggest, in fact, that the gathering force of the environmental,
social, and governance (ESG) imperative will create enormous opportunities for
disruption and self-disruption, just as the digital revolution did.
Netflix and Qantas self-disrupt. Take Netflix, which has disrupted its indus-
try twice and itself once: first by launching a DVD mail service against incum-
bents such as Blockbuster and then by switching to streaming in 2007 and pro-
duction of in-home entertainment in 2012. The second strategy, in particular,
delivered. In the third quarter of 2010, Netflix’s market value was $8.75 billion.
A decade later, it was $233 billion.
Another prominent example of blank-slate self-disruption was the launch of
the low-cost airline Jetstar in 2003 by the Australian incumbent Qantas, which
faced fierce competition in the early 2000s from an Australia-based low-cost car-
rier. A review of previous low-cost carrier launches by other incumbents that had
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failed quickly revealed the underlying problem: The legacy carriers were trying
to avoid disturbing their core. Qantas’s board decided not to make the same mis-
take. It set about building Jetstar as a completely new low-cost carrier that would
be as separate and independent as possible from Qantas’s core business and even
compete with it in some ways. This meant recruiting Jetstar’s management ex-
ternally; basing the company in Melbourne rather than Sydney; having no direct
check-through of baggage between airlines, no shared terminals, and no access
to the Qantas loyalty or reservation systems; and often using different — lower-
cost — airports.
84 Crucially, Qantas accepted that the parent business would lose some rev-
enues to its new offspring. Point-to-point routes that were less profitable for Qa-
ntas were reallocated to Jetstar. The Sydney to Melbourne trip — one of the
world’s busiest domestic routes — was shared, with Jetstar’s flights timed to suit
cost-sensitive leisure travelers and Qantas’s scheduled for the less cost-conscious
business market.
The outcome? Over 18 years, Jetstar has proven to be a highly successful
airline that has taken market share profitably from Qantas and the competition.
Qantas itself flies fewer routes than before Jetstar came along, but those routes
are more profitable. By thinking like a disruptor, Qantas tapped into a massive
low-cost market that might otherwise have gone elsewhere. It was a brave deci-
sion by Qantas’s leaders — and a smart, value-adding one for the group’s future.
Private equity player buys dirty, sells clean, and extends the value creation
ecosystem. Thinking like an ESG disruptor can be pivotal in deriving value
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from M&A. Consider a bid that’s currently underway from a private equity in-
vestor for a listed financial institution facing significant regulatory and reputa-
tional issues. The target has struggled for some years. First, it couldn’t change
fast enough in response to shifts in the market for its financial products. For
example, it was aware of changes to the regulation of advice, but its internal con-
trols were not strong enough to adequately monitor compliance with the regula-
tion, triggering a series of private litigations. Then, its group executive and board
misread the sentiment of leadership and a shift in community expectations, and
this issue bubbled up into the public domain, affecting the company’s reputa-
tion. The resulting slide in the company’s valuation attracted the attention of 85
private equity investors, one of whom tabled a takeover offer with a control pre-
mium effectively funded by removing the overhang of anticipated future regula-
tory actions. It’s a strategy sometimes characterized as “buy dirty, sell clean.”
The bid is ongoing. For the potential acquirer, the key questions are what
issues it can solve within the targeted acquisition to rebuild enterprise value,
and in what time frame. Its four-step strategy is designed to harness disruption
by starting from a blank slate:
• First, clarify the value proposition for the financial advice business.
• Second, address the regulatory compliance issues, thus helping to rebuild
trust and remedy the 20 percent discount against fundamental value created by
the reputational concerns.
• Third, tackle operational complexity to reduce the cost base.
• Fourth, divest some parts of the group’s portfolio to realize additional value.
This strategy is aimed at “cleaning up” the core of the business and making
it fit to be run profitably with increasing enterprise value — powered by societal
impacts, reputation, and trust in the broad value creation ecosystem.
3. Prioritize ruthlessly
Strategic shifts don’t become real until a business reallocates the capital, talent,
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and other resources needed to put them into effect. A variety of forces, some-
times including the personal interests of an organization’s leaders, conspire to
create inertia. Yet amid today’s relentless disruption and evolving perceptions of
value, it’s vital to be prepared to act radically and quickly in allocating resourc-
es where they’re most needed — or the strategy will fail. Although the shock
of COVID-19 has triggered an acceleration of change that makes more actions
possible, it has also broadened the range of potential priorities that leaders must
consider when deciding where to focus. The effect is that it’s more important
than ever to be able to prioritize, and to identify and act on the most effective
86 value drivers in the value creation ecosystem.
Aerospace and defense company links ESG to enterprise and shareholder
value. Across all industries, ESG initiatives have become essential in building en-
gagement and trust with stakeholders and in boosting enterprise value. An aero-
space and defense client we work with has long recognized the need to place a
higher priority on ESG considerations and associated value drivers. But to make
a compelling case for investing in programs related to ESG and to build buy-in
among a broad set of stakeholders — including its own board, the investor com-
munity, and its suppliers — it needed to tie ESG initiatives back to measurable
effects on corporate value.
To do this, the client identified and tracked the value impact of its ESG
programs all the way through to intrinsic enterprise value and ultimately val-
ue for shareholders. The resulting long-term view of intrinsic value looks well
beyond earnings per share. The company started by developing “impact path-
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ways,” identifying the ways in which business issues intersected with ESG issues.
It then broke down the value chain to pinpoint where those intersections drove
the greatest value or risk. The next step was to ensure that the company had
a sufficiently robust definition of value to support decision-making. Ongoing
actions in the program include selecting key ESG initiatives, quantifying their
effect on value across the impact pathways, and communicating the results to
various stakeholder groups.
Major energy company optimizes resource allocation through a unified value
metric. When a company is looking to reframe its existing strategy and resource
allocation process to address the broad value ecosystem, the ideal approach to 87
prioritization might be to take it to the next stage: optimization. At root, priori-
tization involves ranking different metrics — such as cost, revenue, and environ-
mental impacts — and deciding to fund activities that surpass a particular line.
Optimization is more sophisticated, involving assessment of a dynamic combi-
nation of projects or investments using a comprehensive set of considerations,
constraints, and resource levels. Recently, we worked with a major energy com-
pany as it optimized its approach in this way.
This work began with a deep consideration of the company’s values, business
model, and strategy. The next task was to develop a new value framework —
one that supplemented traditional financial measures with ESG levers, including
impacts on the environment, communities, customers, regulators, employees’
Leaders no longer have the luxury of rolling out
a strategy gradually. Executing at anything less than
the highest possible speed brings the risk that events
will overtake the rationale for the strategy.
health and safety, innovation, and operational and supply chain resilience. All
these elements were combined into a single value metric that enabled the com-
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pany to make resource allocation choices and assess trade-offs at the business
portfolio level based on a broad view of value.
The company used a technique called multi-attribute utility analysis to
achieve this outcome. Operating like a foreign currency translation, this tech-
nique involves taking each value driver and developing relevant KPIs for it. The
KPIs are then scaled up, calibrated, and consolidated into a single value metric,
enabling all potential investments or projects to be valued on an equal footing.
Once all the company’s projects have been evaluated, leaders decide on the right
trade-offs to make in the portfolio. This can be accomplished through an opti-
88 mization model that assesses different levels of budget — together with depen-
dencies and other resource constraints — over a multiyear horizon. Today, our
client is applying the unified value framework across its business units and key
functional areas, enabling it to prioritize using a broad view of value.
4. Execute at higher pace

Faced with multiple fast-moving disruptions, intensifying real-time scrutiny,
and shifts among the various drivers of enterprise value, leaders no longer have
the luxury of rolling out a strategy gradually. Executing at anything less than
the highest possible speed brings the risk that events will overtake the rationale
for the strategy. Faster businesses could also leapfrog slower-moving ones. In
these cases, being first might be more important than having the perfect strat-
egy from Day One, especially given opportunities for iteration and fine-tuning
later, and buying capabilities might be preferable to taking time to build them.
The need for speed is even greater in situations in which unforeseen disrup-
tion suddenly puts existing business models and revenues, and therefore en-
terprise value, under pressure, as has happened to many companies during the
COVID-19 crisis.
Coty transforms at record speed to complete a sale amid the pandemic. In
October 2019, Coty, one of the world’s leading perfume and cosmetics busi-
nesses, announced plans to divest its professional beauty division, which sup-
plied premium shampoos and colorants to hair salons and polish to nail bars. In
January 2020, Coty launched the sales process for that division, and the private
equity firm KKR & Co. and a German cosmetics company were seen as the
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front-runners. But the week before the presentations to the potential bidders,
much of the world went into lockdown. Overnight, sales to hair salons and nail
bars fell by 80 to 90 percent.
Recognizing that speed and agility would be key, Coty sprang into action.
The initial question was how long the lockdowns would last. But the focus
soon turned to a longer-term issue: How would the business continue to thrive
in a world where sustained social distancing meant salons would operate at only
50 to 60 percent of their previous capacity? Also, the division’s sales model had
salespeople taking orders during salon visits — but many hairdressers and nail
techs were no longer in a central location because many salons were shut down. 89
This sales channel, now highly fragmented, would have to be serviced in a
different way, requiring a radical reconfiguration of the business. Within days,
Coty developed an entirely new digital business and operating model — one un-
der which the products would be promoted online, ordered by customers mostly
via mobile, and delivered directly via a fast, optimized fulfillment process. Coty
also quickly quantified the implications for profitability. Its rapid action mini-
mized the pandemic’s impact on the valuation of the business.
In June 2020, KKR signed a purchase agreement for Coty’s professional
beauty division, and the deal was completed in November. Coty sold a 60 per-
cent stake in the Wella business in a deal putting Wella’s enterprise value at $4.3
billion. Since the sale, Coty has continued to gain strength: That same month,
Coty announced improved first-quarter financial results, which CEO Sue Nabi
said were “testament that a stronger, more focused, and more flexible Coty is
emerging in the middle of the COVID-19 pandemic, and better prepared to face
any future market disruptions.” This ability to rapidly overhaul value creation
approaches is likely to be critically important in the decade ahead, as climate
change and social inequalities challenge the status quo.
5. Be more attuned to your ecosystem

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It’s vital to have the flexibility to adjust if conditions change, if the strategy isn’t
delivering, or if current actions are destroying value. This means moving away
from executing on fixed rails as in the old days, and accepting that the business’s
strategy, plans, or behavior will have to change as new disruptions, risks, op-
portunities, and KPIs emerge. In the era of social media, this agility needs to be
underpinned by the use of real-time monitoring tools, such as social listening,
for continuously scanning and tracking consumer sentiment.
Consumer sports brand responds in an agile way to a social media firestorm.
During the first months of the pandemic, a leading sports fashion brand decided
90 to withhold rent payments on its shuttered retail premises. However, the compa-
ny had considered only financial productivity levers rather than the whole value
creation ecosystem. The announcement sparked an immediate and expanding
firestorm on social media. Fortunately, the company’s leaders were alert to the
damage to the company’s brand value and announced within a matter of days
that it would pay its rents after all. The social media storm subsided, and con-
sumers returned to holding a positive view of the business.
This sequence of events underlines several lessons for organizations navigat-
ing the value ecosystem. The clearest is that simply setting up a presence on so-
cial media and treating it as a one-way messaging channel is doomed to failure.
Social media is a two-way medium; it’s crucial to listen to consumer sentiment
in real time and respond just as fast. The episode also highlights the importance
of considering value levers in a holistic and coordinated way. And it shows that
consumers will turn against a brand if they feel it’s behaving contrary to its own
societal purpose — but they are ready to forgive if they feel the brand has lis-
tened to their concerns and responded by doing the right thing. Companies that
aren’t agile in managing and building seemingly intangible assets such as brand
and reputation will face rising risks to value in the years to come.
Today, it’s vital for all leaders to be cognizant of the broad value creation
ecosystem, given its profound implications for the creation or destruction of en-
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terprise value. The opportunities for organizations that understand and manage
all their value levers in a responsive and coordinated way are mirrored by deep
pitfalls for those that fail to do so. The question we hope to have answered for
you isn’t whether to set and execute your strategy to align with resiliency and
societal value as well as financial productivity, but how. As we advance into the
post-pandemic world, this will be perhaps the single biggest business challenge
facing every CEO. +
91
Resources
Adam Bryant, “The stakeholder–shareholder debate is over,” s+b, Dec. 22, 2020: More on how the role of corporations in society has shifted.
Aaron Gilcreast and Larry Jones, “The real value of your company,” s+b, Oct. 2, 2017: On how companies should focus on intrinsic value, not share
price, to surpass investor expectations.
Roger L. Martin, “A plan for saving democratic capitalism from itself,” s+b, Feb. 10, 2021: Suggesting that economic systems must balance efficiency with
resilience in order to survive and flourish.
PwC, Value creation: Rethink today. Reinvent tomorrow, 2021: Insights on value creation.
92
feature world view
A leadership agenda to
take on tomorrow
PwC’s 24th Annual Global CEO Survey reveals
the opportunities and threats shaping company
leaders’ outlook for 2021 and beyond.
by Laura W. Geller and Spencer Herbst
feature world view

On March 11, 2020, the World Health Organization declared
COVID-19 a global pandemic, marking the official start of a period
of profound disruption and suffering. One year later, we still find
ourselves in its grip, but vaccines developed at breakneck pace
have enabled us to envision recovery. The details of that recovery
are not yet clear. However, it’s certain that we cannot simply go
back to the way things were before. The pandemic has laid bare
fundamental deficiencies in our global system, weaknesses in
business operating models, and challenges that will shape our
world moving forward. It has also unleashed energy and creativity,
93
as leaders seek out enduring solutions to these problems.
The pandemic’s dual role as accelerator of transformation and
amplifier of disruptive forces is the thread that runs through our
24th Annual Global CEO Survey. Most of the CEOs responding to
the survey are bullish about a global economic comeback. It will be
enabled by a continuation of companies’ pandemic-induced digital
Illustration by Tang Yau Hoong
acceleration, which promises productivity and other business

benefits, but also increases the threat of cyberattack and the
spread of misinformation. Although CEOs’ confidence in their own
company’s revenue prospects has rebounded, they are anxious,
too: about the trajectory of the pandemic, tax and regulatory policy
uncertainty, and, to a slightly lesser extent, climate change.
Laura W. Geller Spencer Herbst Also contributing to this article
geller_laura@strategy-business.com spencer.herbst@pwc.com were managers Libby Boswell
is senior editor of strategy+business. develops flagship global thought of PwC US and Catherine Moore
leadership for PwC. Based in of PwC UK.
New York, he is a senior manager
with PwC US.
Numbers tell a story, but we know there’s more to most stories than num-
bers. That’s why we’ve combined the findings from our 5,050 survey responses,
feature world view
gathered in January and February 2021, with qualitative insights: interviews with
chief executives conducted as part of our Inside the Mind of the CEO series
and analysis from our Take on Tomorrow series, published between January and
March, which tackles today’s most pressing issues to help leaders as they think
about what’s next (see Leading Ideas, page 8). When we look at the survey in this
light, we see an opportunity emerge — a moment for business leaders to take a
step back and ask: How can we do things better?
Answering that question is an imperative that will touch nearly every as-
pect of their operating model, enabled by a significantly greater focus on trust
94 and transparency. This is certainly the case for climate change, where thus far
corporate action trails government-mandated decarbonization targets; com-
panies also face growing demands from investors and other stakeholders. It
is the case for cybersecurity, which many firms have relegated to the CIO’s
domain when what’s actually needed is a strategic approach aimed at tam-
ing corporate complexity while establishing a framework for governance and
shared responsibility.
The list goes on, pointing to a fundamental truth: Company leaders are
capable of the kind of change that’s needed, but they’ll need to think differently
and to constantly evaluate their decisions and actions against broader societal
impacts. We recognize that this is a daunting challenge, and it is in the spirit of
this recognition that we present our 24th Annual Global CEO Survey — as a
snapshot of leaders’ sentiment, and as a road map of the priorities ahead and how
we can collectively address them.
An improved outlook
When asked about their outlook on the global economy, 76 percent of CEOs say
they believe it will improve during the next 12 months. That’s nearly 20 percent-
age points greater than the previous record high for optimism, over all the years
we have been asking this question. It also marks a significant rebound from our
2020 survey (conducted in the autumn of 2019), when just 22 percent of CEOs
expected improved growth (see chart below). Little could anyone have known
that the coronavirus would strike, causing global GDP to contract 3.5 percent in
2020 — marking its worst performance since the Great Depression. In the wake
feature world view

of such decline, some bounce-back seems inevitable; in China and elsewhere, it’s
already underway.
Optimism is on the rise

A record share of chief executives believe global economic growth will improve in 2021.
Question: Do you believe global economic growth will improve, stay the same, or decline over the next 12 months?
15%
18%
22%
27% 29%
37%
44% 42%
57% 95
34% 24%
76%
52%
49%
53% 28%
44%
49%
53%
48% 36%
10%
28% 29%
23%
17% 17% 14%
7% 5%
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
Improve Stay the same Decline
Note: From 2012 to 2014, respondents were asked, “Do you believe the global economy will improve, stay the same, or decline over the next 12 months?”
Source: PwC 24th Annual Global CEO Survey
CEOs’ optimism also reflects momentum in vaccine development and roll-
out in parts of the world. We are by no means out of the woods, but CEOs see
a path forward — for the global economy, and for their own organizations: 36
percent of CEOs say they are very confident about their revenue growth pros-
pects for the next year, and 47 percent are very confident looking ahead three
years. These results mark a reversion to the mean, and another notable turn-
around from our 2020 survey results (see chart below).
There is reason to bank on that sentiment. PwC has analyzed CEO confi-
feature world view
dence levels dating back to 2008 to determine both the direction and the strength
of global GDP, and the results have consistently yielded accurate projections.
(Our 2020 results represent a rare deviation, because of the pandemic’s econom-
ic impact.) Based on this year’s responses, we estimate that global growth could
rise as much as 5 percent — just slightly lower than recent IMF projections that
the global economy will grow 5.5 percent in 2021 and in line with separate PwC
analysis suggesting it will return to its pre-pandemic size by the fourth quarter of
2021 or early 2022.
Confidence has rebounded

96 Looking ahead, CEOs are more confident in their own company's growth prospects.
Question: How confident are you about your organization’s prospects for revenue growth over the next 12 months/three years?
(Showing only “very confident” responses)
52%
50%
50% 51% 51%
49% 49% 47%
47% 46% 46% 45%
48% 36%
34% 34%
44% 42% 42%
40% 39% 39% 38%
36% 36%
35% 35%
31%
27%
21%
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
Confidence next 12 months Confidence next three years

Sustaining COVID-era urgency. As leaders prepare for the anticipated
rebound, a critical question will be: Which management approaches
should businesses retain from the rapid response mode most of them
embraced during 2020? Fast, high-quality decision-making — a hallmark
of many companies’ pandemic response — will be on the top of most
leaders’ “keep” lists. Priorities include ensuring top management is focused
on the big issues that matter most, engaging with people up and down the
organization, revisiting critical decisions frequently, and pushing, early,
to understand unintended consequences.
Industry effects
Industries have been affected in different ways by COVID-19, as lockdowns
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and other restrictions changed the way we work, live, travel, and shop. This
disparity is reflected in confidence levels, both in our survey results and in our
interviews with CEOs.
The hospitality and leisure and transportation and logistics sectors are
among those with the lowest reported confidence levels. “Whether we like it
or not, the next 12 to 24 months are going to be bumpy.… Our goal is to get
back to at least 2019 levels in three years,” says Dillip Rajakarier, group CEO
of the Thailand-based hospitality firm Minor International, which operates
luxury hotels and spas in more than 50 countries. Noni Purnomo, president
director of Indonesia-based Blue Bird — which, among other holdings, op- 97
erates the country’s largest taxi fleet — also acknowledges the challenges of
recovery: “We hope by the second half of the year we’ll be able to see sig-
nificant improvement. But the impact on business will be lagging…. Our
target is to reach 90 percent of our January/February 2020 revenues by the
end of 2021.”
In contrast, CEOs in technology are more confident than their peers in
every other industry, a natural by-product of the pandemic’s digital acceleration.
“We’re feeling surprisingly optimistic,” notes Steve Hare, CEO of U.K. software
firm Sage Group. “We’ve started to see new customer-acquisition levels normal-
ize…and small and medium-sized businesses in general are pretty optimistic
about the longer term because they are agile.”
Pandemics and other health crises are the number
one threat on this year’s list, with 52 percent of CEOs
stating they are “extremely concerned” about them.
CEOs of companies in industries that witnessed favorable changes in con-

sumption patterns during the pandemic also have a positive outlook. A case in
feature world view
point: sales of electric guitars. Revenues at U.S.-based stringed instrument man-

ufacturer Fender Musical Instruments grew by about US$100 million in 2020.
Says CEO Andy Mooney, “The complete reverse of what we anticipated hap-
pening is happening. We’re now looking at expansion…. I’m very optimistic
that we’ll get significant growth again in 2021 and beyond.” (See “Fender hits
the right notes,” page 158.)
The pandemic experience, sector by sector. Taking a closer look at the

effects on companies in different industries, we see how many will be
98 reinventing their workplaces as the vaccine rollout continues — with
flexible work models becoming a permanent fixture for a range of roles,
including sales, finance, and technology. But striking the right balance will
be more challenging in industries such as hospitality, transportation, and
retail, where business model changes are likely to require significant shifts
in deeply ingrained customer behaviors and employee ways of working.
Lingering anxiety
Despite their confidence, CEOs are acutely aware of threats in the external
environment, starting with the obvious: Pandemics and other health crises are
the number one threat on this year’s list, with 52 percent of CEOs stating they
are “extremely concerned” (see chart, next page). The last time we asked this
question, six years ago, this threat was selected as an extreme concern by just 9
percent of respondents.
At the time our survey was in the field, new variants of COVID-19 were
being tracked around the world, vaccine rollout efforts were uneven in many
wealthier nations, and governments in many emerging markets were struggling
to procure vaccine doses. The pandemic’s staying power raised a host of busi-
ness-specific questions for CEOs. For example, Deryl McKissack, president and
CEO of McKissack & McKissack, a U.S.-based architecture, engineering, and
construction management firm, reflected on the design of public spaces, observ-
ing, “The anxiety isn’t going away. I believe many of these measures [to imple-
ment design changes] will be permanent. Public health officials are speculating
that COVID-19 will be endemic, with sporadic repeats thanks to globalization.”
feature world view

Threats to growth
CEOs express increasing concern about cyber threats, misinformation, and tax policy uncertainty.
Question: How concerned are you, if at all, about each of these potential economic, policy, social, environmental, and business
threats to your organization’s growth prospects? (Showing only “extremely concerned” responses)
2020 top 20 threats 2021 top 20 threats

Over-regulation 36% Pandemics and other health crises 52%
Trade conflicts 35% Cyber threats 47%
Uncertain economic growth 34% Over-regulation 42%
Cyber threats 33% Policy uncertainty 38%
Policy uncertainty 33% Uncertain economic growth 35%
Availability of key skills 32% Populism 31%
Geopolitical uncertainty 30% Tax policy uncertainty 31%

99
Speed of technological change 29% Increasing tax obligation 30%
Protectionism 28% Climate change 30%
Populism 27% Misinformation 28%
Climate change 24% Social instability 28%
Increasing tax obligation 22% Availability of key skills 28%
Exchange rate volatility 22% Geopolitical uncertainty 28%
Changing consumer behavior 21% Speed of technological change 27%
Tax policy uncertainty 19% Changing consumer behavior 26%
Social instability 18% Supply chain disruption 25%
Inadequate basic infrastructure 18% Protectionism 24%
Volatile commodity prices 17% Trade conflicts 23%
Lack of trust in business 17% Readiness to respond to a crisis 23%
Misinformation 16% Declining employee well-being 22%
Note: “Pandemics and other health crises” was last included as a threat in the 18th Annual Global CEO Survey.
The wall of worry. Overall, the sheer magnitude of concern about most
threats has increased since our 2020 survey, despite CEOs’ rise in
confidence. Navigating this tension is a perennial leadership challenge
that feels particularly acute at the moment. When we convened PwC’s
global network leaders in mid-February to review our survey results,
they observed that although CEOs tend toward optimism, many had
been asking questions about the potential for inflation and the possibility
that global markets had priced in too perfect a recovery. The tug-of-
war between anxiety and optimism only increased with a rise in market
volatility. This conundrum is also reflected in the results of PwC’s Hopes
and Fears 2021 survey, which captures the views of more than 32,000
members of the general public around the world. When asked how the
feature world view
future of work will affect them, 23 percent said they were excited about
the possibilities and 27 percent that they were confident in their ability to
succeed. At the same time, 35 percent were worried about the future, and
34 percent were worried about their children’s future.
The climate change challenge

Far more surprising than the rocket-like rise of pandemics on the threat lists of
CEOs was the modest rise of climate change as a priority. Last year, 24 percent
of CEOs selected climate change as an extreme concern; this year, it was selected
100 by 30 percent. This may seem like a notable jump, but in the context of rising
anxiety about nearly all threats, it represents just a marginal increase.
What’s more, another 27 percent of CEOs report being “not concerned at
all” or “not very concerned” about climate change. And 60 percent of CEOs have
not yet factored climate change into their strategic risk management activities. In
fact, at a country level, our results show a moderately negative correlation between
exposure to natural hazards and companies’ preparedness for climate-related risk.
Companies in the countries with the most exposure — which are generally among
the largest contributors to CO2 emissions — are less likely to have embedded cli-
mate change into their overall risk management approach (see chart, next page).
The decarbonization imperative is particularly challenging for certain in-
dustries and regions. “We’re very focused on bio-based and renewable fuels, and
60 percent of CEOs have not yet factored
climate change into their strategic risk
management activities.
Managing environmental risk

Companies in countries and regions with the highest exposure to natural hazards are some of the least
prepared for climate change risk.
feature world view

Question: Is climate change and environmental damage explicitly factored into your strategic risk management activities?
Bubble size = 2019 country CO2 emissions3

80%
Austria
New Zealand
Finland
60%
Denmark
Climate change preparedness2
Norway Belgium South Africa
Australia Japan
Netherlands
Germany
Luxembourg
Spain
Sweden Croatia
U.K.
40%
Malaysia
Switzerland Slovenia Chile U.S.
Singapore
Uruguay France Cyprus
Mexico
India 101
Ireland Portugal Canada
Brazil Sri Lanka
Serbia Turkey
Bulgaria Greece Colombia
Romania Italy
Poland
Ecuador Indonesia
20% Argentina Albania
North Macedonia
Peru China
Azerbaijan
Armenia Venezuela
Middle East
0%
1 2 3 4 5 6 7 8
1
Natural hazard exposure score (Higher score = higher risk)
Western Europe North America Central and Eastern Europe Africa

Asia-Pacific Latin America Middle East Trend line
1) Natural hazard exposure score reflects the country’s probability of physical exposure associated with specific hazards including earthquake,
tsunami, flood, tropical cyclone, drought, and pandemic
2) Share of CEOs who have factored climate change and environmental damage into their organization’s strategic risk management activities
3) 2019 country CO2 emissions are measured in million tonnes
Source: PwC 24th Annual Global CEO Survey; EC DRMKC 2021 INFORM Risk Index; Our World in Data
our goal is to supply 100 percent renewably sourced energy by 2040,” says Jeroen
Drost, CEO of SHV Holdings, one of the largest family-owned businesses in
the Netherlands, with operations in 58 countries and territories and holdings
in transportation and oil, among other sectors. But “at the moment, that’s just
not possible. It’s an illusion to think that the world could do without oil and
gas.” Obi Ozor, founder of Nigeria-based logistics startup Kobo360, notes, “In
Nigeria, trucks still spend up to six days in queue before they get inside a port.
Now with the barges, you basically cut that time to two days. So we are actually
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beginning to reduce emissions, but it would be better if the roads to the ports
weren’t congested or prone to extortion.”
Transparency and transformation. Despite extraordinary challenges,

2020 brought a burgeoning number of net-zero commitments. Although
business participation continues to lag government targets, CEOs are
pushing for greater reporting: When asked which areas of their business
they should be doing more reporting on, 43 percent of CEOs chose
environmental impact, the greatest share of any area. As management guru
102 Peter Drucker purportedly said, “What gets measured, gets managed.” If
CEOs make their company accountable — and start applying the same
rigor typically reserved for financial reporting — more meaningful climate
action should follow.
Danger lurking online

In contrast with the slow ascent of climate concerns, cyber has fast become a ma-
jor source of anxiety. Now the number two concern, it was cited by 47 percent
of CEOs, compared with 33 percent last year. Among CEOs in North America
and Western Europe, it was the top threat. Likely influencing the response was
the uptick in high-visibility cyberattacks during 2020, some revealed just weeks
before our survey went out.
Cyber threat is the top concern for CEOs in the asset and wealth manage-
ment, insurance, private equity, banking and capital markets, and technology
sectors. Says Uday Kotak, founder and CEO of India-based Kotak Mahindra
Bank, “During COVID, we have witnessed increased fraud in the banking sys-
tem. The thought of losing my customers’ money to theft is what keeps me up at
night. So, while COVID has brought about a significant increase in digital adop-
tion and transactions, it has also increased the risks associated with digital.”
Also rising rapidly on the list of CEOs’ concerns is the spread of misin-
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formation (28 percent are “extremely concerned,” up from 16 percent in last
year’s study), the recent impact of which on elections, reputations, and public
health has been profound. At its core, misinformation reflects today’s historically
low levels of trust. For business leaders who need to build back this trust, being
transparent about the efficacy of products and sharing data can help.
Albert Bourla, chairman and CEO of U.S.-based pharmaceutical company
Pfizer — which partnered with the German firm BioNTech to develop one of
the first vaccines to earn widespread regulatory approval — acknowledges the
importance of transparency and trust in encouraging COVID-19 vaccination.
“Let’s focus on getting as many people as possible vaccinated and generate data 103
that will convince even the more skeptical.… We have to teach people that the
decision not to take it isn’t a decision that will affect only themselves. It is a deci-
sion that will affect society.”
The perils of corporate complexity. As companies expand their use of

external partnerships to enable digital solutions and layer them onto
legacy IT structures, the complexity created tends to generate ever-greater
cyber risk. The temptation is to focus security efforts on risk dashboards,
surveillance, and technical initiatives. But leaders who are serious about
cybersecurity also need to embrace simplicity in their strategic dialogue
about their business models, ecosystems, and in-house processes.
Nearly half of CEOs plan increases of
10 percent or more in their long-term investment
in digital transformation.
Digital acceleration
The increase in CEOs’ concern about cyber threats and misinformation co-
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incides with the rapid acceleration of many companies’ digital transformation

during the pandemic — efforts that are not slowing down. “We were on our
digitalization journey before COVID-19, but now it has gained its own momen-
tum,” notes Jeffri Salim Davidson, group CEO of Malaysia-based conglomer-
ate Sime Darby Berhad, with holdings in heavy equipment, auto, healthcare,
and logistics. “In the past, we wanted to get everything 100 percent correct be-
fore we launched a digital product, but now it’s a matter of getting it out there
and refining it as we go.”
Adds Blue Bird’s Noni Purnomo, “People still need to move, and trans-
104 portation is still needed — it’s just they want to have it be as low touch as pos-
sible. It’s why we’ve been focusing on developing our reservation service, our
e-money, and the noncash payment service, both for our customers and for
our own drivers.”
Nearly half of CEOs plan increases of 10 percent or more in their long-
term investment in digital transformation. Paradoxically, despite the level of con-
cern CEOs registered about cyberattacks, just under half of those planning for
heightened digital investment are also planning to boost their spending on cy-
bersecurity and data privacy by 10 percent or more.

Today’s digital focus contrasts with the situation in 2010, after the global fi-
nancial crisis, when the biggest investment priority for chief executives in our sur-
vey was gaining cost efficiencies. Sage’s Steve Hare captures today’s urgency: “I
think finally, and particularly among small and medium-sized businesses, people
realize that digital transformation is absolutely essential.… We need to invest.”
Making the most of tech investment. Quietly riding on the back of

the pandemic-induced digital acceleration was a less-visible surge in
the adoption of advanced analytics and artificial intelligence (AI) to
inform decision-making. Partly as a result, the gap between AI leaders
and laggards is widening, according to PwC research. Companies on
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the leading edge are more deeply embedding AI in customer-focused
applications, back-office applications, and risk management — while
addressing algorithmic bias so that stakeholders trust the outputs.
People and productivity

When asked to prioritize the societal outcomes that business should help de-
liver, CEOs put the creation of a skilled, educated, and adaptable workforce at
the top of the list. At the same time, a growing number of CEOs are seeking
to boost their organization’s competitiveness through digital investments in the
workforce; 36 percent aim to focus on productivity through technology and au- 105
tomation, which is more than double the share of CEOs who said the same in
2016. Anecdotally, CEOs in a variety of industries have told us about their plans
to incorporate or expand their use of automation.
“It’s about automating inspection: of the tracks, of the rail itself, of the roll-
ing stock,” says JJ Ruest, CEO of CN, a North American freight rail and trans-
portation company based in Canada. “Historically, experienced people would do
inspections and decide when it’s time to do a repair. But now we want our people
to be fixers, not finders.” Wayne Peacock, CEO of U.S.-based insurer USAA,
explains that previously, “we would create a paper [claim] file, and then a few
days later a person in the field would show up. Today, it is digitized all the way
through. Now we’re applying the capability to bring photos and images into the
equation, and then use those images to calculate the cost of damage rather than
having a human do it in person.”
feature world view
Addressing asymmetries. There is another side to this conversation,

of course, as productivity through automation threatens to leave some
behind. Although just 20 percent of CEOs are “extremely concerned”
about economic inequality as a threat to their growth prospects, the
pandemic has amplified asymmetries among individuals, companies,
and countries, and has raised questions about how we can recouple social
and economic progress. Upskilling or reskilling employees to enable their
full participation in the workforce means creating more inclusive and
106 sustainable economies and societies that pull people along and catalyze
deeper connections between humanity and the economic marketplace.
Other data indicates that people will be receptive to such efforts. Among
respondents to PwC’s Hopes and Fears 2021 survey, 39 percent said they
believed advances in technology might make their job obsolete in the
next five years. But 77 percent said they were ready to learn new skills or
completely retrain and 80 percent said they were confident they could
adapt to new technologies entering their workplace.
Taxing times ahead

Increased productivity will be an important driver of economic recovery, but
in the meantime, governments seeking to mitigate the impact of the pandemic
Anxiety and accountability for how much
companies pay in taxes, and where they pay them,
appear to be rising in tandem.
both on the domestic economy and on individuals have taken on substantial

debt. It is perhaps no surprise, then, that tax policy uncertainty made a notable
feature world view

rise on the list of threats (it ranked seventh, up from 15th last year). CEOs are
undoubtedly watching debts accumulate as governments intervene with stimulus
packages, and realize that the public will expect business to pay its fair share.
Cross-border competition seems likely, as governments develop tax schemes
to benefit their national interest — creating significant complexity for multina-
tionals with global operations. “I’m pretty confident that in a couple of years’
time, the economy, by and large, will be back on its trajectory: less steep, less
global, and maybe less interwoven or more balanced,” says SHV Holdings’ Je-
roen Drost. “I don’t think it will be completely back, because I think there will
be a couple of fundamental changes in global trade. That has [mainly] to do 107
with the impact of geopolitics, local politics, the closing of borders, and intro-
ducing cross-border taxes.”
Platform-based companies, for example, which have profited during the
pandemic, could face rising digital taxes from multiple sources. Moreover,
greater tax transparency is coming; although already the norm in some parts of
the world, this will represent a sea change in others. Anxiety and accountability
for how much companies pay in taxes, and where they pay them, appear to be
rising in tandem.
A new era of compromise. The tone of tax policy discussion, especially

during challenging economic times, tends toward the confrontational. But
what we need right now is collaboration based on balance and fairness.
Balance is needed because tax is a global issue; it affects where countries
invest, where companies operate, and where people work. Fairness may
get a boost from stakeholder capitalism metrics that set standards for tax
contribution reporting: Transparency goes a long way in building trust.
Global nuance
As cross-border competition heats up global tax debates, CEOs foresee some
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cooling of global trade tensions. Both trade conflict and protectionism dropped
on the CEO threat list, in relative and absolute terms.
But there’s considerable nuance behind that top-line story. Trade conflict
still ranks as a top 10 threat in China and Germany, both of which depend on
export-driven growth. In China, which has often found itself at the center of
debates, trade conflict is CEOs’ second-highest source of worry. It’s hard not to
wonder whether fundamental tensions will reassert themselves as we move past
the landmark moments, such as resolution of the U.S. presidential election and
of Brexit uncertainties, that immediately preceded our survey period.
108 It’s also important to recognize that trade patterns and partnerships are in
flux. For example, CEOs in the U.S. are reducing their emphasis on China as
a growth driver, and increasing their focus on Canada and Mexico; compared
with the findings in our last survey, U.S. CEOs’ interest in the latter two coun-
tries rose by 78 percent. Those trends are contributing to a broader shift of the
U.S. extending its lead over China as global CEOs’ most important growth des-
tination. China CEOs, meanwhile, report growing interest in large economies
such as Japan, Germany, and the U.S. — prime sources for exports. The U.K.,
post-Brexit, moved to the number four spot overall on the list of growth destina-
tions, surpassing India. And in recent months, we’ve seen the emergence of new
trade agreements, such as the Regional Comprehensive Economic Partnership
(RCEP) in Asia, that could have a deep impact.
Is localization the new globalization? Given today’s uncertainty, leaders
must be prepared to rethink their supply chains, and to develop the
feature world view

ecosystems necessary to make localization succeed. On what is already
a crowded agenda, in other words, CEOs need to understand the
implications of policy changes, and to take a more selective approach to
new market entry, investing internationally only if they have the acumen
and capabilities to compete in a more geopolitically charged world.
At the global pandemic’s one-year mark, CEOs believe we are turning a

corner — both in the world’s economic trajectory and in their own possibilities
for reinventing the future. Seizing that potential will require building the trust
and delivering the sustained outcomes that a weary world is yearning for. + 109
Resources
Center for Strategic & International Studies, “Significant Cyber Incidents,” 2021: Summary of recent cyberattacks around the world.
Edelman, “Edelman Trust Barometer 2021,” 2021: Global survey reveals citizens’ loss of trust in institutions during the pandemic.
European Commission Disaster Risk Management Knowledge Centre, INFORM Risk Index, 2021: Source of countries’ natural hazard exposure score.
Our World in Data, based on Global Carbon Project; BP; Maddison; UNWPP, 2021: Source of countries’ 2019 CO2 emissions, measured in
million tonnes.
PwC, Net Zero Economy Index 2020: The Pivotal Decade, 2020: Tracks the progress of the G20 countries in reducing energy-related CO2 emissions
and decarbonizing their economies.
PwC, Take on Tomorrow, 2021: A series featuring perspectives on the challenges facing leaders today from across PwC’s global network.
Read the PwC 24th Annual Global CEO Survey with full citations and additional charts: pwc.to/CEOSurvey21
110
feature strategy
PR ACTICING
STRATEGY IN
AN UNCERTAIN
WOR LD
A modern strategy that works will require
leaders to learn new skills and apply new tools.
feature strategy
Here’s a primer for a refreshed approach.
by David Lancefield
that the executive

KRISTIAN EBBESEN FJELDE AND HIS TEAM KNEW
committee meeting scheduled in mid-2019 to discuss the
future strategy of their company was more important than
most. Equinor’s leadership had changed the company’s
name in May 2018 from Statoil to signify its intention to make
it a more diversified energy company and take a leading role
in the long-term goal of transitioning out of fossil fuels. 111
Equinor was Norway’s biggest energy producer, and its

leaders understood that the structural shifts in the market
necessitated a radical shift in the business that would
require more than a simple rebranding. Instead of putting
together a presentation, Fjelde decided to run a “strategic
beliefs” card game. His team circulated 16 statements, each
describing what might become a core belief of the company.
Illustration by Dan Page
They covered everything from the direction of commodity

prices to the impacts of climate change. The executives were
asked to reveal one of two cards — depicting a thumbs-up
or a thumbs-down — as a reaction to the statements and
explain how they reached that view.
David Lancefield
david@davidlancefield.com
is a strategist and coach who has
advised more than 35 CEOs and
has led 15 digital transforma-
tions. He is a contributing editor
of strategy+business, and he also
hosts the interview series Lance-
field on the Line and publishes the
email newsletter Flashes+Sparks.
Lancefield was a senior partner
with Strategy&, PwC’s strategy
consulting business.
There were significant differences of opinion, but after an intense discus-

sion, the leadership team came to a consensus. The inclusive nature of the dis-
feature strategy
cussion, the use of a different kind of facilitating tool, and the understanding
that the results were not window dressing but rather core corporate beliefs un-
derscored the importance of the exercise: developing a strategy that worked.
In too many cases, strategic discussions are not this fruitful. Often they re-
sult in a set of goals, bullet points, or statements that masquerade as strategy, but
they don’t set out the clear direction, distinctive positioning, and feasible plan
you would expect. It’s no wonder that a 2018 survey conducted by Strategy&,
PwC’s strategy consulting business, found that 65 percent of executives think
their organization lacks a winning strategy.
112 That’s a damning statistic. Because it means that even people who lead com-
pany transformations aren’t confident that they are on the right path, though
they probably were part of the discussion to set the direction. And today, the
stakes are getting even higher. Organizations are facing a prolonged period of
uncertainty, challenging economic conditions, seismic geopolitical shifts, cli-
mate change, and societal fragility.
In this context, “strategy is more important than ever, but in a different way
than we’ve traditionally thought of it: the metaphorical leader on a horse with
a sword who says, ‘follow me,’” says Rita Gunther McGrath, professor at Co-
lumbia Business School. Instead, strategy should be conceived, developed, and
executed in a more inclusive, dynamic, creative, and experimental way.
What does this mean in practice? Drawing from interviews with leading
Strategy should bring clarity to the
uniqueness, direction, and activities of
an organization. It should certainly
generate more than short-term profits.
management thinkers, academics, and executives, I highlight three aspects of

strategy that require more attention and skill: behaviors, frameworks, and tools.
feature strategy
Pioneers have already gotten the message; others have an opportunity to catch
up. But first, we need to understand what strategy is in the current context.
Modern strategy
The challenge is that the term strategy is often misunderstood. Ask somebody
outside the strategy team what it means — let alone what the company’s strategy
is — and you’ll often get a quizzical look. Too often, as Bill Fischer of MIT’s
Sloan School of Management says, “strategy is the ex post rationalization of co-
herent tactics.” Playing to Win authors A.G. Lafley and Roger L. Martin describe
strategy as “a set of choices about winning” or, more specifically, “an integrated 113
set of choices that uniquely positions the firm in its industry so as to create sus-
tainable advantage and superior value relative to the competition.”
Strategy should bring clarity to the uniqueness, direction, and activities of
an organization. It should certainly generate more than short-term profits. Vi-
jay Govindarajan of the Tuck School of Business at Dartmouth College says
that “we need to restore purpose as a central tenet for strategy.” This, he argues,
should result “in optimized profits and optimized value for various stakehold-
ers.” Note the use of value and stakeholders — today’s successful strategy is not
simply based on shareholder return. This raises the bar again for strategy; Julian
Birkinshaw of the London Business School says it leads to “more complex trade-
offs in a world of responsible capitalism.”
Strategy also applies to different organizational constructs (enterprise, busi-
ness unit, function) and comes in many forms (traditional, adaptive, visionary,
inventive, etc.), according to the degree of organizational change, the process in-
volved, the level of input from employees, the time frame, and the degree of dis-
ruption facing the organization. Amy Webb, founder of the U.S.-based Future
Today Institute, makes a distinction between “tactical decisions (very near term),
strategy (a few years [two to five] out), visioning (longer term), and systems-level
disruption and evolution (very long term).” Strategy plays a key role in this con-
feature strategy
tinuum in resolving “the tension between that systems-level, macro change and
the day-to-day tactical operations of a company.”
With these insights in mind, we can get back to the three aspects of strategy
that should be strengthened: behaviors, frameworks, and tools.
Change behaviors
Strategy is a personal endeavor. Its success largely comes down to how it changes
the way people think, feel, and act. These three actions can lead to better results.
Refresh mindsets. The mindset of the leader — and strategist — is a critical
114 aspect of the strategy process. Start with a presumption of maximizing human
contribution to the organization rather than maximizing compliance to a set
of rules, advises Gary Hamel, cofounder of the Management Lab. In practice,
this means finding a way to encourage participation, discourse, and challenge;
transparency (of status, challenges, metrics) is critical. Move away from the all-
too-common approach of presenting yourself as an elite team seeking selective
inputs and then broadcasting the strategy. Demonstrate “curiosity, empathy, the
willingness to take in new information, the willingness to welcome new infor-
mation…and be open to surprise,” says Columbia’s McGrath. Humility helps

too. “It’s hard to learn if you believe you already know [something], and we’re
hardwired to believe we already know,” says Amy Edmondson of Harvard Busi-
ness School. She uses the example of a clinical director of an intensive care unit
who encourages challenge through careful framing, using statements such as “I
might miss something, so I need to hear from you.”
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The transformation of Microsoft under Satya Nadella’s leadership is another
case in point. He led the change from a “know-it-all” culture to a “learn-it-all”
culture. The message: Look more widely and wisely at examples outside the indus-
try norms, and challenge conventional wisdom and constraints. Create time for
reflection, playful experimentation, and ongoing cycles of testing and adjusting.
Adopt new roles. Leaders should guard against conceit, argues Hamel, giv-
en “there’s no small group of leaders at the top of any organization today that
has the bandwidth, the imagination, and the foresight to develop a point of view
about where the organization should go next.” Instead, says Joost Minnaar, co-
founder of Dutch firm Corporate Rebels, which describes itself as a movement 115
to make work fun, act as a “curator of the good ideas from the grass roots…and
then as a user of their authority to spread these ideas across the organization.” He
was referring to the success of this approach at Buurtzorg, a Dutch home care
nursing organization. Buurtzorg generated impressive results (related to patient
outcomes, customer and employee satisfaction, and costs) through an approach
based on autonomous working, supported by a small central management team.
Without losing your strategic skill set, learn to become an architect at the
center of a network of specialists. Show more interest in others, draw in exper-
tise, and convene dialogues. In particular, embrace the highly valuable and often
scarce expertise in AI and data analytics, urges Daniel Hulme, CEO of Satalia,
a global AI company specializing in enterprise solutions to efficiency problems.
In practice, this means having leaders involved earlier in the strategic process
and asking more questions; in the case of AI, many CEOs are unsure what AI
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can actually do, so they are wary about using it as a management tool. Hulme
spends a lot of his time explaining AI’s potential.
Being coached in this way doesn’t come naturally for those used to a direc-
tive or managerial approach. It takes “a leap of faith at the beginning as you don’t
feel like you’re adding much value. But asking questions is very powerful,” says
Herminia Ibarra of the London Business School. It can help to focus on “doing”
to reinforce the learning through the type of innovation sprints pioneered in the
Google Ventures five-day method of experimentation.
Facilitate a new strategic dialogue. Open up the strategic dialogue beyond
116 the executive committee. Engender more creativity, imagination, and buy-in with
a new strategy by involving stakeholders of different backgrounds, expertise, and
styles from the beginning. This approach also mitigates groupthink and conser-
vatism by reducing bias, which in practice means that “people in power will be
less likely to give you the benefit of the doubt if you’re different. And you respond
to that by being more cautious,” says Ibarra. And, according to Columbia’s Mc-
Grath, “the answers to whatever your puzzle is may come from very unexpected
places — it could be a person who normally doesn’t have access to power.”
Make this a routine, not a special exercise. And communicate the strategy
— and the need for change specifically — in a way that is positive and personal.
Nokia, for example, crowdsourced ideas for its new strategy on a regular basis
— splitting teams into different areas (understanding the unarticulated needs of
customers, disruptions and trends, industry dogmas, capabilities to be leveraged
or built). One CEO of a technology company regularly meets 20 young people,
selected at random from the organization, for breakfast to hear their perspec-
tives. Jos de Blok, founder of Buurtzorg, uses his blog to explain a strategic deci-
sion and then invites everybody to comment in an open platform.
In these dialogues, frame the challenge carefully, invite participation, listen
attentively without interruption, ask open and incisive questions, and respond
thoughtfully, especially when you hear a contrarian view. This creates the psy-
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chological safety required for people to say what they really think, and to share
their best ideas. The result is honest, meaningful conversations that avoid the
“theater” we often see.
Edmondson used the example of a newly appointed CFO who had agreed
to an acquisition, though he had reservations that he didn’t immediately share
with his team. The deal was a flop. “I didn’t want to be the skunk at the picnic,”
he said of his reticence in the postmortem. Edmondson calls this description “a
classic example of holding the wrong frame. When you’re making a strategic de-
cision, you’re not at a picnic. And when you have a dissenting view, you’re not a
skunk. You’re a valued team member.” 117
Structuring the dialogue is critical too, especially to mitigate cognitive bi-
ases. For example, you can use rungs on what is called a ladder of inference skill-
fully: Work from facts, interpretations, assumptions, conclusions, and beliefs to
actions in a way that avoids the classic mistakes of generalizations or lazy judg-
ments. And collate, and use, the best possible data from within and outside your
organization to inform the strategy and monitor its impact.
Extend strategic frameworks

There’s a plethora of strategic frameworks today that have evolved over the past
70 years to help businesses make decisions. Some have stood the test of time, but
still could be refreshed for today’s world.
Strategic foresight isn’t just a matter of
making predictions; it’s about creating a state
of readiness and knowing when to act.
Build more foresight capability. If you believe COVID-19 will cause substan-
tial economic aftershocks and prolonged uncertainty, invest in foresight capability,
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that is, the ability to sense, shape, and adapt to events. This means collating insight
from within and outside the organization on current and near-term dynamics (e.g.,
customer behavior) as well as indicators of systemic (e.g., demographic and mac-
roeconomic) changes. Then filter out the noise and decide what to address — on
a spectrum of immediate changes to long-term investments. Few organizations do
this in a formal way. They don’t, for example, have cross-functional meetings that
help pick up signals from different areas of the business and from their ecosystems.
Strategic foresight isn’t just a matter of making predictions; it’s about creat-
ing a state of readiness and knowing when to act. No one can predict the future,
118 but you can ask questions, explore new avenues, and experiment as a way to
avoid slipping into the trap of blind reliance on old models. Invest more time
in learning from pioneers. For example, in 2006, U.S. food and beverage com-
pany PepsiCo began to pursue a strategy anchored in four aspects of sustainabil-
ity: products, planet, people, and impact. Named Performance with a Purpose
(PwP), this strategy meant satisfying multiple stakeholder interests and deliver-
ing strong results. And after the implementation of PwP, revenue grew by 80
percent over the following decade, PepsiCo stock outperformed its sector index
and the S&P 500 Index, women held nearly 40 percent of management roles,
and environmental impacts were reduced significantly.
Though not statistically representative, an approach using foresight is far
more likely to generate strategic insights than using “common” or “best” practices.
Master the linkage between exploitation and exploration. To create an “ambi-
dextrous” organization, exploit existing capabilities and explore new opportuni-
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ties, then make the link between the two activities. This is easier said than done.
Often execution goes wrong because resources are not deployed to the strategic
priorities or some capability is missing in portfolio management. Institutional-
ized budgets are negotiated every year, which creates unhelpful rigidity when
situations change and companies need to redeploy investments.
Alex Osterwalder, cofounder of Switzerland-based Strategyzer, a business
consultancy, says that “too often innovation activities are completely disconnect-
ed from [the overall] strategy.” Karolin Frankenberger of the University of St.
Gallen says that there is a “focus on what needs to be separated, and how to give
the entity autonomy. But the strategy is only likely to be successful if separation 119
is combined with linking mechanisms.” In practice, these mechanisms include
making decisions jointly, using shared resources, reassigning talent, and design-
ing appropriate incentive structures.
The demise of conglomerate GE illustrates the consequences of investing
too much in exploring the future (digital activities in particular) and not enough
in managing the present; GE established a separate business unit, GE Digital,
in 2015, spending billions on digital initiatives that didn’t pan out. Ping An,
a Chinese financial-services group, was more prescient. It used the foresight it
gained while researching new technology to make improvements to its existing
businesses and at the same time developed new business models to serve other
financial institutions.
Explore ecosystems wisely. Industry boundaries are blurring as ecosystems
— networks of companies that collaborate across industries to create new prod-
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ucts or services — grow in importance. However, many leadership teams still

think of industries as silos. This can limit the scope of their exploration.
Leaders need to recognize that strategy in this world of ecosystems is dif-
ferent from strategy practiced in vertically integrated organizations operating in
a single industry. Work through a number of critical questions, such as: Which
ecosystems should we participate in, and on what terms? Which role should we
play in the ecosystem (e.g., orchestrator, partner, complementor)? How able are
we to step up to the demands of ecosystem “life”? The latter requires a belief
in shared value creation (away from sole, proprietary activities), more transpar-
120 ency (to build trust between ecosystem partners), a greater degree of dynamism
(to adjust for new information, or interactions with ecosystem partners), and an
outward-facing culture (given the extent of dependencies). Ecosystem pioneers
such as Google, Alibaba, and Amazon demonstrate these characteristics.
Power up the tools

For too long there has been a “knowing–doing” gap, as Howard Yu of the
IMD business school puts it, between what has been taught — or read — and
what has been practiced. A lack of tools hasn’t helped close that gap.
Harness the power of strategy software-as-a-service. Innovative tools and
books, from companies such as Strategy Tools and Strategyzer, illustrate strate-
gic concepts and frameworks using design skills. They also “gamify” the strategy
process using techniques found in play environments. For example, they run
simulations of strategic scenarios or situations that can make strategy feel more
real and enriching for participants than working on a case study or listening to
a presentation. Such tools should be used carefully, however. Though fun and
engaging, they have to be integrated into the existing strategy process for them
to work, says Christian Rangen, cofounder of Strategy Tools.
It’s not a new concept — the practice dates back almost 20 years to the
work of Bart Victor in Serious Play — but adoption of these tools has increased
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as work has moved online and organizations have seen the power of strategy pro-
cesses that are open and scalable. Such tools also give an opportunity for people
to contribute who might have been crowded out by “big characters” in smaller or
face-to-face sessions. A greater level of participation enables more coaching and
encourages a higher-quality dialogue than the typical top-down strategy exer-
cises. This, in turn, helps upskill the participants and means that collaborators
in the strategy process have a shared language, which improves effectiveness. As
the data from these exercises is captured, leaders have the opportunity to analyze
and identify where causality is linked to decisions.
View AI as a new teammate. AI has the potential to play a more prominent 121
role in the strategy process. Though the concept of an integrated human and AI
strategy machine also isn’t brand new, some of the applications it might perform
are. AI can interrogate data (from within the company and from a third party)
to uncover new relationships or correlations that can enrich the material avail-
able to strategic thinkers. At this stage, it’s unlikely to be the source of strategic
recommendations, breakthrough ideas, or big-picture thinking. “It’s still very
much left to the human being to do the exploration. It requires creativity, pull-
ing lots of different data sources, luck, and so many things that machines don’t
have access to,” says Satalia’s Hulme.
Pioneers — corporate organizations, consultancies, and investors — are
already using AI in a number of areas of strategy development and execution.
AI is not a substitute for careful thought
and strategic dialogue. Upskill your
understanding and application of AI to
take advantage of what is on offer.
For example:
• Generating intelligence on the impact of external events or changes in sen-
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timent on the organization.

• Analyzing patterns of customer behavior. OakNorth, a U.K.-based fin-
tech, uses AI in loan applications and in the analysis of credit data, which then
feeds into strategic scenarios.
• Optimizing expenditure and resource allocation, for example, in pharma-
ceutical R&D, customer churn, and sales and marketing.
• Running simulations and scenarios. A team at Salesforce, a U.S. enter-
prise software company, has developed a system called AI Economist to identify
optimal tax strategies for an economy’s tax code using sophisticated simulations.
122 • Originating new commercial opportunities, for example, acquisition tar-
gets. CB Insights, an AI startup, provides this functionality as a service, and
IBM has used it for its own portfolio of investments.
• Making predictions. Netflix, for example, uses AI to help it decide what
new programs to make.
Think of AI as a new teammate. Keith Strier, vice president of worldwide AI
initiatives at Nvidia, a U.S. company specializing in visual computing technolo-
gies, argues that “it’s not that AI should replace strategists, or that [AI] will come
up with things that [strategists] couldn’t think of…but the frontier of strategy
involves intelligent humans and smart machines coming together to create new
strategies.” AI is not a substitute for careful thought and strategic dialogue. Up-
skill your understanding and application of AI to take advantage of what is on
offer. Not enough people involved in strategy have. It would be difficult “to find
more than 10 percent of the Fortune 500 doing anything I would describe as
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material, meaningful AI,” says Strier.
The COVID-19 pandemic might just be a catalyst for refreshing the way
strategy is practiced. It will require upskilling and a willingness to experiment, as
demonstrated by Equinor’s Fjelde with his strategic beliefs card game. The next
generation of leaders — and strategists — will certainly need to be more inclu-
sive, curious, humble, and dynamic, and must have a greater appreciation of the
potential (and limitations) of technology and ecosystems. +
123
Resources
Amy C. Edmondson, The Fearless Organization: Creating Psychological Safety in the Workplace for Learning, Innovation, and Growth,
John Wiley & Sons, 2018: Guidance for success in the knowledge economy.
Gary Hamel and Michele Zanini, Humanocracy: Creating Organizations as Amazing as the People Inside Them, Harvard Business Review Press, 2020:
An argument for removing bureaucracy and fostering an inspiring organization.
Michael G. Jacobides, “In the Ecosystem Economy, What’s Your Strategy?” Harvard Business Review, Sept.-Oct. 2019: How to determine where a
company fits into a designed ecosystem spanning multiple sectors.
Al Kent, David Lancefield, and Kevin Reilly, “The four building blocks of transformation,” s+b, Oct. 22, 2018: How to lead the disruption
of your own enterprise.
A.G. Lafley and Roger L. Martin, Playing to Win: How Strategy Really Works, Harvard Business Review Press, 2014: Understanding how organizations
can guide everyday actions with larger strategic goals.
Rita McGrath, Seeing Around Corners: How to Spot Inflection Points in Business Before They Happen, Houghton Mifflin Harcourt, 2019:
Harnessing disruptive influences to strategic advantage.
124
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feature world view
As the power of traditional drivers of
growth fades, companies need to develop
more resilient and rebalanced supply
chains to keep the region moving forward.
BY RAYMUND CHAO, CHRISTOPHER KELKAR,
AND DAVID WIJERATNE
When Japanese hygiene and household products maker Unicharm in

2020 launched a baby diaper containing an anti-mosquito capsule to help
prevent insect bites in the humid climates of Malaysia and Singapore, it was
a noteworthy example of consumer product innovation. 125
The company now plans to apply what it has learned in product de-
velopment for these two Southeast Asian markets in a substantially larger
arena: India Unicharm is expanding into the world’s second most populous
country to capitalize on the rapid growth of India’s middle class, while ex-
panding beyond China, a more established market where Unicharm faces
intense competition.
Illustration by Michael Glenwood
Meanwhile, in Bekasi, outside Indonesia’s capital, Jakarta, Hyundai

is busily completing construction on a US$1.5 billion automotive assembly
plant. When it opens in the second half of 2021, it will represent the South
Korean carmaker’s first manufacturing presence in Southeast Asia. One of
the motivations of expanding production beyond China, where Hyundai
has made vehicles for years, is to leverage the maturing supplier and man-
ufacturing capabilities in Indonesia (population: 270 million), one of the
most promising markets in Asia-Pacific.
Raymund Chao Christopher Kelkar David Wijeratne
raymund.chao@cn.pwc.com christopher.s.kelkar@pwc.com david.wijeratne@pwc.com
is the chairman of PwC Asia is global alignment leader and is a partner with PwC Singapore.
Pacific and China. He is a partner Asia-Pacific vice chairman and He leads PwC’s growth markets
with PwC China. chief operating officer at PwC. practice, a global team support-
Based in Hong Kong, he is a ing companies as they expand
partner with PwC US. internationally and realign existing
supply chain and manufacturing
footprints.
These moves, and many like them seen throughout the region, reflect the
powerful supply chain and consumer trends that were brewing before the CO-
feature world view
VID-19 pandemic. These trends include the growth of consumer markets across
Asia-Pacific (see map) and a desire by some companies to diversify supply chains
and manufacturing beyond China, due to the country’s increased costs and tight-
er regulations, in what has been called a “China plus” strategy. The growing ma-
turity of local suppliers in other parts of
Asia-Pacific is further supporting these A dynamic region
Asia-Pacific is defined as consisting of the following
companies’ decision to expand their subregions and key markets.
manufacturing footprint to new terri-
tories, such as those in Southeast Asia.
126 This rebalancing has been accel-
erated by a series of disruptive events,
most notably the rising frequency of
transpacific trade disputes and the pan-
demic. These twin forces have pushed
companies to confront how they re- East Asia
(e.g., China, Japan, and
South Korea)
balance supply chains and manu- Southeast Asia
facturing footprints to take advantage (e.g., Indonesia, Thailand,

Singapore, Malaysia,
the Philippines, and Vietnam)
of changing consumer and supplier South Asia

(e.g., India, Bangladesh,
trends, and, in the process, to build in Pakistan, and Sri Lanka)
Oceania
resilience so that they can weather in- (e.g., Australia and
New Zealand)
evitable future disruptions. Source: www.britannica.com

Historically, this region has shown a great capacity to absorb and ulti-
mately overcome powerful shocks and barriers to development. In the past two
feature world view

decades, setbacks such as the SARS (severe acute respiratory syndrome) out-
break of 2003, environmental disasters including the Japanese earthquake and
ensuing tsunami in 2011, periodic political and social instability, and, in some
countries, persistently weak infrastructure haven’t put a halt to the region’s im-
pressive growth trajectory. However, the fundamentals that have enabled its
growth and prosperity to this point are eroding and, as a result, so is the re-
gion’s capacity for handling change.
“Advanced Western economies have for a long time invested in manufac-
turing and exporting through Asia-Pacific, leading to the economic growth
of many Asia-Pacific economies,” notes Tom Rafferty, Asia regional director 127
of the Economist Intelligence Unit. “However, the recent trade tensions and
the ongoing pandemic have caused a shift in this model, making it impera-
tive for Asia to now look inward and collaborate regionally to foster growth.”
Indeed, the supply chain arrangements that have helped power Asia-Pacific’s
export-driven economies for the past quarter century now need to focus more
on the region itself, while continuing to serve demand in Europe and the Unit-
ed States. That is because demand in those two markets has weakened just as
markets across Asia-Pacific have matured to the point at which they justify be-
ing served in their own right.
The effects of these shifts are unfolding as the region tries to recover from
COVID-19. The International Monetary Fund (IMF) predicted in January
2021 that after falling by 1.1 percent on average for 2020, the gross domestic
product (GDP) for developing Asian economies will grow by an impressive 8.3
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percent in 2021. Yet that recovery is expected to be uneven, widening economic

divides in the region. The IMF warned that social cohesion could even be un-
dermined by the worsening of inequality as low-income workers are affected by
pandemic-induced joblessness and the resulting drop, albeit a short-term one,
in disposable incomes.
Taken together, these developments show that Asia-Pacific, home to 60 per-
cent of the world’s population, is at a crossroads. Over the past several decades,
Asia-Pacific has provided one of the great growth stories in human history. In
the 60-year period ending in 2020, the region’s share of world GDP tripled to
128 nearly 40 percent. The area now accounts for more than one-third of global
merchandise trade and is home to four of the world’s 10 leading manufacturing
countries (China, Japan, South Korea, and India). But the region urgently needs
a new growth story, one that leaves behind the passive growth of the past and
embraces new strategies from business, governments, and society to fulfill its po-
tential as the effects of COVID-19 start to recede. Such strategies will also equip
Asia-Pacific to ride out future disruptions.
We believe this new approach, detailed in our report, Asia Pacific’s Time,
should focus on building rebalanced and more resilient global supply chains
and further enabling the regional growth of homegrown Asia-Pacific business-
es. These should be supported by complementary growth pillars, which include:
advancing the digital economy, fostering innovation, expanding and future-
proofing the labor force, and building climate change resilience toward a net-
zero future (see graphic below).
Rebalancing supply chains

For many industrial manufacturing and consumer goods companies, having
lean, efficient global supply chains has long been a priority. This efficiency
has generally involved managing a relatively small number of large suppliers
while reducing lead times and increasing profitability. But domestic demand
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across Asia-Pacific is increasing rapidly. Rising income and urbanization have
spurred the growth of a vast middle class, which now represents 70 percent of
the region’s population, up from only 13 percent in 1980. (The Asian Devel-
opment Bank defines middle class as households with per capita expenditures
from $3.20 per day to $32 per day, in 2011 purchasing power parity.) In Oc-
tober 2020, Euromonitor projected that Asia-Pacific would record the fastest
growth in retail sales worldwide over the coming years. The availability of a
network of maturing suppliers has created the opportunity — and the need —
to rebalance supply chains to bring suppliers and manufacturing companies
129
A strong foundation
To counter existing threats and emerging disruptions, Asia-Pacific needs to focus on five pillars
that will ensure resilient, agile, and sustainable growth in the future.
1Advancing the
2
Enabling regional
3
Rebalancing supply
4Expanding and
5
Building climate change
digital economy enterprise growth chains and fostering future-proofing the resilience toward a
Building digital value Propelling companies’ innovation labor force net-zero future
chains for resilience growth within Asia-Pacific Developing balanced Upskilling today to Implementing solutions
Collectively enabling Boosting regional and resilient regional be relevant tomorrow for a net-zero
the pathway from trade in services as a supply chains circular economy
Preparing the employees
digital risk to digital trust new growth lever Fostering a collaborative of tomorrow Adopting technology
innovation ecosystem to address food and
agriculture concerns
Source: PwC, Asia Pacific’s Time

closer to where consumption is happening, and doing so in a more resilient and
reliable manner.
The beginnings of such a rebalancing were already evident before the emer-
gence of trade tensions and then the pandemic, but it has taken these events
to spur more business leaders into action. “In line with these changing trends,
we are focusing on realigning our footprint to lower trade and other opera-
tional costs, mainly by leveraging our presence to new regional locations to
expand markets outside China,” said Allen Huang, chief executive officer of Merry
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Electronics, a Taiwan-based manufacturer of electroacoustic products. “Expan-

sion to Southeast Asian countries such as Thailand and Vietnam has been evalu-
ated in this regard, while maintaining our presence within China to serve its large
local market.”
Rebalancing is one part of the calculus. The other is resilience. COVID-19
revealed the brittle nature of existing global supply chains. When lockdowns were
instituted, the overconcentration of supply networks in a few countries (such as
China) led to significant disruptions in production and the movement of goods.
That, in turn, created inventory shocks throughout the just-in-time inventory
130 management systems that are so prevalent. Transport and shipping constraints
caused by roadblocks and quarantine measures also led to order backlogs, mate-
rial shortages, and price increases. Together, these developments highlighted a
need to shift away from a cost-driven, globalized approach to a regional one that
places a premium on finding reliable, resilient network partners.
Thomas Knudsen, the Singapore-based managing director of Toll Group,
an Australian transport and logistics group, has firsthand experience of the effect
of COVID-19 on supply chains. “Many of our customers have begun the pro-
cess of diversification to build more resilient supply chains and to mitigate risk,”
he said. “The impacts of the pandemic have certainly been a stark reminder
that when one part of a supply chain network is compromised, all elements can
become vulnerable.”
Building regional supply chains points
to a broader requirement of diversifying
manufacturing and supplier portfolios
to reduce dependency on a limited
number of markets.
Companies have started focusing on building greater redundancy into

their supply chains by ensuring inventory levels in case of future disrup-
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tions. Doing so enables companies to guarantee continued delivery to key
customers. At the same time, they are looking for alternative regional sup-
pliers and delivery partners. This approach points to a broader requirement
of diversifying manufacturing and supplier portfolios to reduce dependency
on a limited number of markets, and ensuring that new suppliers in Asia-
Pacific meet companies’ quality standards and are capable of withstanding
disruptive events.
Companies now need to go further as they develop regionally integrated
supply chains. Businesses need to identify and prioritize challenges in the sup-
ply chains that they can address with process improvements and digital solu- 131
tions. Targeted redundancy can be added for high-value premium segments,
ensuring just-in-case delivery. This enables businesses to serve their most essen-
tial customers during times of crisis, while offering better service to all during
normal times. One path to building better customer experience and driving
profitability lies in establishing digitally enabled supply chain hubs, creating
new data exchange mechanisms and supporting regional partners in technol-
ogy adoption. The sophisticated supply chain hubs are also known as control
towers, because they allow the central management of regional production
plants and supply networks. Technology-enabled regional supply chains will
help businesses better manage procurement, production, and distribution net-
works to achieve greater resilience. Such supply chains offer improved visibility
and responsiveness. When participants have access to real-time data through
digital platforms, companies can plan for possible problems, monitor perfor-
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mance, and react to emerging challenges.

Although certain markets, such as Vietnam, Thailand, Malaysia, Taiwan,
and Indonesia, may benefit from such a rebalancing of suppliers, others, such as
Singapore, Hong Kong, and South Korea, are well positioned to play a significant
role in how these regional activities are managed. Advanced trading and logistics
centers including Hong Kong, Singapore, and Busan in South Korea could develop
into such regional supply chain hubs. Hong Kong launched a $44.5 million pro-
gram in early 2020 to extend subsidies to third-party logistics service providers to
adopt new digital technologies. The South Korean government has allocated $132
132 million to commercialize autonomous technology for ships. The Port of Busan,
South Korea’s largest port, which in 2019 invested in a blockchain-based inter-
terminal transportation system, is leading an initiative to develop a smart port
logistics system.
As companies realign their supply chains and manufacturing footprints,
there is also a need to do so with environmental, social, and governance (ESG)
considerations in mind. Asia-Pacific accounts for the world’s highest share of
carbon dioxide emissions, and the relentless pace of urbanization and consum-
erism continues to increase emissions and waste. However, according to PwC’s

24th Annual Global CEO Survey, only 37 percent of CEOs in Asia-Pacific have
considered climate change within their strategic risk management activities.
That’s below the global average of 40 percent, and much lower than the leading
region, Western Europe, at 51 percent (see chart below). This needs to change,
and ESG now needs to be incorporated within the performance criteria for all
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parts of the supply chain in Asia-Pacific, including selection of suppliers and as-
sessment of new locations for manufacturing. Shifting toward a net-zero future
for such a vast and diverse region will require concerted efforts from multiple
stakeholders — governments, society, and businesses — across sectors such as
energy, utilities, agriculture, industrial production, and transportation.
Going regional
The resilient rebalancing of sup-
Accounting for climate risk ply chains toward Asia-Pacific ad-
Most CEOs have not yet made addressing climate change
a company priority. dresses only part of the need to focus 133
Question: Is climate change and environmental damage explicitly more regionally. As we have argued
factored into your strategic risk management activities?
(Showing only “yes” responses) in Asia Pacific’s Time, local compa-
Region nies need to join multinationals in
Global 40%
pursuing growth closer to home, and
Western Europe 51%
Latin America 39%

build on the advantage they have as
North America 39%
they either compete or partner with
Asia-Pacific 37% global players.
Africa 36% Family businesses and small and
Central and
Eastern Europe
27%
medium-sized enterprises (SMEs) in
Middle East 17%
particular have an urgent need to do
Source: PwC’s 24th Annual Global CEO Survey so. These businesses have historically
focused on their home markets for growth, or on Europe and the United States.
But now they face profitability pressures at a time when the pandemic has weak-
feature world view
ened consumption in the U.S. and Europe.

Fortunately, there is a supportive policy backdrop for this ambition. After
a decade of negotiations, 15 Asia-Pacific nations signed the Regional Compre-
hensive Economic Partnership (RCEP) in November 2020. The RCEP reduces
trade barriers between economies covering one-third of the world’s population
and economic output, and marks a significant step forward in economic integra-
tion by replacing a latticework of preexisting bilateral trade deals.
And, speaking a month later, Masatsugu Asakawa, president of the Asian
Development Bank, said there was recognition that Asia’s economic future de-
134 pends on a new form of globalization in which deeper regionalization and inte-
gration have greater emphasis. “While some worry that globalization will retreat
after the pandemic due to travel bans and trade restrictions, I believe that global-
ization will return, but it will take a different shape,” he said, listing five priority
areas intended to equip the region to “rebuild smartly and return to a path of
growth and prosperity.” At the top of that list was “deeper, wider, and more open
regional cooperation and integration.”
Services to the fore

The services sector shows significant potential when it comes to how region-
alization could play out on the ground. On average, services represented only
18 percent of Asia-Pacific’s exports in 2018. That’s significantly below the
global figure of 25 percent, according to the International Trade Center. Al-
though bridging this gap should be the short-term priority, Asia-Pacific has
the potential to boost its services trade even further (see chart below). Glob-
ally, services trade will increase to beyond 30 percent of overall trade by 2040,
according to the World Trade Organization, as a result of greater digitiza-
tion and a reduction in policy barriers. Asia-Pacific could make great prog-
ress on improving its relatively low 18 percent share by focusing more on
services exports.
feature world view

Room for growth
The markets in the lower-right quadrant are ones in which the services sector accounts for more than half
of GDP and services’ share of overall exports is less than the world average of 25 percent.
Presence of services sector in overall economy and exports, for selected Asia-Pacific markets
50% Low share of services in economy, High share of services in economy,

high share of services in exports high share of services in exports
45%
40%
India
Service export as % of total exports, 2018
Philippines
35%
Singapore
135
New Zealand
30% Cambodia
World average: 25%

25%
Thailand
Myanmar
Australia Japan
20%
Hong Kong SAR

15% Indonesia
Laos Malaysia South Korea
Taiwan
10% China
Vietnam
Brunei Darussalam
5%
Low share of services in economy, High share of services in economy,
low share of services in exports low share of services in exports
0%
35% 40% 45% 50% 55% 60% 65% 70% 75% 80% 85% 90%
Service value-add as % of GDP, 2018
Note: Bubble size indicates total trade in services (US$, thousands).

Source: ITC Trade Map, World Bank, National Statistics — Republic of China (Taiwan)
Individual markets across Asia-Pacific also have complementary strengths
in different services categories, pointing to opportunities for regional collabora-
feature world view
tion. For example, China, South Korea, and Japan all have the ability to export
their expertise in construction services to the rest of the region, and India and
Singapore could emerge as regional providers of information and communica-
tions technology (ICT) and professional services.
Countries with aging populations, such as Singapore, Thailand, South Ko-
rea, Japan, New Zealand, Australia, and China, are seeing higher demand for
healthcare, insurance, and real-estate services, while demand for education, en-
tertainment, transport, and travel is expected to remain strong in markets with
younger populations such as India, Indonesia, the Philippines, Malaysia, and
136 Vietnam. Digitization, which has been accelerated by COVID-19, has further
reduced the need for physical proximity to deliver these services, creating more
opportunities for the remote delivery of services including education, entertain-
ment, healthcare, and professional services.
Although the potential is immense and the intra-Asia-Pacific services market
is developing organically, governments need to create a policy environment that
fosters and safeguards cross-border transactions. Singapore has taken the lead
by recently initiating a push on digitization of trade, including the use of digital
technology by banks in trade finance, and the provision of other services through
mobile apps and other platforms. It has forged “digital economy agreements” with
Australia, New Zealand, and Chile, and a fourth is being negotiated with South
Korea. These agreements aim to align digital rules and standards while facilitating
interoperability among digital systems and, importantly, supporting cross-border
data flows. This initiative holds out the prospect of providing practical help for
private-sector businesses seeking to tap into the digital services trade.
Final warning
Despite the challenges it faces, Asia-Pacific remains the key driver of global
economic activity. But the inescapable conclusion is that its success is by no
means guaranteed. With the world pivoting away from globalization, more
feature world view

concerted intra-regional collaboration across Asia-Pacific is critical to ensure
that the region lives up to its full potential. Guided by a common purpose
and enabled by technology, the region could achieve much more.
The pandemic has delivered a devastating blow to societies and economies
in the region, but the recovery period presents an opportunity for some tough
decisions to be made. In fact, COVID-19 was a final warning to stakeholders in
Asia-Pacific to rebalance now, with a sense of common purpose. That purpose is
the reinvention of the engines of growth for years to come. +
137
Resources
PwC, Asia Pacific’s Time, 2020: Outlines the major challenges impacting the region and the critical imperatives and needs across five pillars that key stake-
holders must focus on in order to drive resilient growth.
PwC, Full potential revival and growth: Charting India’s medium-term journey, 2020: An execution approach in nine core sectors that can revive and
grow the world’s sixth-largest economy in the medium term.
“Labor Migration in Asia: Impact of the COVID-19 Crisis and the Post-Pandemic Future,” Asian Development Bank Institute, OECD,
and ILO, Apr. 2021: Analyzes labor migration trends in Asia in the context of economic and policy developments and the changes wrought by the
COVID-19 pandemic.
Deborah Unger, “A Malaysian conglomerate charts a course to stay ahead,” s+b, Jan. 26, 2021: In this interview, Jeffri Salim Davidson, group CEO of
Sime Darby Berhad, explains how a diverse portfolio has cushioned the impact of COVID-19 in Asia.
David Wijeratne, Neil Plumridge, and Sundara Raj, “Sustaining Southeast Asia’s momentum,” s+b, Feb. 12, 2019: How the 10 countries of the vibrant
ASEAN region can avoid the threat of slower growth.
138
feature global e&m outlook
After a year of explosive growth fueled by the
COVID-19 pandemic, streaming video companies
have to embrace new strategies to create value
for viewers, creators, and investors.

by Kim David Greenwood, Kate Kennard, and Mark Borao
For many industries, the COVID-19 pandemic provided a demand shock — and
nowhere was it greater than in streaming. The numbers are staggering. Netflix,
Amazon Prime Video, and Hulu saw their subscriber counts expand massively,
even as new entrants such as Disney+ and HBO Max garnered tens of millions 139
of new customers in a matter of months. In the U.S., the number of streaming
subscribers doubled in the past seven quarters from an already large base (see
chart, next page). According to PwC’s Global Entertainment & Media Outlook
2021–2025, global over-the-top (OTT) revenues rose an impressive 26.2 per-
cent in 2020, to US$58.4 billion.
Each month seemed to bring blockbuster numbers:
Illustration by André da Loba
• DreamWorks’s Trolls World Tour, unable to be released in theaters, instead

launched in April 2020 as a rental on platforms including Apple, and garnered
nearly $100 million in revenue.
• In the first month after its March 2020 debut, more than 64 million Netf-
lix households watched Tiger King. That number was then topped by Bridgerton,
Kim David Greenwood Kate Kennard Mark Borao Also contributing to
kim.david.greenwood katherine.c.kennard mark.borao@pwc.com this article were senior
@pwc.com @pwc.com focuses on strategic associates Layton Cox,
specializes in trans- specializes in growth technology, IoT, digital Daniel LeFoll, and Ryan
formation, growth and and innovation, transfor- twin, OTT, and intelligent Pennock of PwC US.
innovation, and risk mation, and customer automation for technol-
management strategies strategy for Strategy&. ogy, entertainment,
for Strategy&, PwC’s Based in New York, media, and consumer
strategy consulting she is a manager with products clients. Based
business. Based in San PwC US. in Los Angeles, he is a
Francisco, he is a princi- principal with PwC US.
pal with PwC US.
the Shonda Rhimes bodice-ripper that was seen by 82 million households within
the first months of its launch.
• On Christmas Day 2020, WarnerMedia releasedWonder Woman 1984 si-

multaneously on HBO Max and in theaters.
• WandaVision, the latest addition to the Marvel universe, literally broke the
internet when the release of its seventh episode on February 19, 2021, caused
Disney+ to crash owing to viewing volume.
The streaming boom of 2020 has placed the industry on a new growth tra-
jectory. The PwC Global Entertainment & Media Outlook estimates that global
streaming video-on-demand (SVOD) revenues will grow at a 10 percent CAGR
140 Rising tide

Streaming subscriptions have been proliferating and attracting large numbers of customers.
U.S. subscribers by service

275
250
225
200
175
Millions
150
125
100
75
50
25
0
Q1 2019 Q2 2019 Q3 2019 Q4 2019 Q1 2020 Q2 2020 Q3 2020 Q4 2020
Netflix Amazon Hulu Paramount+ Showtime Disney+ Apple TV+ Peacock HBO Max
Prime Video
Source: MoffettNathanson, HarrisX, Statista, PwC analysis

through 2025, by which point SVOD will be an $81 billion industry (see chart,
page 142). That’s impressive. But success — and even survival — isn’t guaran-

teed for today’s streaming players. They can’t all grow simply by doing what has
brought them this far. The competition for content is intense, and there is likely
a limit to the number of streaming subscriptions a household is willing to buy.
Indeed, in the first quarter of 2021, Netflix added only 1 million new subscrib-
ers. And as consumers start to feel confident leaving their homes, they may be
less interested in binge-watching on small screens. The next phase of growth for
companies in this industry will have to be driven by a different set of strategic ob-
jectives. In fact, we may be moving into a new phase of streaming growth — one
that is more measured, more focused on improving the experience of customers,
and more intent on retaining and creating value from the immense subscriber 141
bases that have materialized. The winners of the next streaming wars will build
communities around universes of content, rely on agile teams who can construct
multiple revenue streams, and produce compelling experiences at scale.
We think this challenge is best understood by looking at five key journeys.
Social discovery
Recommendation algorithms, which Netflix began using in 2000 to suggest
DVDs for users to rent, have evolved in sophistication to become complex pre-
dictive models. Incremental investment and innovation in personalization have
become table stakes, as audiences have come to expect that recommendations
from the company will drive discovery while they’re on the platform. But in
recent years, we’ve seen that gamifying and social-ifying recommendations can
be a powerful form of engagement, whether customers are streaming exercise
classes or films. Peloton, for example, has built an immensely powerful and in-
teractive community by allowing users to give one another virtual high fives and
compete furiously on the leaderboard.
The evolutionary next step of discovering new content is to bring people to
the forefront, enabling viewers to influence one another’s content consumption.
In this new ecosystem, Sarah watches a show and enjoys it. Using the platform,
Sarah recommends it to John through direct link-sharing, public reviews, cre-

ation of watch lists, or TikTok-style sharing of favorite clips. People thus build
communities surrounding their interest in a show, or a set of films, and take cues
from each other for further exploration. By leveraging the social interactions that
internet-connected users have become accustomed to in recent years, streaming
companies can create a new and more human way for subscribers to discover
their next favorite show.
142
Steady growth in streaming
After lockdowns boosted the sector’s revenues in 2020, global OTT streaming video-on-demand revenue is expected to continue to climb.
90 bn 12 bn
Annual growth
75 10
Annual revenue growth, US$
Total global revenues, US$
60 8
45 6
30 4
15 2
0 0
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
Forecast
Source: PwC’s Global Entertainment & Media Outlook 2021–2025, Omdia

PwC’s Global Entertainment & Media Outlook 2021–2025
Like the rest of the economy and society, the entertainment and media industry is facing significant disruption
from the COVID-19 outbreak. Find out where consumers and advertisers are spending their time and money
in the PwC Global Entertainment & Media Outlook 2021–2025, available in Summer 2021.
www.pwc.com/outlook
Universe building
Historically, streaming platforms tried to attract subscribers by securing exclu-

sive access to proven content, such as The Office or Friends. Next, they began to
build their own multi-season shows, such as House of Cards or Stranger Things,
to attract users. But even the best series are finite, and shows that were block-
busters in the 2000s or 1990s can seem dated to contemporary viewers. It is hard
to make significant investments in stories, characters, and worlds that streaming
executives know have a limited life span.
By contrast, when entertainment companies create universes, they leave
room for growth and sustained engagement. George Lucas created Star Wars
in 1977 with a budget of $11 million. Lucas created multiple licensable charac-
ters, story arcs, and worlds for fans to fall in love with. In 2012, having added 143
five more movies, two animated series, and dozens of new characters to the
original franchise, he sold the Star Wars universe to Disney for $4 billion. In
turn, fans have paid to experience this universe in video games, comics, toys,
amusement parks, clothing, and, of course, films. Streaming companies must
take this same universe-building approach to content creation to maximize
their revenue per subscriber.
Disney has long excelled at strategically building out universes of content,
and has kicked things into a higher gear since its acquisition of Marvel in 2009.
Avengers: Endgame, launched in 2019, became the highest-grossing box office hit
ever, with $2.8 billion in revenues. Strong streaming platforms and universes can
create a virtuous circle. The successful launch of Disney+ was made possible in
part by new installations of the Star Wars (The Mandalorian) and Marvel (Wanda-
Vision) universes.
Other streaming companies are following suit. At HBO, where Game of

Thrones ended its remarkable run in the spring of 2020, a prequel — House of the
Dragon — is under development. And Amazon Prime Video is launching a Lord
of the Rings series later this year.
As they construct new universes, executives should focus on fan engage-
ment — and harness the power of data to do so. Of course, a universe starts in
the mind of a single creator. But in the future, text analysis of scripts, sentiment
analysis via social networks (or via streaming platforms’ own social capabilities),
data from fan forums and fan-fiction websites, and underlying content meta-
144 data will help predict which stories, episodes, characters, and even moments will
most engage fans.
Strategic teams
Big-name off-screen talent has dominated recent streaming news. Netflix landed
Ryan Murphy, creator of Glee and American Horror Story, with a reported $300
million deal. When director J.J. Abrams was looking for a new studio home,
WarnerMedia offered him a contract worth an estimated $500 million to cre-
ate content for HBO Max. But such approaches can be risky, especially because
building universes of content that can engage viewers in new ways today is very
much a team sport.
In 2021 (and beyond), the commercialization of a creative asset requires
that business executives, creative directors, data scientists, and fan advisors col-
laborate in the development process. To this end, streaming companies would
do well to borrow a page from Silicon Valley and incorporate agile methodology
into the creative process of universe-building. In an agile content development
model, a robust team of stakeholders would have frequent touch points to ensure
alignment between creative and business objectives every step of the way.
Writers could still maintain creative integrity while knowing that the con-
tent they’re working on would not be altered to fit a different business model.

Executives would no longer sit back waiting to see drafts and then taking days
or weeks to provide commentary. Instead, the studio would be represented by
team members who are embedded in the development process while owning the
business case. Replacing the linear content creation process with an agile team
of engaged stakeholders can help streaming platforms and executives limit the
liability of large content investments while supporting the collaboration required
to turn a single piece of content into a universe.
It is one of the oldest narratives in Hollywood that filmmakers have to con-
tend with the bitter reality of studio budgets and executive rebukes. In March
2021, the director’s cut of Zack Snyder’s Justice League was released on HBO 145
Max, four years after the (substantially shorter) film first appeared in theaters.
Within five minutes of becoming available, the Snyder Cut attracted 1.8 million
households, and it has since become far better reviewed than its predecessor. Of
course, a film longer than four hours would be a tough sell at the box office. But
the streaming medium provides more flexibility.
The quest for monetization

Streaming is an expensive business, and as the industry moves into its next stage
of evolution, many players face a dilemma. Historically, acquiring and producing
proprietary content has been the path to gaining and keeping new subscribers.
And the only way to recoup the investment has been to have subscribers stick
around. But as competition has increased, the cost of acquiring content and cus-
tomers has increased, as has the potential for customer churn. Even at Netflix,
the industry leader, the ratio between the lifetime value of a customer — the rev-
enue a typical customer would provide over the lifetime of his or her subscription
— and the cost of acquiring a customer has fallen over time (see chart below).
In order to improve that ratio, companies can either lower the custom-
er acquisition cost or increase the lifetime value of a customer. And because
spending less on content isn’t a strong strategy for long-term viability, stream-
ing companies must focus on boosting the amount of revenue they can get
from each subscriber.
Here, again, strengthening engagement with a universe of content can be
the path to success. Merchandising, licensing, and a focus on unique experiences
can help streaming companies leverage their subscribers’ desire to interact with
their favorite content universe.
As an example, Disney can collect $6.99 per month from a Disney+ sub-
scriber. This subscriber can also buy a $30 official Raya and the Last Dragon
146 Diminishing returns

Before the onset of the COVID-19 pandemic, Netflix saw the return on investment in customer acquisition decline.
Netflix’s ratio of consumer lifetime value to consumer acquisition costs

3.0
2.5
2.0
Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
2014 2015 2015 2015 2015 2016 2016 2016 2016 2017 2017 2017 2017 2018 2018 2018 2018 2019 2019
Source: Raper Capital analysis

T-shirt, a one-park ticket for Disneyland for $149, or even, at the high end, a
two-bedroom villa at Copper Creek Cabin at Disney’s Wilderness Lodge. By ex-

panding its ecosystem of merchandise, theme parks, experiences, and more, Dis-
ney creates an immersive experience spanning the digital and physical worlds.
Not every company can aspire to the depth and breadth of monetization that
Disney manages. But whether it is a new video game, park, cruise, or vacation
club; new merchandise; or new events, streaming executives must determine
what product or experience they wish to offer their millions of subscribers next.
Workflow at scale
Scaling workflow is the fifth and final journey Amid their growth spurts, many
streaming services have been operating like startups. And as LinkedIn cofounder 147
Reid Hoffman famously put it, a startup can be similar to a pirate ship, where
not everything has an established process and rules are sometimes bent to pro-
duce the optimal outcome. Teams evolve and mature using different systems,
whichever is cheapest and easiest to implement at the time. As companies prog-
ress from selling video streaming subscriptions to building fan-focused entertain-
ment universes with multiple revenue streams, those with the most seamless and
synchronized operations will have a significant advantage. To successfully scale,
these pirate ships must transform into a powerful navy with established process-
es, a custom CMS (content management system), and effective data integration.
The organizational structure must enable participants to leverage relevant
information, stay in close communication with each other, and create moneti-
zation plans together. Agile content development teams must be able to report
status and progress to the appropriate parties in the product and experience divi-
sions to ensure a smooth launch of all revenue streams. Monetization strategists

have to stay closely linked to data teams identifying and highlighting fan en-
gagement metrics to ensure that the universes they are building are fully focused
on the consumers’ experience.
Although the industry has grown massively, enterprise software that pro-
vides the capabilities needed to operate seamlessly has not yet arrived in the mar-
ket. If a startup does not arise soon to provide bespoke CMS service, or a large
software developer does not soon branch into the space in a more meaningful
way, the streaming services themselves may be forced to create an innovative
148 solution. A custom-built CMS can incorporate the unique customer and fan
data requirements, KPIs for monetizing universes, and agile content develop-
ment. The more robust and accurate a streaming company’s data is, the easier it
will be to build a next-generation entertainment conglomerate. Identifying what
data is important for content creation, monetization, and user experience will
be a key test-and-adapt process every streaming platform will go through. In-
vesting in a high-quality data partner, team, and consultant can help expedite
this process significantly.
A nonlinear world
The past year has been a time of enormous disruption — in the world at large,
and in the streaming business in particular. Just as there was no singular path for
companies to pursue when establishing a foothold in the first phase of stream-
ing’s growth, there will likely be great variation in the next phase of development.

Depending on their starting positions, their assets, and their capabilities, compa-
nies will seek — and find — different ways to achieve relevance. But given the
intense competition for customers and content, and the fact that the number of
streaming subscriptions viewers are willing to purchase is finite, it’s likely there
will be some consolidation. Those who undertake the coincident journeys out-
lined above will be able to forge their own path. +
149
Resources
Dan Bunyan and Vikram Dhaliwal, “Forward to normal,” s+b, Oct. 27, 2020: Entertainment and media companies are building business models that
are resilient to the enduring changes in consumer behavior ushered in by COVID-19.
PwC, Video streaming shakeup: Survey of consumer attitudes and preferences, 2019: While satisfied with their choices, consumers are ready and eager to
embrace new entrants.
150
Lost in
translation
Can CFOs help companies make
the most of their investments
in digital advertising?

by Derek Baker, Ravi Patel, and Alison Lisnow
The advertising ecosystem is changing rapidly. Back in the Mad Men era, mar-
keting departments could trace only tenuous relationships between campaigns
and sales. Today, an abundance of data and powerful technological tools afford
marketers the ability to discern direct attribution links and quantifiable return
on investment. An executive can track just how many direct sales of a wrap dress 151
a Twitter ad campaign produced, how many of those buyers were new custom-
ers, and how the spending affected the margin on each product sold. In theory,
marketers can prove in great detail, to the satisfaction of the most exacting finan-
cial minds in their organization, precisely how they contribute to the top line.
In theory.
Illustration by André da Loba
In practice, the structure and opacity of the digital advertising ecosystem

make it much more challenging to get an actual read of where all the money
goes. There’s an old line among ad pros that we know half of all advertising
is wasted; we just don’t know which half. In the digital realm, there’s a newer,
more troubling statistic: Only about 25 cents of every dollar spent on digital ads
results in the placement of an ad that is seen by a real human. Although mar-
Derek Baker Ravi Patel Alison Lisnow
derek.baker@pwc.com ravi.v.patel@pwc.com, alison.lisnow@pwc.com
is a leading practitioner with the former head of product and advises consumer market clients
PwC’s CMO advisory group and CEO at AdFin, advises clients on for PwC. Based in New York, she
focuses on helping companies digital marketing and media strat- is a senior associate with PwC US.
navigate the intersection of data, egies for PwC. Based in New York,
technology, and media strategy. he is a director with PwC US.
Based in San Francisco, he is a
principal with PwC US.
keters are working hard to get a handle on how their campaigns produce value,
they could use an assist from colleagues who have a different set of capabilities:
chief financial officers.

Among other things, CFOs see it as part of their role to diligently evaluate
the audit trail for most company costs. And whether the spending is on energy,
office leases, or capital, CFOs often just need to task colleagues to aggregate and
analyze budgets, and monitor the cash coming in and going out. But advertising
spending is often a blind spot, particularly in the digital realm. That may seem
strange, given the size and importance of the industry: According to Ad Age,
U.S. advertisers will spend close to US$500 billion on marketing and media in
2021. And according to the PwC Global Entertainment & Media Outlook, global
152 spending on digital ads in 2020 was $125 billion, and it is growing at a healthy
annual rate of 4.2 percent. But authoritative data on marketing spending most-
ly exists at an aggregate level. And without granular, itemized receipts, finance
teams are unable to determine where a company may be spending unnecessarily.
Given the importance and size of this category of spending, CFOs cannot
afford to continue viewing marketing expenditures as a black box. Rather, they
must prioritize understanding the advertising ecosystem, and then apply the line
of rigorous financial questioning they bring to other areas of the organization.
With that goal in mind, how can CFOs wade into the world of media opti-
mization and effect financial change?
CFOs historically have not needed to know much about the ins and outs of
marketing. And that puts them at a disadvantage when they get together with
their colleagues on the marketing side. They can start getting up to speed by be-
coming better acquainted with the marketing ecosystem.

Fragmented marketplace
CFOs should begin by understanding the two main reasons that marketing
spending is so difficult to track. First, it’s very fragmented. A chief marketing of-
ficer doesn’t just pick up the phone and place orders for ads with a single entity.
Large companies often work with multiple agencies; one may specialize in social
media, another in TV. And each agency is allocated only a portion of all market-
ing dollars. Because money is spent in these silos, companies lack a holistic view.
And even in instances in which all marketing functions are performed in-house,
spending is often scattered across different brands, regions, and platforms. These 153
divisions leave the CFO without a single source of truth as to how the marketing
spend is being allocated.
Second, nearly three decades after the dawn of digital advertising, the de-
tails of how and where advertising dollars are spent are still extremely murky.
The best example of this phenomenon is in programmatic media, which, ac-
cording to media agency Zenith, will account for 72 percent of all digital me-
dia globally in 2021. Programmatic media is the use of automated technology
to purchase ad space. Advertisers buy ads via a real-time auction that occurs
within milliseconds, similar to trading a stock electronically. This system al-
lows for advertisers to quickly buy ads from a variety of publishers, ensuring
that ads are targeted to the right audience, in the right context, and at the
right time. For instance, every time a web page loads, buy- and sell-side plat-
forms are having a rapid-fire conversation, selecting the optimal ad to serve
that particular user.

This marketplace dynamic enables greater speed and better targeting, but it
also masks enormous inefficiencies in the supply chain. That’s because there is
an immense amount of leakage along the way. A recent study PwC conducted
with ISBA showed just how much: Only half of an advertiser’s spend reaches
the publisher (see chart). The other half can be difficult to track. Intermediaries
account for a significant amount, though advertisers know neither which player
is responsible for which portion of that spend nor how expensive each player is
154 A glass half full

A substantial chunk of advertising spending is eaten up by suppliers and fees.
100% 7%
100%
8%
10%
80% 15%
8%
60%
1% 51%
40%
20%
0%
Advertiser Agency fee Demand-side Demand-side Unattributable Supply-side Supply-side Publisher
spend platform fee technology fee platform fee technology fee revenue
Source: ISBA Programmatic Supply Chain Transparency Study

in the context of the greater market. The study also found that about one-third
of the supply chain costs — about 15 percent of total spending — is completely

unattributable, simply lost to the system. Additionally, advertisers are likely los-
ing more value than the study suggests, as the data stops at the publisher and
does not quantify impressions that may not be seen by an actual human. For
instance, advertisers pay when a bot “views” one of their ads, or when an ad is
loaded onto a page but located below the fold and remains unseen by a user. In-
cluding this type of waste, it’s not inconceivable that only about a quarter of total
spending can be tracked through to actual human impressions.
Marketing budgets are thus subject to many types of value leakage. Low
visibility leads to an inability to redirect funds away from partners that deliver
poor value for the money. Without understanding how strategies are perform- 155
ing, marketers can’t allocate funds with precision. Without granular data, they
cannot distinguish which inventory may be delivering suboptimal returns. And
because these are industry-wide issues, there is no way to benchmark against
peers and glean competitive dynamics.
Asking questions
Here’s where CFOs come in. Because supply chain value leakage is a problem
that permeates the advertising ecosystem, many marketers either are not aware
of this problem, do not know to what extent this problem affects their budget, or
simply accept this problem as a necessary evil. CFOs with an understanding of
the space are therefore positioned to challenge their marketing departments and
agencies with difficult questions that, when answered, could ultimately result in
great value for the company. Those questions may include:
• How much of our media spending is on the purchase of ad space com-
pared with the production of ads?
• How much of our media budget is wasted on ads not viewed by
a consumer?
• How much are the fees charged by each individual player in the digital
media supply chain?
• Which of our partners are providing poor value for the money?
Of course, to a degree, CFOs are approaching the marketing world as out-
siders. And, like every other discipline, marketing has its own rules, culture, and
norms. To contribute in a constructive fashion, CFOs should strive to gain a
general understanding of various platforms and methods of media buying by
reading marketing outlets such as Adweek and Ad Age; attending marketing con-
ferences that cater to finance, such as the ANA (Association of National Ad-
vertisers) Media Conference, and even taking a marketing course — perhaps
on programmatic media like the one the Trade Desk offers. This will empower
156 CFOs to work with their marketing departments as collaborators, as both move
toward a solution that brings transparency to the supply chain and aim for a
spending allocation that prioritizes high return on investment.
Once they’ve joined the conversation, CFOs can contribute by tapping into
one of their other strengths: monitoring. The CFO is uniquely positioned to set
new reporting standards, hold teams responsible for financial goals, and demand
transparency into advertising spending — as well as to ensure such monitor-
ing is an ongoing process. When both marketing and finance are aware of the
questions listed above, companies can begin to craft plans to address knowledge
gaps. CFOs can reevaluate how to optimize marketing budgets. Additionally,
marketers may be able to adjust in-flight campaigns in order to test different
outcomes or drive better results. Incorporating financial media campaign track-
ing technology can ensure transparency and compliance in media spending, and
unlock significant value. If CFOs do not have full transparency, they should be

looking to incorporate these tools into their technology stack.
The rise of digital continues to blur traditional organizational divisions, un-
derscoring the need for finance and marketing leaders to come together in order
to drive true transformation. Given marketing’s role as a growth driver of the
business, it is vital for all members of the C-suite to gain alignment on how to ad-
dress the issues created by the transformational changes of digital advertising. +
157
INSIDE THE MIND OF THE CEO
Fender hits the

right notes
CEO Andy Mooney riffs on the boom in guitar sales
during COVID-19 and rethinking business models
for the post-pandemic world.
BY BOB WOODS
inside the mind of the ceo
Photograph by Henry Diltz, courtesy Fender
158
M
ore than a year into the COVID-19 pandemic, millions of us have
taken up new hobbies, such as baking bread, bicycling, bird-watch-
ing — and playing guitar. That’s beautiful music to Fender Musical
Instruments Corporation, the market leader in the US$8 billion
stringed instruments market, especially after it initially looked like 2020 was go-
ing to be a bust. When lockdowns began in March 2020, Fender CEO Andy
Mooney went into belt-tightening mode, canceling orders; shuttering the com-
pany’s headquarters in Scottsdale, Ariz., and Los Angeles; closing factories in
Corona, Calif., and Ensenada, Mexico; and furloughing production workers.
Then, in what Mooney described as a goodwill gesture, the private company
— majority owned by Hawaii-based Servco Pacific Capital and Tokyo-based
Yamano — offered Fender Play, its subscription-based online platform for learn-
ing guitar, bass, and ukulele, free for 90 days. Within weeks, the app attracted
nearly 800,000 first-time players. Just as suddenly, many of those newbies started
buying up iconic Fender guitars (Stratocasters, Telecasters, Jazzmasters), as well
as amplifiers, effects pedals, and other gear. By October 2020, Mooney was
eyeing record sales.
Fender, which is celebrating its 75th anniversary in 2021, has counted among
its devotees virtuosos such as Buddy Holly, Jimi Hendrix, Eric Clapton, Bonnie
Raitt, Marcus Miller, H.E.R., and scores of other players. This lends a credibility

and cachet that make Fender an in-demand brand among those who both ap-
preciate and want to make music. In a Zoom interview with strategy+business
from his home office in Hollywood, Mooney — a longtime guitarist himself —
talked about how he has fine-tuned the brand’s proud legacy since taking
the reins in 2015.
S+B: What happened to your business when COVID-19 hit and lockdowns went
into effect throughout the United States?
MOONEY: Until March 17, 2020, it looked like 2020 was going to be our sixth
159
Bob Woods
bob.woods@comcast.net
is a writer based in Madison,
Conn., who specializes in
sports, entertainment, and
media business topics.
[consecutive] year of double-digit growth. On that day, 90 percent of our near-

ly 1,000 dealers worldwide closed. Our offices and factories closed. We were
staring at the edge of a cataclysmic drop-off in sales, so our focus was on cash
preservation. We did everything possible to mitigate cash flow. We canceled
orders, everybody in the company took pay cuts from 5 to 50 percent, and
we canceled bonuses.
Early on after I joined Fender, we had moved all our distribution centers to
third-party providers, taking out our capital and lease costs. That proved to be a
big blessing, because our third-party provider in the U.S., FedEx, was an essential
business. It never closed down when the rest of California, our factories, and our
dealers did. We provided a lifeline to the dealers for their online sales, shipping
them inventory we had in our warehouse during the early parts of the pandemic.
S+B: How did the pandemic disrupt your earlier plans to launch your line of
updated electric guitars, the American Professional II?

MOONEY: Because we couldn’t have our sales reps on the road, we weren’t able to
physically show dealers the guitars. Many dealers were only selling online and
didn’t want to meet our reps, anyway. We did an online presentation, virtually
taking them through the features and benefits of the new series of electric guitars
and basses. And we said, “Trust us, we’re going to throw a lot of money behind
this launch.” It worked. We had to push the introduction of the new line to Oc-
tober [2020], but it’s beat all our expectations. We’re back-ordered into about
spring of 2021, so it’s been a big success story.
160
In fact, the complete reverse of what we anticipated happening is happen-
ing. We’re now looking at expansion. As our revenues grew by about $100 mil-
lion last year [to a record $700 million], we’ll have more money to spend to
drive consumer demand this year. We’re looking to expand our Corona and
Ensenada facilities, and we’re working with our OEM suppliers in Southeast
Asia to get more capacity there. I’m not sure the growth rate we enjoyed last year
will last into 2022, but I’m very optimistic we will get significant growth again
in 2021 and beyond.
S+B: What are you seeing in terms of longer-term trends, and how will
Fender navigate them?
MOONEY: I describe Fender not as recession-proof, but recession-resistant. People
have a very strong emotional attachment to music, so we’re going to be affected
by crises and downturns, but perhaps not as much as other companies. Our in-
dustry has been expanding at high single- or double-digit rates for the last 11
years, driven by consumption of recorded and live music. During the pandemic,
music became a source of relief, with
“The complete reverse close to 400 million people globally
of what we anticipated subscribing to a streaming music ser-
happening is happening.... vice. Goldman Sachs is predicting that
that number will grow to about a bil-
During the pandemic, lion by 2030. Live music may have
music became a source gone dark since March [2020], but re-
of relief.” corded music is having a field day.
And live music will make a gradu-
al comeback in 2021. Major acts are already booking arenas for the spring of
2022, because everybody is eager to go back out on the road. So the category is
in fundamentally great shape. There’s a lot of innovation going on and money
being spent to drive sustained consumer demand.
161
With many things, the pandemic accelerated preexisting trends by two or
three years. The trends of working from home, using Zoom as opposed to getting
on an airplane, buying online as opposed to at a brick-and-mortar store: They all
leapfrogged during the pandemic.
S+B: How do these new trends reflect Fender’s earlier transition toward
becoming a more consumer-based company, drawing on your marketing
background at Nike, Disney, and Quiksilver?
MOONEY: That was one of the very first things I focused on when I became
CEO. Fender was only spending about 3 to 4 percent of revenues on marketing,
almost solely on trade marketing. And there was no coordination of product
launches with marketing launches. When Evan Jones came on board as Fender’s
first-ever chief marketing officer [in 2015], we completely reoriented our market-
ing approach from trade to consumer, and largely in the digital realm.
We’ve increased marketing as a percentage of revenues per annum, and it’s
now closer to 10 percent. Also, working with Justin [Norvell, executive vice pres-
ident of Fender products], we’ve developed a three-year product growth map,
with hard milestones on when new products are ready to go to market, and then
we align the marketing to coincide with launch so that consumers around the
world know about it.
S+B: The Fender Play app promotion in March 2020 grew your member base to
nearly a million from 130,000, and most of them are new players. How are you
leveraging the opportunity to connect with this new cohort of customers?
MOONEY: This is a happy follow-on from the pandemic. About 10 percent of
people who pick up the guitar for the first time stick with it for life, and they
spend an average of $10,000 on new guitars. If we take just the million new
people who came into our app, they represent an incremental $1 billion of retail
sales, on top of whatever organic growth the industry returns to.
162
Our programs with first-time players include marketing initiatives, product
initiatives, and philanthropy. On the marketing side, we now have an online first-
time buyer’s guide experience called Find Your Fender to help people through the
decision-making process about what type of guitar to buy, because it can be a
pretty confusing, somewhat intimidating experience.
We are continuing to invest in Fender Play. The data we get from that pro-
gram shows us the degree to which consumers are engaged. As of early Decem-
ber, we had 204,000 paying members of Fender Play, who subscribe to the app
for an average of 14 months. We of-
“We want to do everything fered Fender Play free for three months
again during the holidays, and I believe
possible to encourage and
we’ll get another 250,000 members.
engage first-time players.” In 2019, we started the Fender Play
Foundation. Its mission is to equip, ed-

ucate, and inspire the next generation by ultimately getting instruments into the
hands of kids who otherwise would not have access to them. We have partnered
with the Los Angeles Unified School District, which is the second-largest public
school system in the U.S., after New York’s. I’m pleased with the progress we’ve
made there, because it’s giving teachers a way to engage kids in music, which has a
broad range of benefits. They get the instruments and access to Fender Play for free.
We want to do everything possible to encourage, engage, and create prod-
ucts for first-time players, to make the experience more accessible to them. You
can get into the Fender brand for $100 to $200 through our Squier brand of
163
entry-level instruments, or free through the Fender Play Foundation. As folks
become more comfortable and adventurous with the instrument, we encourage
them to come up in price, from Squier to our Mexican-made guitars and ulti-
mately to guitars made in the Corona factory. And, if they can afford it, to our
Mod Shop, our online guitar customization experience, where you design your
own model. It tends to be an evolving process.
S+B: How has the pandemic’s disruption to the physical retail landscape
made you rethink the future of Fender’s direct-to-consumer [D2C]
e-commerce business?
MOONEY: We categorize our dealers into pure-play online businesses, omnichan-
nel (with brick-and-mortar and online businesses), and just brick-and-mortar
stores, although I don’t think there’s a dealer out there that does not have a web-
site. There are very different growth rates in all three categories, and those growth
rates have become even more profound among dealers during the pandemic.
Some have adjusted really well, and others are struggling, but everybody under-
stands the necessity now. Naturally, those with a preexisting online presence were
able to shift more quickly and adapt to the new demand.
Our online D2C business grew nicely last year, and we see it as almost an
adjunct to the rest of our business. The average retail price of an American-made
Fender guitar is $1,500 to $1,600. There is a lot of wheeling and dealing as con-
sumers try to find the best price. We never cut prices on our website and never
compete with our dealer base on price.
People come directly to us for guitars they can’t find anywhere else in the
e-commerce system, like a Buddy Guy polka dot–emblazoned Stratocaster or a
left-handed guitar. We also do a healthy D2C business with our custom Mod
Shop, even though Mod Shop is also available to all of our dealer base. And
people buy a lot of accessories from us — caps, T-shirts, bags — that are hard to
find in dealers’ stores.
164
The totality of our business has gone from 50 percent online to about 70
percent. It was heading in that direction anyway. It may gain or lose a little, but
it’s not going to go back to 50 percent, for sure.
S+B: Are you seeing any demand from customers for “greener” guitars made
from sustainably sourced or reclaimed wood?
MOONEY: Everything we make from wood comes through sustainable forestry.
The big thing now, unfortunately, is the destruction of American ash, which is
being ravaged by beetles. We’ve had to migrate to other wood forms, including
pine and alder. We still have access to American ash, but it’s becoming more and
more difficult to acquire.
For any company in the wood business, which we kind of are, I think forest
husbandry and environmental stewardship is woven into the DNA. We’ve done
a host of things to get better utiliza-
tion of trees that are felled. And we’re “Our business has gone
using woods that look more aestheti- from 50 percent online to
cally attractive, where you can see the
about 70 percent. It may
grain. For example, with mahogany
wood, multiple guitar manufacturers
gain or lose a little, but
“share” different parts of the tree for it’s not going back to
their instruments. Specifically, for our 50 percent.”
American Acoustasonic series, while
other manufacturers seek to use the center portions of the tree, Fender’s specifi-
cations utilize the outer sections of the tree. This way, we collectively utilize
more of the tree.
S+B: How, if at all, has climate change affected your supply chain?
MOONEY: I can’t honestly say if the beetle infestation is a result of climate change
or not. What I can say is that moving guitars around the world these days, and
165
ensuring they show up in the consumer’s hand the way that they’re supposed to,
is a challenge, because you’re getting climate-related extremes.
It’s about temperature change from high to low or vice versa. As our acoustic
guitar business grows, we’re building temperature-controlled areas in our ware-
house to mitigate temperature change. We’re adjusting our freighting of guitars, so
they spend less time in transit and end up arriving in high quality. Spending a lot
of time on an ocean container is not a particularly good thing for a guitar to do.
S+B: As an iconic brand among demographically diverse consumers and

musicians, how has Fender reacted to last year’s social and racial
protests and ongoing calls for reform, in terms of hiring, advancement,
and leadership development?
MOONEY: May 25, 2020 [when George Floyd was killed] was a big day. As an
executive team, we paused to ask ourselves, “Are we doing enough, and are we
doing it quickly enough?” We decided that the answers were no and no. Since
then, we’ve hired about 41 people, 81 percent of whom represent diversity. Paula
Boggs has joined our board of directors as our first African-American female
executive. We launched our first signature guitar with our first Black female
artist, H.E.R., a few months ago. We have doubled down on our commitment
and accelerated a lot of the work that we had been doing.

We have put in place the “Rooney Rule” [the National Football League
policy that requires teams to interview ethnic-minority candidates for head coach-
ing jobs]. It’s very easy to create unconscious bias in the hiring process, so we’ve
166
mandated that the process doesn’t start unless there is a diverse roster of qualified
candidates available. That takes a little more time in some cases, but it’s a good
thing, because we’re seeing an expanding group of candidates in the process.
One of the other interesting things
that’s going to happen when we’re look- “The hiring process doesn’t
ing to hire people now, particularly in
start unless there is a
a work-from-home environment, is
that we don’t have to just think about
diverse roster of qualified
candidates in Los Angeles or Arizona. candidates available.”
If we want to hire people from Atlanta,
Chicago, or New York, it doesn’t matter. I characterize this as a positive, in the
sense that it widens the pool. We can now absolutely get the very best. It creates
different challenges with on-boarding and acculturation of people into the com-
pany. We’ll learn to adjust to that.
S+B: Speaking of working from home, are you planning to reopen

your offices anytime soon?
MOONEY: We have formally communicated to people that we’re not even consid-
ering reopening until the third quarter of 2021. We have started to go through a
process in which [we identify] some people who do need to be in the office 100

percent of the time and some people who never need to be in the office. And then
there are a whole bunch of people who are somewhere in between.
I don’t see us ever returning to the old ways of 100 percent of the people
needing to be in the office 100 percent of the time. I also don’t see a return to
travel, domestic or international, at the level conducted in the past. I mean, I
haven’t been on a plane once since March [2020], and business is doing just fine.
S+B: What about Fender’s production facilities in California and Mexico?

MOONEY: Both factories are working five days a week, so we’re very happy about
167
that. We have stringent COVID-related safety protocols in place, and a lot of test-
ing of employees is being done at all locations. Even here in Hollywood, Monday
morning is testing day. You don’t get in the office that week unless you test nega-
tive on Monday.
We’re in back orders, so we’re not really supplying demand right now. But,
as I say, we’re going to have a record year, so we’re getting product out the door.
And we could get even more out the door, based on consumer demand right now,
if we increased production. +
168
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PwC network and/or one or more of its member firms,
each of which is a separate legal entity. Please see
www.pwc.com/structure for further details.
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READERS
Books in Brief
Battling the bots

by Mike Jakeman
Futureproof: 9 Rules for Humans in the Age of Automation,

by Kevin Roose, Random House, 2021
W
e have all heard the warnings that invading armies of robots
are going to steal our jobs. Few industries are safe; legal clerks
and translators are as vulnerable as supermarket cashiers and
long-haul truckers. We have been told that mass technologi-
cal unemployment will necessitate a universal basic income. We have also heard
the opposing view: that humans have absorbed waves of automation before, and
that we have used the time liberated by technology to generate new, more stimu-
books in brief
lating professions that have improved our standard of living. But what if neither
of these scenarios is accurate? What if automation displaces millions from their
jobs while at the same time improving healthcare diagnostics and slowing climate
change? How do we thrive in this kind of hybrid environment?
Illustration by Noma Bar
Striding into this middle ground is Kevin Roose, a technology columnist

at the New York Times. He describes himself as a “suboptimist” about AI. On a
10-point scale, with 1 being not at all fussed and 10 being convinced of a com-
ing AI-driven apocalypse, he stands at “a 2 or a 3” about the technology, but “an
8.5 or a 9” on the people behind it. For the past three years, Roose has handed
170
out Good Tech Awards to people and organizations
that have harnessed the power of technology to tackle
major problems. Winners include an atmospheric sci-
entist, Christa Hasenkopf, who founded an open-
source platform that records air quality around the
world, and the owners of Visabot, a Facebook messen-
ger chatbot that helps immigrants through the visa ap-
plication and extension process. However, he believes
that his award winners are outnumbered and over-
shadowed by executives who see technology as a con-
duit for maximizing profits. Unless we challenge them,
he argues, the labor market will become more precarious, more discriminatory,
and less enjoyable. In Futureproof, with honesty and good humor, he attempts
to correct some faults in how we think about AI and suggests ways we can make
the most of our advantages.
The first half of the book contains some revealing insights. Roose thinks it
is wrong to expect AI to eliminate whole categories of jobs. Almost every role
contains tasks that tech could do better than people and requirements that are
very human. In journalism, robots could be taught to summarize an earnings
report for a newswire, but not conduct an investigation into public-sector corrup-
tion. AI can scan X-rays for abnormalities, but it can’t reassure worried parents
about their child’s prognosis. We should also challenge our assumptions about
what robots are capable of. Designers are struggling to replicate the actions of a
human hand, which makes shelf-stacking hard to automate. But designing
books in brief
clothes, a more creative endeavor, is well within their grasp. “The fallout from
automation probably won’t be as tidy as watching some occupations go extinct
while others survive without a scratch,” Roose writes.
Nor will automation look the way we expect it to. An invading army of
seven-foot Terminators is not going to appear on the horizon. But we already are
surrounded by “boring bots” — algorithms sold by tech firms that can slot into
companies’ existing infrastructure and can perform tasks currently carried out by
white-collar workers, such as managing payroll and operating databases. They
concern Roose for two reasons: the speed with which they are being deployed,
171
which he believes threatens a mass displacement of workers, and the potential for
hidden discrimination or bias, especially when they are used to make vital deci-
sions, such as the eligibility of individuals for government benefits.
Roose is also critical of automation that just isn’t very good. Firms have saved
money by installing self-checkouts in supermarkets and automated systems in call
centers. But neither is capable of functioning without a human nearby and neither
saves the user any time. His speculation that shifts to such “so-so automation”
may be behind the slowdown in productivity growth in advanced economies over
the past two decades is an interesting theory that warrants more exploration.
So what do humans have going for them in their battle against technology?
Three main abilities: to cope with changing circumstances, to meet the emo-
tional needs of others, and to possess unusual talents. The second half of the
book consists of steps we can take to make the most of these attributes. They
fall into two rough categories: reasserting our control over the tech we use and
slowing down.
Pushing back against technology is hard. Roose’s chapter on his attempt to
break his phone addiction will make you squirm in uncomfortable recognition.
But limiting the dopamine drip from social media apps “is what will allow us to
create the mental space and clarity of
thought we’ll need in order to do the We already are
kinds of work the future demands of surrounded by “boring
us.” He invites us to think of AI as a
bots” — algorithms
“chimp army,” with the implication
that installing untested algorithms in
that can perform tasks
your workplace is akin to inviting a currently carried out by
books in brief
troop of monkeys to run an office. He white-collar workers.

cites several examples of businesses
duly trashed by untethered AI, including a T-shirt design company (where the
algorithm created slogans such as “Keep Calm and Hit Her”) and a trading firm
(where an incorrectly installed automated system created losses of US$440 mil-

lion in less than an hour).
It is also easy to accept Roose’s second batch of recommendations, centered
on slowing down to enhance creativity. He recommends that we reject hustle
172
culture, work close to others, and put friction back into our lives by varying rou-
tines and making conscious choices in our free time. Yet there is also a nagging
sense that this advice is given by the privileged and delivered to the fortunate. For
the majority of workers, automation reduces the control that they have over
their lives. It is great to eschew the hustle, if, like Roose, you are compelled to do
it by a self-perpetuated fear of becoming obsolete. But for many, side-hustling is
necessary to pay the rent. Likewise, walking an indirect route to work assumes
the gift of time to meander. It is worth reading Futureproof alongside a study such
as James Bloodworth’s Hired: Six Months Undercover in Low-Wage Britain for a
more complete picture of how automation is changing working lives. But for
those able to put limits on how technology is altering their humanity, Roose’s
ideas merit some thought. +
Mike Jakeman
mike@jakeman.plus.com
is a freelance journalist and has
previously worked for PwC and the
Economist Intelligence Unit.
books in brief
173
Bill Gates tackles climate change
by Deepali Srivastava
How to Avoid a Climate Disaster: The Solutions We Have and the

Breakthroughs We Need, by Bill Gates, Random House, 2021
H
ow does one get from 51 billion tons of carbon emissions to zero
within 30 years? Bill Gates can do the math. And as one of the
world’s wealthiest people, he just might have the wherewithal to
make it happen. In his new book, How to Avoid a Climate Dis-
aster, Gates presents his “mental framework” and a path paved with break-
throughs for reducing the world’s annual greenhouse gas (GHG) emissions from
51 billion tons to net zero. Net zero does not imply eliminating carbon dioxide
and other heat-trapping gases such as methane and nitrous oxide, but rather ne-
gating them by absorbing an equivalent amount from the atmosphere. In this
helpful book, Gates lays out a succinct road map for a tech-driven transforma-
tion that, with a little help from government policies, could usher in a future of
vastly reduced carbon.
The task is urgent. If greenhouse gases remain unchecked, Gates calculates,
climate change may prove by 2100 to be five times as deadly as the COVID-19
pandemic. Gates, the cofounder of Microsoft and venture capitalist founder of
Breakthrough Energy — a coalition of private investors including fellow billion-
aires Jeff Bezos, Michael Bloomberg, Jack Ma, and Mukesh Ambani — is cata-
lyzing investments in technologies that remove GHG emissions: long-distance
books in brief
decarbonized power transmission (to supply solar energy from the U.S. South-
west to New England), safe nuclear reactors, zero-carbon cement and steel, and
food waste–tracking systems.
Bringing these visions to fruition requires a lot of innovation and a strategy
to fund breakthroughs, including promising pilots and moonshot ideas. This is
where Gates comes in as an investor willing to take calculated risks to back trans-
formative solutions. He shares his formula for investing: fund only those tech-
nologies that can take half a billion tons of GHG out of the atmosphere every
year. He also has a tool to help prioritize investments called green premiums, or
174
the extra price one would have to pay today for zero-
carbon alternatives. For example, Gates calculates that
the cost of capturing and storing carbon released during
cement manufacturing would add 75 to 140 percent to
the cost of cement. A combination of government poli-
cy (e.g., incentivizing or mandating clean products) and
business action (e.g., investing in R&D to produce
these clean products) can lower this premium.
Throughout the book, Gates continually returns
to the need to eliminate emissions, giving his readers a
useful explainer on both the sources of carbon emis-
sions and the potential solutions. Practically everything we do emits greenhouse
gases, and Gates has calculated just how much. It turns out that making things
with cement and steel accounts for a bigger share of emissions (31%) than elec-
tricity (27%) and transportation (16%). Refrigeration and air-conditioning make
a smaller contribution to total emis-
Unlike many of those who sions (7%) than our carbon-intensive
write about climate issues, farming practices (19%).
Unlike many of those who write
Gates is not bothered by
about climate issues, Gates is not both-
our consumption-fueled ered by our consumption-fueled growth
growth models. models. A self-confessed “rich guy with
an opinion,” he pleads guilty to flying
to climate conferences in his private plane (although last year, he started using
books in brief
sustainable jet fuel) and suggests that people be willing to try plant-based burgers.
If anything, his work with the Bill and Melinda Gates Foundation in South
Asia and Africa has convinced him that the world needs to produce more energy
— provided that energy is reliable and clean. “I didn’t think it was fair for anyone
to tell Indians that their children couldn’t have lights to study by, or that thou-
sands of Indians should die in heat waves because installing air conditioners is
bad for the environment,” he writes.
This global perspective from one of the world’s most influential thinkers is
timely. Some 127 countries, including once again the U.S., are now pursuing the
175
goal of net zero by 2050. Gates is among those who believe that the rich caused
climate change and, therefore, must help the poor survive it. “We owe them that
much,” he says.
There are occasional bugs in Gates’s argument. With this book, Gates ap-
pears to be adding his voice to the issue of environmental justice. But his some-
what unidimensional belief that techno-fixes originating in the West will solve a
problem created largely by industrialized nations will not go unchallenged in
emerging economies that are charting their own paths to a more climate-resilient
future. And Gates is getting pushback at home, too. Reviewing the book in the
New York Times, Bill McKibben, leader of the climate campaign group 350.org,
observes: “Power comes in many forms, from geothermal and nuclear to congres-
sional and economic.… [Gates] needs to really get down on his hands and knees
and examine how that power works in all its messiness.”
Without a doubt, Gates’s book will raise the question Anand Giridharadas
asked in his bestseller, Winners Take All: Should the hard work of changing the
world be left to the business elite? Readers should consume Gates’s green mani-
festo for what it is — namely, a techno-optimist’s plan for tackling the climate
crisis through innovation. It will take all the tools at our disposal — regulation,
activism, rethinking systems, and yes, technological breakthroughs — to avoid
climate disaster. Gates thinks he can help scale up an operating system that will
transform our world. But he writes his latest book like a student of climate change,
offering facts, figures, tools, and explanations. That makes it an accessible and
insightful read for anyone who worries there’s no Planet B. +
books in brief
Deepali Srivastava
deepali@gga.nyc
is senior director of content strat-
egy at Global Gateway Advisors.
Her articles on socioeconomic
and environmental issues have
appeared in Forbes Asia, MSNBC
.com, and nextcity.org.
176
Arguing your way to better strategy
by Theodore Kinni
Making Great Strategy: Arguing for Organizational Advantage,

by Jesper B. Sørensen and Glenn R. Carroll, Columbia University Press, 2021
T
here is no shortage of theories regarding the proper basis for a win-
ning corporate strategy. You can set sail on blue oceans with W. Chan
Kim and Renée Mauborgne, hone core competencies with C.K. Pra-
halad and Gary Hamel, and get competitive with Michael Porter, to
call out just a few of the fashionable options. But how do you transform the theo-
ries into a unique strategy capable of driving your company’s long-term success?
This is the question Stanford business school professors Jesper Sørensen and
Glenn Carroll address in Making Great Strategy. It’s a book about strategic due
diligence. And it fills an important gap in the literature by caring not a whit
about a company’s strategy per se, but
rather focusing entirely on how rigor- Instead of using logical
ously that strategy has been formulated argument, decisions about
and how thoroughly it has been vetted.
strategy are often dictated
Toward this end, Sørensen and
Carroll define strategy as a logical argu- by the most powerful
ment that coherently articulates “how people in the room.
the firm’s resources and activities com-
bine with external conditions to allow it to create and capture value.” They further
books in brief
assert that “the development, communication, and maintenance of a strategy ar-
gument is best achieved through an open process of actually arguing within the
organization, engaging in productive debate.”
Sørensen and Carroll find that in many companies this process of argumen-
tation is either altogether missing or poorly conducted. Instead of using logical ar-
gument, decisions about strategy are often dictated by the most powerful people in
the room. Or, when they are made more democratically, they are chosen in a rigged
or otherwise flawed manner. The authors’ insights help explain the findings of a
2019 survey by Strategy&, PwC’s strategy consulting group, in which only 37 per-
177
cent of 6,000 executive respondents said that their com-
pany had a well-defined strategy, and only 35 percent
believed their company’s strategy would lead to success.
Making Great Strategy is dedicated to the tools for
— and nuts and bolts of — making and applying a
strategy argument. The tools are those of the logician
and philosopher, which are (in increasingly rare in-
stances) taught to undergraduates in liberal arts but
mostly neglected in business schools, which usually rely
on business case analysis to teach strategy. “We advo-
cate a different mentality for thinking about strategy,
one that celebrates the value of disciplined reasoning and places constructive ar-
gumentation at the center of the strategic process,” write Sørensen and Carroll.
“To help turn this mentality into practice, we offer a flexible system of three core
activities: (1) iterative visualization, (2) logical formalization, and (3) constructive
engagement and debate with others.”
Iterative visualization is achieved by creating a strategy map, which tracks a
proposed strategy’s causal path backward from its desired outcome to the factors
required to make it happen. The authors illustrate this process by producing a
strategy map based on statements about Walmart’s low-cost model, which enabled
the retailer to attract customers and vanquish competitors in the pre-digital econ-
omy. Working backward from the desired outcome of low costs, they map two of
its enablers: operational efficiencies and a bargaining advantage over suppliers. In
turn, they enumerate the enablers of those enablers, which for bargaining include
books in brief
high-volume purchasing, negotiating prowess, and private labels. And so on.

A strategy map is only the first step in making a strategy argument. “At this
stage,” Sørensen and Carroll explain, “these statements are just unfounded claims
in the strategy argument, and their veracity and importance have yet to be dem-
onstrated.” That work begins in the second set of activities: logical formalization.
Logical formalization entails testing the validity and soundness of the prem-
ises underlying the statements in a strategy map. Here the authors point to the
competitive responses — or lack thereof — from companies such as Nokia when
Apple introduced the iPhone in 2007. The cellular phone incumbents evaluated
178
the iPhone’s call reliability and quality and concluded the new device simply
wasn’t good enough to pose a competitive threat, let alone an existential one. But
they didn’t challenge their own argument and its assumptions. As it turned out,
the quality of phone calls didn’t matter much given the iPhone’s superior design
and functionality. “Incomplete arguments can carry a lot of weight in strategic
debates,” warn the authors. “That’s because they appeal to implicit premises in
the minds of the listener[s].”
The third set of activities — constructive engagement and debate — is aimed
at socializing the strategy argument. Socialization surfaces new challenges and
alternatives that improve strategy decisions, builds buy-in, and starts to move a
strategy toward execution. The key ideas here are to embrace, rather than avoid,
argument and to argue in a constructive way — avoiding the kinds of dysfunc-
tional debates that produce only divisiveness and resistance. “Vigorous argument
should be encouraged and celebrated, provided that people are arguing construc-
tively, not arguing blue,” Sørensen and Carroll write. “Arguing blue is about us-
ing every trick in the book to advance your point of view, deploying whatever
powers of intimidation and persuasion you have at your disposal.”
A company’s cultural norms play a large role in its employees’ ability to argue
constructively. The authors call out Intel’s “disagree and commit” norm as an
exemplar in this regard. Intel managers are expected to challenge and object
while a decision is being made. But once it is made, they are expected to support
it wholeheartedly.
Making Great Strategy doesn’t stop there. It goes on to describe how strategy
arguments apply in conditions of high uncertainty, how they fit into strategic plan-
books in brief
ning processes, and how to communicate them internally and externally, as well as
how to elaborate on them — building them out and drilling down into them. If
you want to better understand how to make the leap from an abstract strategic vi-
sion to an executable strategic plan, this book should be on your reading list. +
Theodore Kinni
theodorekinni@gmail.com
is a contributing editor of
strategy+business. He also blogs at
Reading, Writing re: Management
and is @TedKinni on Twitter. 179
When molehills are
worse than mountains
Small, persistent customer service failures may pose a bigger
threat to customer retention than large, isolated incidents.
BY MATT PALMQUIST
ervice industry missteps are inevitable, but not all are created equal.
S For example, if an airline loses a passenger’s luggage or denies a pas-

senger a seat on an overbooked flight, it’s a serious enough problem
that the passenger will probably complain, allowing management to
apologize or issue a refund. But for smaller errors — if, say, a seat doesn’t recline
fully, or a power outlet doesn’t work — passengers might not think it’s worth
summoning a flight attendant. As a result, management never gets the chance
to register the problem and enhance the airline’s reputation through exemplary
customer service.
Over time, the authors of a new study suggest, consumer frustration stem-
ming from what they term microfailures — minor annoyances that tend not to be
complained about — builds up, and it has consequences. Consumers can switch
providers of services and products without giving the company a chance to re-
end page
dress their grievances, and management is left none the wiser. This makes it cru-
cial for companies to learn how to spot microfailures.
To explore how service failures affect consumer psychology, the authors con-
Illustration by Martin León Barreto
ducted online surveys with a demographically diverse sample of more than 300
U.S. consumers, who answered questions about large or small problems they ex-
perienced. These errors ranged from getting a slightly smaller rental car than
they’d requested (a microfailure) to booking a “four-star” vacation that turned
out to be a one-star experience (a macrofailure). Study participants experienced
microfailures twice as often as macrofailures, but were far less likely to complain.
180
Their reasons were familiar: It wasn’t worth the time, it seemed petty, or they
didn’t believe companies would care about small mistakes.
The ominous aspect of microfailures is that they have a slow-burn effect; in
the survey, 56 percent of respondents said they were more likely to shop elsewhere
because of a series of small failures than they were because of one large mistake.
And because microfailures are, by their nature, difficult to spot, firms should
ensure that customers feel comfortable voicing even small complaints and should
be on the lookout for any signs of customer dissatisfaction. For example, they
could use customer service campaigns that stress “We’re listening” or regularly
solicit online feedback.
Prevention is the best medicine, and firms should strive to create ways to
reveal any negative patterns that might be developing. Managers should remem-
ber that microfailures are about not quite meeting customer expectations. Per-
haps they are setting service expectations too high or could preempt some prob-
lems by cutting themselves some slack.
Finding microfailures is one thing; fixing them is another. Because the latest
small error may be just one in a string of missteps, managers might have to work
harder to restore consumers’ faith or compensate them beyond what a simple er-
ror would normally entail. But building loyalty or an emotional bond with con-
sumers might mean they will cut firms some slack if small errors pile up. +
Source: “How Small Service Failures Drive Customer Defection: Introducing

the Concept of Microfailures,” by Sean Sands, Colin Campbell, Lois Shedd,
Carla Ferraro, and Alexis Mavrommatis, Business Horizons, July–Aug. 2020,
end page
vol. 63, no. 4
181
MO TU E
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entertainment and media?
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Consumers in control. Resurgent regulation.
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© 2021 PwC. All rights reserved. PwC refers to the PwC network and/or one or more of its member firms, each of which is a
separate legal entity. Please see www.pwc.com/structure for further details. This content is for general information purposes
only, and should not be used as a substitute for consultation with professional advisors.
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PwC’S CEO SURVEY • ADAM BRYANT ON LEADERSHIP • FUTURE OF FAMILY BUSINESS

Summer 2021 $12.95

• Building Great Teams: The Enterprise Leader’s Playbook

• Building Organizational Resilience: A System Approach to Mitigating

• Business Model Innovation for Organizational Transformation

• Cybersecurity Leadership for Non-Technical Executives

• Digital Strategies for Transforming Your Business

• Navigating Transitions During Disruptive Change

• Nimble Leadership: Driving Customer Innovation and Elevating

• Reimagining Leadership: A Playbook for the Digital Economy

This point is reinforced at a granular level in “How organizations can de-

15 Diversity and the case

20 China and the race for

74 A CEO guide to today’s value 110 Practicing strategy in

138 Streaming energy 150 Lost in translation

INSIDE THE MIND OF THE CEO

158 Fender hits the right notes

170 Battling the bots

174 Bill Gates tackles climate change

177 Arguing your way to

ENDPAGE: RECENT RESEARCH

180 When molehills are

Cover illustration by Chris Gash

Issue 103, Summer 2021

strategy+business Published by PwC

Art Director Designers Contributing Editors

Editorial and Retail Subscriber strategy+business magazine Articles published in

© 2021 PwC. All rights reserved.

Leading The articles in this issue’s

Illustrations on pages 8–38 by Miguel Montaner

can help catalyze this conversation:

Environmental Enterprise Legal

Source: PwC analysis

multiply risks, by connecting already complex networks of systems, which

Thinking about the trade-offs

Tackling complexity in three areas

Richard Horne Sean Joyce PwC US director Michael Versace

Based in London, he is a partner as a business enabler. Based in

Chose not to of PwC’s U.S. leadership

Source: 2020 PwC Diversity & Inclusion Transparency report, Building on

China and the race for

strategy+business issue 103

A small selection of digital currency initiatives around the world

Completed pilots Ongoing pilots Official launch

Eastern Caribbean Central ECCB: Phase 2 delayed

South Korea: 22-month pilot

Ukraine: Multi-phased pilot China: Five pilots launched; additional

Thailand: Cross-border pilot

The Bahamas: First

Nov. Feb. Mar. Feb. Mar. Apr. Jul. Oct. Feb.

1) Phase 2 included a planned rollout to four member countries.

service — allowing nearly friction-free shopping and a proliferation of uses, in-

Looking ahead: The evolving landscape

for that by creating revenue-producing units around virtual money operations.

changes for futures trading and derivatives of cryptocurrencies are multiplying,

A global red tide

Historic and projected government debt, % of GDP

Advanced economies Emerging market economies

The perennial question

strategy+business issue 103

Global vs. national

strategy+business issue 103

Growth for UNCTAD’s top 100 nonfinancial enterprises1