Sett

ing the c

ours

e for

gro

wth

: CE

O P

ers

pect

ives

Lo

ng

term

pers

pecti

ves fro

m

the t

op

of th

e c

orp

ora

te w

orl

d

kp

mg

.co

m/u

s/c

eo

stu

dy

“The v

ast

maj

ority

of

CE

Os

are

optim

istic

about

the e

conom

y an

d t

heir

ow

n b

usi

ness

pro

spect

s in

the c

om

ing

thre

e y

ear

s. T

hey

see p

oss

ibili

ties

for

‘effi

cient

gro

wth

’ an

d t

he p

ote

ntial

to

leve

rage n

ew

tech

nolo

gie

s to

enhan

ce

cust

om

er

rela

tionsh

ips

and s

tream

line

opera

tions.

”

From

the

chai

rman

and

CEO

:

After ye

ars

of nav

igat

ing thro

ugh the m

ost

sig

nifi

cant

finan

cial

, polit

ical

and tech

nolo

gic

al d

isru

ptions

in

more

than

hal

f a

centu

ry, C

EO

s at

com

pan

ies

of

eve

ry s

ize a

nd in

eve

ry s

ect

or co

ntinue to c

onfr

ont

busi

ness

chal

lenges

of unpre

cedente

d c

om

ple

xity

. In

this

envi

ronm

ent it’s

not enough to h

ave a

poin

t of vi

ew

on o

nly

the n

ext

fisc

al q

uar

ter or si

x m

onth

period. To

day

’s b

usi

ness

lead

ers

must

look

beyo

nd the im

media

te h

orizo

n.

Gat

hering in

sights

on the lo

nger-te

rm o

utlook

is the u

niq

ue

goal

KP

MG

set out to

ach

ieve

with o

ur co

mpre

hensi

ve C

EO

study,

“S

ett

ing the C

ours

e for G

row

th: C

EO

Pers

pect

ives.

”

We a

sked 4

00 U

.S. C

EO

s fr

om

com

pan

ies

of al

l siz

es,

opera

ting in

sect

ors

ran

gin

g fro

m reta

il to

man

ufa

cturing to

utilit

ies,

to o

ffer an

in-d

epth

look

at the m

ost

critica

l busi

ness

issu

es

they

exp

ect

to fac

e o

ver th

e n

ext

thre

e y

ear

s. W

here

are their g

reat

est

opport

unitie

s fo

r gro

win

g p

rofits

– n

ot ju

st

in the c

om

ing m

onth

s, b

ut th

rough 2

015, 2016 a

nd 2

017?

Will

their o

rgan

izat

ions

outp

ace the s

low

-movi

ng reco

very

,

or fa

ll behin

d c

om

petito

rs w

ith fas

t-m

ovi

ng p

roduct

innova

tions?

What

are

the top c

once

rns

shap

ing s

trat

egie

s

that

will

drive

year

s of gro

wth

?

The C

EO

resp

onse

s to

these

quest

ions

and m

ore

pro

vide

valu

able

insi

ghts

on the s

tate

of busi

ness

today

, an

d m

ore

import

antly,

on the p

riorities

shap

ing s

trat

egie

s an

d d

eci

sion

mak

ing for ye

ars

to c

om

e. The v

ast m

ajority

of C

EO

s ar

e

optim

istic

about th

e e

conom

y an

d their o

wn b

usi

ness

pro

spect

s in

the c

om

ing thre

e y

ear

s. T

hey

see p

oss

ibili

ties

for “effi

cient gro

wth

” a

nd the p

ote

ntial

to le

vera

ge n

ew

tech

nolo

gie

s to

enhan

ce c

ust

om

er re

lationsh

ips

and

stre

amlin

e o

pera

tions.

At th

e s

ame tim

e, re

gula

tion, risk

and p

roduct

rele

vance

are

conce

rns

that

can

not be ig

nore

d.

Alo

ngsi

de the C

EO

pers

pect

ives,

this

report

als

o feat

ure

s

com

menta

ry fro

m K

PM

G p

artn

ers

, w

ho p

rovi

de fro

ntlin

e

insi

ghts

dra

wn fro

m their e

xperience

help

ing w

orld-c

lass

org

aniz

atio

ns

nav

igat

e their b

usi

ness

and s

trat

egic

needs.

KP

MG

is p

roud to p

rese

nt “S

ett

ing the C

ours

e for G

row

th:

CE

O P

ers

pect

ives”

as

one o

f th

e m

ost

ext

ensi

ve a

nd

forw

ard-lo

oki

ng e

xam

inat

ions

of busi

ness

ava

ilable

today

,

with p

ow

erf

ul i

nsi

ghts

on w

here

U.S

. le

aders

hope to tak

e

their c

om

pan

ies

in the n

ext

thre

e y

ear

s, a

nd b

eyo

nd.

John V

eih

meye

r

Glo

bal

Chai

rman

and U

.S. C

hai

rman

and C

EO

of K

PM

G

Con

tent

s

Exe

cutive

sum

mar

y..................0

2

Key

findin

gs

........................0

2

Ahead

: co

nfidence

built

on

pla

ns

for

effi

cient

gro

wth

.............0

4

Sta

ying r

ele

vant

among d

isru

ptions

.....1

0

Pre

dic

tive

chan

ge .

..................1

6

Regula

tory

envi

ronm

ent:

more

impac

t th

an t

he e

conom

y........2

0

Ris

k m

anag

em

ent:

har

ness

ed

for

effi

cient

gro

wth

..................2

4

Concl

usi

on

.........................2

8

Meth

odolo

gy

& A

cknow

ledgm

ents

.....2

9

Sett

ing t

he C

ours

e f

or

Gro

wth

: C

EO

Pers

pectives /

01

Exec

utiv

e su

mm

ary

The n

ext

thre

e y

ears

will co

nti

nu

e t

o b

rin

g c

han

ge, cau

sed

by

po

liti

cal, e

co

no

mic

, so

cia

l an

d e

sp

ecia

lly t

ech

no

log

ical fo

rces.

It w

ill b

e h

ap

pen

ing

am

id a

n e

co

no

mic

reco

very

th

at

is in

its

elf

n

ot

a t

yp

ical exit

fro

m a

recessio

n. T

hese t

imes, w

hen

a s

ing

le

ap

p c

an

ch

an

ge a

n e

nti

re b

usin

ess m

od

el, r

eq

uir

e n

ew

exp

ert

ise,

ap

pro

ach

es a

nd

pro

cesses t

o h

arn

ess t

hese d

isru

pti

ve c

han

ges

for

gro

wth

.

Com

par

ed w

ith la

st y

ear

, C

EO

s’ c

onfidence

in the futu

re g

row

th o

f th

e

eco

nom

y, their in

dust

ries

and their c

om

pan

ies

has

incr

eas

ed, ac

cord

ing to a

KP

MG

surv

ey

of 400 C

EO

s. T

heir c

onfidence

is b

ased o

n p

lans

for “effi

cient

gro

wth

.” W

hile

focu

sing o

n g

row

th, esp

eci

ally

thro

ugh o

rgan

ic a

nd g

eogra

phic

exp

ansi

on, C

EO

s re

mai

n c

onsc

ious

of th

e n

eed to e

nhan

ce e

ffici

ency

. The

inte

nsi

ty o

f th

eir g

row

th s

trat

egie

s is

split

, w

ith h

alf of th

e C

EO

s desc

ribin

g

their g

row

th s

trat

egie

s as

conse

rvat

ive, an

d the o

ther hal

f as

aggre

ssiv

e.

Ext

ern

al fac

tors

are

mak

ing it

more

difficu

lt to s

tay

ahead

of co

mpetito

rs a

nd

keep u

p w

ith c

ust

om

ers

. The m

ajority

of C

EO

s su

rveye

d a

re c

once

rned a

bout

the rele

vance

of th

eir p

roduct

s th

ree y

ear

s fr

om

now

, an

d a

bout ke

epin

g u

p

with their c

om

petito

rs, w

heth

er exi

stin

g o

r new

entr

ants

. To

this

end, th

ey

are s

et on b

eco

min

g m

ore

consu

mer-fo

cuse

d a

nd s

ee b

randin

g a

s a

top

org

aniz

atio

nal

priority

.

CE

Os

fully

gra

sp the n

eed to c

han

ge. Thre

e-q

uar

ters

of th

e c

om

pan

y le

aders

surv

eye

d a

re in

som

e s

tage o

f tr

ansf

orm

ing their o

pera

ting m

odels

. S

purr

ing

innova

tion is

a top c

hal

lenge for C

EO

s. B

ut ar

e the p

roce

sses

needed to

succ

eed a

t in

nova

tion o

r tr

ansf

orm

atio

n u

p to the tas

k? T

he K

PM

G s

urv

ey

reve

als

that

there

rem

ains

room

for im

pro

vem

ent.

Effi

cient gro

wth

is the le

ns

thro

ugh w

hic

h e

very

asp

ect

of th

e o

rgan

izat

ion

and e

xtern

al forc

es

affe

ctin

g it

should

be v

iew

ed. This

incl

udes

the regula

tory

envi

ronm

ent an

d ris

k, the tw

o a

reas

that

are

oft

en s

een a

s burd

ens

rath

er

than

opport

unitie

s. R

egula

tory

envi

ronm

ent is

the top is

sue that

can

hav

e

an im

pac

t on a

com

pan

y an

d the a

rea

to w

hic

h C

EO

s devo

te the m

ost

tim

e.

Aft

er ye

ars

of re

puta

tional

hits

follo

win

g the fi

nan

cial

crisi

s, a

nd m

ore

rece

ntly

cyber se

curity

bre

aches,

the m

ajority

of C

EO

s ar

e p

ers

onal

ly in

volv

ed w

ith

risk

man

agem

ent. B

ut th

e s

urv

ey

found that

man

y m

ay n

ot hav

e rig

oro

us

and

inte

gra

ted ris

k pro

cess

es,

as

well

as c

ulture

s th

at w

ill h

elp

them

choose

the

best

str

ategy

for gro

wth

.

Key

find

ings

Con

fiden

t on

ec

onom

ic

outlo

ok,

hiri

ng

Mor

e th

an h

alf

of th

e CE

Os

surv

eyed

—55

per

cent

—fe

el m

ore

confi

dent

abo

ut th

e ec

onom

y ov

er th

e

next

thre

e ye

ars

than

they

did

a y

ear

ago.

Sev

enty

-eig

ht p

erce

nt in

tend

to

incr

ease

hea

d co

unt.

Expe

ct T

o B

e M

uch

M

ore

Acq

uisi

tive

Toda

y, tw

o-th

irds

of th

e CE

Os

say

thei

r

curr

ent g

row

th s

trat

egy

is b

uilt

arou

nd

orga

nic

grow

th, w

ith o

ne-t

hird

say

ing

it

is c

ombi

natio

n of

org

anic

and

inor

gani

c

grow

th th

roug

h ac

quis

ition

s. W

hen

aske

d to

look

at t

heir

grow

th s

trat

egy

over

the

next

thre

e ye

ars,

53

perc

ent

expe

ct th

eir p

riorit

y w

ill b

e or

gani

c

grow

th, w

ith 4

2 pe

rcen

t ind

icat

ing

that

it w

ill b

e an

eve

n sp

lit b

etw

een

orga

nic

and

inor

gani

c gr

owth

thro

ugh

acqu

isiti

ons.

Str

ong

Focu

s on

Gro

wth

Se

vent

y-tw

o pe

rcen

t say

that

the

focu

s

on g

row

th is

mor

e im

port

ant f

or th

eir

com

pani

es’ w

ell-b

eing

than

a fo

cus

on

oper

atio

nal e

ffici

enci

es. Y

et, t

he K

PMG

stud

y fo

und

CEO

s le

ss th

an c

erta

in

abou

t the

cou

rse

and

spee

d to

take

thei

r

grow

th s

trat

egie

s. S

tudy

resu

lts s

how

that

CEO

s ar

e ev

enly

spl

it in

cat

egor

izin

g

thei

r ove

rall

grow

th s

trat

egy

as e

ither

aggr

essi

ve o

r con

serv

ativ

e. Opt

imis

tic

A

bout

B

usin

ess

Pro

spec

ts

Sixt

y-tw

o

perc

ent a

re

optim

istic

abo

ut th

e gr

owth

pro

spec

ts

for t

heir

busi

ness

in th

e ne

xt th

ree

year

s.

And

the

CEO

s ex

pect

gre

ater

pro

fits

ahea

d. In

look

ing

at th

e ne

xt fi

ve y

ears

,

28 p

erce

nt ta

bbed

201

6 to

be

thei

r

grea

test

yea

r for

pro

fits

and

29 p

erce

nt

said

201

7.

55%

62%

02 /

Sett

ing t

he C

ours

e f

or

Gro

wth

: C

EO

Pers

pectives

Sur

ge in

Ope

rati

ng M

odel

Tr

ansf

orm

atio

ns

A v

ast m

ajor

ity o

f com

pany

lead

ers

in

the

surv

ey (7

6%) a

re a

t som

e st

age

of o

pera

ting

mod

el tr

ansf

orm

atio

n –

asse

ssin

g th

e ne

ed, p

lann

ing

for i

t,

star

ting

or h

avin

g ju

st im

plem

ente

d

it. H

owev

er, j

ust 1

6 pe

rcen

t sai

d th

at

they

eva

luat

e th

eir o

pera

ting

mod

els

quar

terly

and

the

maj

ority

(54%

)

do it

yea

rly.

Spu

rrin

g

Inno

vati

on

a To

p

Cha

llen

geW

hile

spu

rrin

g

inno

vatio

n is

amon

g th

e to

p ch

alle

nges

for C

EOs,

just

17 p

erce

nt o

f com

pani

es h

ave

deve

lope

d

and

impl

emen

ted

a fo

rmal

, com

pany

-

wid

e pr

oces

s fo

r inn

ovat

ion

acro

ss a

ll

units

. Man

y m

ore

(47%

) of t

he la

rges

t

com

pani

es, w

ith re

venu

es o

ver $

10

billi

on, h

ave

a fo

rmal

, com

pany

wid

e

inno

vatio

n pr

oces

s.

Pro

duct

R

elev

ance

a

Top

C

once

rn

Seve

nty-

two

perc

ent o

f the

CEO

s sa

id th

ey a

re c

once

rned

abo

ut th

e

rele

vanc

e of

pro

duct

s/se

rvic

es th

ree

year

s fr

om n

ow. F

urth

erm

ore,

a v

ast

maj

ority

(90%

) are

con

cern

ed a

bout

the

abili

ty o

f com

petit

ors

to ta

ke b

usin

ess

away

from

them

, and

59

perc

ent a

re

conc

erne

d ab

out n

ew e

ntra

nts

disr

uptin

g

thei

r bus

ines

s m

odel

.

Ada

ptin

g to

G

over

nmen

t R

egul

atio

n

a H

igh

P

rior

ity

Whe

n as

ked

to

iden

tify

issu

es th

at c

an h

ave

the

mos

t

impa

ct o

n th

eir c

ompa

nies

, the

CEO

s

iden

tified

the

regu

lato

ry e

nviro

nmen

t

first

, fol

low

ed b

y co

rpor

ate

tax

refo

rm.

In fa

ct, 3

4 pe

rcen

t of t

he C

EOs

are

spen

ding

mor

e tim

e w

ith re

gula

tors

or

gove

rnm

ent o

ffici

als

or a

re c

onsi

derin

g

doin

g so

.

Gro

wth

Str

ateg

ies

Larg

ely

U.S

. Foc

used

Th

e KP

MG

stu

dy re

veal

s th

at g

row

th

stra

tegi

es a

re la

rgel

y U

.S. f

ocus

ed. I

n

look

ing

at d

omes

tic a

nd in

tern

atio

nal

oper

atio

ns to

driv

e gr

owth

ove

r the

nex

t

thre

e ye

ars,

a fa

r gre

ater

num

ber o

f

CEO

s ta

bbed

dom

estic

exp

ansi

on a

s

the

prio

rity.

Expa

ndin

g G

eogr

aphi

call

y R

anke

d as

Top

Cha

llen

geTh

e CE

Os

tabb

ed e

xpan

ding

geog

raph

ical

ly a

s th

eir t

op c

halle

nge,

just

ahe

ad o

f ada

ptin

g to

gov

ernm

ent

regu

latio

n, fo

cusi

ng o

n op

erat

iona

l

exce

llenc

e, s

tren

gthe

ning

the

bran

d, a

nd

spur

ring

inno

vatio

n.

Ris

k

Man

agem

ent

Not

Reg

ular

ly

Dis

cuss

ed

The

maj

ority

of

CEO

s ei

ther

lead

the

disc

ussi

ons

on ri

sk p

lann

ing

or h

ave

a st

rong

voi

ce in

them

(89%

). Ye

t, ev

en

thou

gh ri

sk m

anag

emen

t is

the

seco

nd-

high

est c

once

rn a

bout

the

com

pany

for

CEO

s (fo

llow

ing

finan

cial

per

form

ance

),

risk

plan

ning

is p

roac

tivel

y di

scus

sed

on a

regu

lar b

asis

at j

ust 2

7 pe

rcen

t

of o

rgan

izat

ions

.

34%

27%

72%

17%

Sett

ing t

he C

ours

e f

or

Gro

wth

: C

EO

Pers

pectives /

03

CEO

s su

rveye

d feel c

onfident ab

out

the e

conom

y, their

indust

ries

and their

com

pan

ies

ove

r th

e n

ext

thre

e y

ear

s. “

My

eco

nom

ic m

odels

suggest

that

we w

ill s

till b

e

in the g

row

th p

has

e for th

e n

ext

thre

e y

ear

s,

how

eve

r, w

e w

ill p

robab

ly b

e n

ear

ing the e

nd

of th

e reco

very

. It al

l com

es

dow

n to w

hat

hap

pens

with

the la

bor m

arke

t an

d w

ages.

If

much

of th

e lo

w p

artic

ipat

ion is

cyc

lical

then

wag

es

won’t ris

e too m

uch

and in

flat

ion

will n

ot be a

n is

sue. I

f th

e lo

w p

artic

ipat

ion

is s

truct

ura

l then w

e h

ave a

sm

alle

r su

pply

of la

bor an

d w

age p

rice p

ress

ure

s w

ill d

rive

inflat

ion a

nd rat

es

hig

her w

hic

h w

ill im

pac

t th

e

length

of th

e g

row

th c

ycle

,” s

ays

Const

ance

Hunte

r, K

PM

G’s

chie

f eco

nom

ist in

its

Alte

rnat

ive In

vest

ments

Pra

ctic

e.

Mic

hae

l R. O

dell,

Pre

sident an

d C

EO

of

auto

motiv

e a

fterm

arke

t se

rvic

e a

nd reta

il ch

ain

Pep B

oys

, sounds

eve

n m

ore

meas

ure

d: “

We

assu

me that

the e

conom

y is

goin

g to s

tay

at s

tatu

s quo. W

e’re n

ot exp

ect

ing a

nyt

hin

g

to g

et w

ors

e, w

e’re n

ot exp

ect

ing thin

gs

to

get a

lot bett

er,

whic

h m

ean

s it’

s a

fight fo

r

mar

ket sh

are.”

Mak

ing m

anag

ing thro

ugh

this

reco

very

eve

n m

ore

com

ple

x fo

r C

EO

s

is a

var

ied la

ndsc

ape, w

ith the e

conom

y

reboundin

g u

neve

nly

acr

oss

the U

nite

d

Sta

tes.

As

a re

sult,

man

y C

EO

s opera

te

acro

ss u

p a

nd d

ow

n a

reas

. Such

sentim

ents

may

be b

ehin

d C

EO

s’ c

iting a

few

year

s out

as the tim

e w

hen they

exp

ect

to reco

rd the

gre

atest

pro

fits

.

Ove

rall,

the K

PM

G s

tudy

reve

als

that

CE

Os

are in

gro

wth

mode, a

s gro

wth

deci

sive

ly

trum

ps

effi

ciency

as

more

import

ant to

com

pan

ies’

well-

bein

g, w

ith 7

8 p

erc

ent of

CE

Os

exp

ect

ing to in

creas

e h

ead

count ove

r

the n

ext

thre

e y

ear

s.

The K

PM

G C

EO

stu

dy

reve

als

that

eve

n a

s

CE

Os

prio

ritiz

e g

row

th, t

hey

contin

ue to focu

s

on e

ffici

ency

. Man

y of th

e g

row

th s

trat

egie

s

and p

rogra

ms

that

CE

Os

are u

ndert

akin

g a

re

exe

cute

d w

hile

keepin

g a

n e

ye o

n s

avin

gs.

For exa

mple

, the tra

nsf

orm

atio

n o

f opera

ting

models

, whic

h a

re b

ein

g u

ndert

aken in

som

e

form

by

76 p

erc

ent of co

mpan

ies,

acc

ord

ing

to their

CE

Os,

is in

fluence

d m

ost

ly b

y finan

cial

and e

ffici

ency

-bas

ed fac

tors

. The s

ucc

ess

of

opera

ting m

odel t

ransf

orm

atio

n is

meas

ure

d

by

finan

cial

metr

ics

as w

ell.

Reduci

ng c

ost

stru

cture

is a

mong the top fi

ve s

trat

egic

prio

ritie

s. T

hat

appro

ach c

han

ges

in the c

ase

of co

mpan

ies

with

reve

nues

ove

r $10 b

illio

n,

whic

h tend to rely

more

on n

on-fi

nan

cial

metr

ics

for desi

gnin

g a

nd m

eas

urin

g g

row

th

stra

tegie

s.

Heal

thca

re g

iant W

ellP

oin

t is

prio

ritiz

ing

gro

wth

bas

ed o

n the b

elie

f th

at n

atio

nal

sca

le

and lo

cal m

arke

t densi

ty w

ill c

ontin

ue to b

e

centr

al to a

chie

ving h

igher m

em

bers

hip

for

Ahe

ad: c

onfid

ence

bui

lt on

pla

ns fo

r effi

cien

t gro

wth

04 /

Sett

ing t

he C

ours

e f

or

Gro

wth

: C

EO

Pers

pect

ives

FIG

UR

E 1

How

do

you

feel

abo

ut p

rosp

ects

fo

r gr

owth

ove

r th

e ne

xt th

ree

year

s?

(com

pare

d to

last

yea

r)

32%

59

%

9%

26%

62

%

12%

41%

55

%

4%

EC

ON

OM

Y

MY

IND

US

TR

Y

MY

CO

MP

AN

Y

Mo

re C

on

fid

en

tLe

ss C

on

fid

en

tS

am

e L

eve

l

Ove

rall

foc

us

on

gro

wth

Ove

rall

foc

us

on

op

era

tio

na

l

effi

cie

nc

ies

72%

28%

FIG

UR

E 2

Whi

ch is

mor

e im

pora

nt to

you

r co

mpa

ny’s

ove

rall

wel

l-be

ing?

Incr

ease

25%

or m

ore

Incr

ease

11-

25%

Incr

ease

6-1

0%

Incr

ease

5%

or l

ess

Sta

y th

e sa

me

Dec

reas

e up

to 5

%

Dec

reas

e 6-

10%

Dec

reas

e 11

-25%

8%

21

%

25

%

24

%

12

%

6%

3% 1%

FIG

UR

E 3

How

do

you

expe

ct y

our

orga

niza

tion

’s

head

coun

t to

chan

ge in

the

next

th

ree

year

s?

PG

&E

: D

rivin

g O

pera

tio

nal E

fficie

ncie

s

PG

&E

is a

ggre

ssiv

e ab

out b

oth

grow

th a

nd e

ffici

ency

. The

com

pany

is in

vest

ing

abou

t $6

billi

on a

yea

r in

infr

astr

uctu

re,

its h

ighe

st r

ate

of in

vest

men

t eve

r. In

a r

egul

ated

indu

stry

,

grow

th is

dri

ven

by c

apita

l inv

estm

ent.

The

risk

to th

at g

row

th

is th

at c

apita

l inv

estm

ents

lead

to h

ighe

r ra

tes

char

ged

to th

e

cust

omer

s. In

a lo

w-g

row

th e

cono

my

like

toda

y’s,

ope

ratio

nal

effic

ienc

ies

have

to b

e dr

iven

in o

rder

to c

ount

erba

lanc

e

the

incr

ease

in c

osts

ass

ocia

ted

with

the

capi

tal i

nves

tmen

t.

“We’

re a

ggre

ssiv

e on

gro

wth

, but

we’

re a

lso

aggr

essi

ve o

n

oper

atio

nal e

ffici

enci

es to

cou

nter

bala

nce

that

, so

we

can

mai

ntai

n a

stro

ng fo

cus

on a

ffor

dabl

e bi

lls fo

r ou

r cu

stom

ers,

”

says

PG

&E’

s C

EO, A

ntho

ny F

. Ear

ley

Jr.

To a

chie

ve h

ighe

r ef

ficie

ncie

s P

G&

E ha

s a

very

agg

ress

ive

cont

inuo

us im

prov

emen

t pro

gram

. Eac

h bu

sine

ss u

nit s

tart

s

with

ext

ensi

ve b

ench

mar

king

of p

roce

sses

in r

elat

ion

to th

e

best

in th

e in

dust

ry. P

G&

E us

ed to

be

in th

e fo

urth

qua

rtile

, but

is n

ow, o

n av

erag

e, in

the

high

thir

d qu

artil

e, m

ovin

g ac

ross

into

the

seco

nd. T

he ta

rget

is to

get

to th

e fir

st, w

hich

Ear

ley

tran

slat

es in

to $

500

mill

ion

to $

1 bi

llion

of s

avin

gs o

ppor

tuni

ties.

Ahe

ad: c

onfid

ence

bui

lt on

pla

ns fo

r effi

cien

t gro

wth

(con

t.)

GR

OW

TH V

S. E

FFIC

IEN

CY

Q&

A W

ith

Ste

phen

Lis

, Lea

der,

Man

agem

ent C

onsu

ltin

g P

ract

ice,

KP

MG

LLP

Whe

n w

e as

ked

CEO

s w

hat w

as m

ore

impo

rtan

t, gr

owth

or

effic

ienc

y, th

ree-

four

ths

said

grow

th. I

s it

pos

sibl

e to

hav

e bo

th?

Gro

wth

and

effi

cien

cy a

re n

ot c

ontr

adic

tory

. It’s

har

d

to g

et b

oth

at th

e sa

me

time,

but

it is

defi

nite

ly n

ot im

poss

ible

. Whi

le C

EOs

are

incr

easi

ngly

look

ing

at g

row

th s

trat

egie

s to

dri

ve v

alue

cre

atio

n, th

ey a

re s

till i

nves

ting

in in

fras

truc

ture

,

the

oper

atin

g en

viro

nmen

t, an

d th

e ba

ck o

ffice

and

sup

port

func

tions

. Tha

t inv

estm

ent i

s

focu

sed

on p

ositi

onin

g th

e op

erat

ing

envi

ronm

ent a

nd in

fras

truc

ture

to s

uppo

rt g

row

th a

s w

ell

as d

rive

effi

cien

cy.

CEO

s us

e m

easu

rem

ents

rel

ated

to e

ffici

ency

and

cos

t-cu

ttin

g. A

re th

ese

mea

sure

men

ts

grow

th-r

elat

ed?

Trad

ition

al m

easu

rem

ent s

yste

ms

are

hist

oric

al, l

ooki

ng a

t pas

t per

form

ance

and

typi

cally

focu

sed

on e

ffici

ency

, cos

t, ca

pita

l util

izat

ion,

etc

. Ver

y lit

tle in

the

mea

sure

men

t

syst

em to

day

is fo

rwar

d-lo

okin

g. S

impl

y pu

t, th

e m

easu

rem

ent s

yste

ms

have

not

cau

ght u

p

to th

e ag

enda

of g

row

th. T

hey

tend

to la

ck k

ey in

dica

tors

and

pre

dict

ive

insi

ghts

on

whe

re

grow

th o

ppor

tuni

ties

may

exi

st. H

owev

er, t

echn

olog

ies

are

begi

nnin

g to

em

erge

that

pro

vide

grea

ter

insi

ghts

into

cus

tom

er s

entim

ent,

beha

vior

and

opp

ortu

nitie

s fo

r gr

owth

.

Wha

t are

som

e ex

ampl

es o

f suc

h pr

edic

tive

, gro

wth

-gen

erat

ing

mea

sure

men

ts?

A lo

t of

atte

ntio

n is

bei

ng p

aid

to a

naly

tics

pred

ictin

g cu

stom

er b

ehav

ior.

Ano

ther

are

a of

inte

rest

is a

naly

zing

cus

tom

er e

ngag

emen

t and

sat

isfa

ctio

n, a

nd h

ow to

enh

ance

bot

h. S

uch

mea

sure

men

ts c

an h

elp

deci

de w

hich

are

as h

ave

the

grea

test

gro

wth

pot

entia

l and

how

to p

ositi

on th

e or

gani

zatio

n (b

oth

mar

ketin

g an

d sa

les

as w

ell a

s de

liver

y an

d se

rvic

e) to

max

imiz

e gr

owth

. The

se n

ew u

ses

of te

chno

logy

for

pred

ictiv

e m

easu

rem

ent h

ave

gain

ed

favo

r as

we’

ve a

lso

begu

n to

see

the

emer

genc

e of

the

chie

f mar

ketin

g of

ficer

func

tion.

Sur

veys

indi

cate

that

mar

ketin

g or

gani

zatio

ns a

re s

tart

ing

to g

et m

ore

tech

nolo

gy in

vest

men

t

than

IT o

rgan

izat

ions

them

selv

es.

heal

th p

lans

and h

igher pro

fita

bility

. “W

e w

ill

mai

nta

in a

lean

min

dse

t, b

ut w

e w

ill n

ot do s

o

at the e

xpense

of in

vest

ing in

the b

usi

ness

for

the lo

ng term

,” s

ays

CE

O J

ose

ph R

. Sw

edis

h.

(See s

idebar

, PG

&E

: Driv

ing O

pera

tional

Effi

cienci

es,

pag

e 5

.)

Tam

ara

L. L

undgre

n, p

resi

dent an

d C

EO

of S

chnitz

er S

teel,

spends

consi

dera

ble

time o

n im

pro

ving e

ffici

ency

by

revi

ew

ing

the c

om

pan

y’s

opera

ting m

odel w

ith h

er

exe

cutiv

e m

anag

em

ent te

am. “

The resu

lts

incl

ude o

ur deci

sions

to s

tream

line o

ur sh

ared-

serv

ices

div

isio

n, c

om

bin

e a

dm

inis

trat

ive

funct

ions

with

in o

pera

tions

and a

dju

st o

ur

opera

ting m

odel t

o e

nsu

re that

we a

re

posi

tioned to e

xtra

ct s

ynerg

ies

acro

ss o

ur

entir

e b

usi

ness

pla

tform

, whic

h e

xtends

from

the s

ourc

ing a

nd p

roce

ssin

g o

f sc

rap

meta

l to the m

anufa

cturin

g o

f finis

hed s

teel,”

she s

ays.

Acr

oss

the b

oar

d g

row

th s

trat

egie

s ar

e s

plit

,

with

hal

f of C

EO

s cl

assi

fyin

g their

gro

wth

stra

tegie

s as

conse

rvat

ive a

nd the o

ther hal

f

as a

ggre

ssiv

e. I

n li

ne w

ith this

bal

ance

, a

maj

orit

y of C

EO

s su

rveye

d (8

4%

) are

purs

uin

g

modera

te g

row

th s

trat

egie

s, d

ivid

ed roughly

in h

alf betw

een m

odera

tely

aggre

ssiv

e a

nd

modera

tely

conse

rvat

ive.

Beth

Mooney,

CE

O o

f K

eyB

ank,

is p

urs

uin

g

a m

odera

te g

row

th s

trat

egy

rela

tive

to

the in

dust

ry. “W

e a

re p

urs

uin

g a

gro

wth

stra

tegy

that

is b

ett

er

than

peer

avera

ge

but

doesn

’t p

ut

us

in a

posi

tion f

or

the n

ext

dow

ntu

rn o

f hav

ing t

aken r

isks

that

we

will

pay

the p

rice

for,” s

ays

Mooney.

“O

ur

indust

ry h

as t

o r

em

em

ber

that

when a

nd

if t

here

is a

noth

er

rece

ssio

n o

r bubble

, yo

u

hav

e t

o p

rove

that

you b

uilt

a b

usi

ness

model t

hat

can

surv

ive it

without

causi

ng

inve

stors

vola

tilit

y.”

The K

PM

G s

tudy

reve

als

that

gro

wth

stra

tegie

s ar

e la

rgely

U.S

.-fo

cuse

d. In

fact

, al

most

a q

uar

ter

of

CE

Os

surv

eye

d

(23%

) belie

ve t

hat

their in

tern

atio

nal

opera

tions

will

require le

ss t

ime o

r energ

y,

with t

he b

iggest

gro

up (37%

) sa

ying t

hat

inte

rnat

ional

opera

tions

will

get

the s

ame

tim

e a

nd a

ttention a

s oth

er

priorities.

Just

10 p

erc

ent

say

that

inte

rnat

ional

opera

tions

will

require m

ore

tim

e a

nd e

nerg

y.

06 /

Sett

ing t

he C

ours

e f

or

Gro

wth

: C

EO

Pers

pectives

Wh

irlp

oo

l: B

ala

nce B

uilt

on

Exp

eri

en

ce

Maj

or h

ome

appl

ianc

e gi

ant W

hirl

pool

Cor

pora

tion

has

a ba

lanc

ed, m

ultip

rong

ed a

ppro

ach

to c

over

ing

all t

he b

ases

of g

row

th, b

uilt

upon

the

com

pany

’s 1

00

year

s of

exp

erie

nce.

“O

ur g

row

th p

lans

incl

ude

orga

nic

grow

th th

roug

h in

nova

tion,

gro

wth

bey

ond

our

core

prod

ucts

and

geo

grap

hic

expa

nsio

n,”

says

CEO

Jef

f M.

Fett

ig. W

hirl

pool

is a

lso

on tr

ack

to b

ecom

e th

e m

ajor

ity

shar

ehol

der

of H

efei

San

yo, a

Chi

nese

hom

e ap

plia

nce

mak

er, t

o ac

cele

rate

its

grow

th in

the

emer

ging

Chi

nese

mar

ket.

The

com

pany

rec

ently

ann

ounc

ed a

$40

mill

ion

expa

nsio

n of

its

smal

l-ap

plia

nce

man

ufac

turi

ng

oper

atio

n in

Gre

envi

lle, O

hio,

that

wou

ld a

dd 4

00 jo

bs

over

the

next

four

yea

rs, a

nd it

is a

lso

laun

chin

g a

new

mar

ketin

g ca

mpa

ign

for

the

May

tag

bran

d. T

he

com

pany

is in

vest

ing

heav

ily in

inno

vatio

n, in

clud

ing

smar

t app

lianc

es. T

he p

lan

is to

gro

w r

even

ue b

y 5

perc

ent t

o 7

perc

ent.

True

to th

e ba

lanc

e of

ach

ievi

ng

both

gro

wth

and

effi

cien

cy, W

hirl

pool

aim

s to

incr

ease

its o

pera

ting

mar

gin

by 8

per

cent

.

Ahe

ad: c

onfid

ence

bui

lt on

pla

ns fo

r effi

cien

t gro

wth

(con

t.)

In a

dditio

n, in

looki

ng a

t dom

est

ic a

nd

inte

rnat

ional

opera

tions

to d

rive

gro

wth

ove

r

the n

ext

thre

e y

ear

s, a

far

gre

ater

num

ber

of

CE

Os

surv

eye

d t

ab d

om

est

ic e

xpan

sion a

s

the p

riority

. That

’s n

ot

surp

risi

ng w

hen y

ou

consi

der

the r

ein

vest

ment

in m

anufa

cturing

in t

he U

.S. an

d t

he g

enera

l ste

adin

ess

of

the

U.S

. eco

nom

y w

hen c

om

par

ed w

ith o

ther

eco

nom

ies.

A lo

ok

at w

here

CE

Os

inte

nd to in

vest

cap

ital

reve

als

that

inve

stin

g w

ithin

the U

.S. ta

kes

priority

ove

r in

tern

atio

nal

inve

stin

g, ac

cord

ing

to t

he s

urv

ey.

Tech

nolo

gy

sect

or

CE

Os

put

a

much

gre

ater

em

phas

is o

n e

xpan

din

g b

oth

in t

he U

.S. as

well

as in

em

erg

ing m

arke

ts,

follo

wed b

y C

EO

s in

auto

motive

.

Of

cours

e, th

e s

cope a

nd d

irect

ion o

f gro

wth

stra

tegie

s va

ries

by

com

pan

y an

d it

s st

ate

of

deve

lopm

ent.

The g

row

th s

trat

egy

of

Whirlp

ool,

a ce

ntu

ry-o

ld a

pplia

nce

mak

er,

incl

udes

a m

ajor

inte

rnat

ional

com

ponent

in

Chin

a. (S

ee s

idebar

, W

hirlp

ool:

Bala

nce B

uilt

on E

xperience, pag

e 7

) A

von, a

128-y

ear

-old

direct

-selli

ng b

eau

ty c

om

pan

y, d

erive

s 85

perc

ent

of

its

busi

ness

outs

ide t

he U

.S.,

and 7

5 p

erc

ent

of

its

reve

nues

com

e f

rom

em

erg

ing m

arke

ts.

Curr

ently,

the m

ajority

of

CE

Os

surv

eye

d

(67%

) ar

e p

urs

uin

g o

rgan

ic g

row

th, an

d

a th

ird a

re e

venly

split

betw

een o

rgan

ic

gro

wth

and a

cquis

itio

ns.

The b

iggest

com

pan

ies

stan

d o

ut,

with a

50/5

0 s

plit

betw

een p

ure

ly o

rgan

ic g

row

th a

nd

stra

tegie

s bas

ed e

venly

on o

rgan

ic g

row

th

and a

cquis

itio

ns.

As

one e

xam

ple

, S

chnitze

r S

teel h

as a

gro

wth

str

ategy

bas

ed o

n o

rgan

ic g

row

th

and a

cquis

itio

ns.

Org

anic

gro

wth

antici

pat

es

both

top-li

ne g

row

th a

nd c

ontinuin

g m

argin

exp

ansi

on. S

ince

2008, th

e c

om

pan

y has

mad

e 1

1 a

cquis

itio

ns

in it

s m

eta

ls r

ecy

clin

g

busi

ness

and 1

6 a

cquis

itio

ns

or

gre

enfield

deve

lopm

ents

in it

s au

to p

arts

busi

ness

.

“A

cquis

itio

ns

and g

reenfield

deve

lopm

ents

will

rem

ain k

ey

drive

rs o

f our

gro

wth

,

as t

hey

hav

e b

een in

the p

ast,

” s

ays

Lundgre

n.

08 /

Sett

ing t

he C

ours

e f

or

Gro

wth

: C

EO

Pers

pectives

FIG

UR

E 5

How

wou

ld y

ou c

hara

cter

ize

your

ove

rall

gro

wth

str

ateg

y?

67%

32%

42%

53%

Even

ly s

plit

betw

een

orga

nic

grow

th a

nd

M&

A/J

V

Mos

tly

orga

nic

grow

thM

ostly

M&

A/J

V

Tod

ay

In 3

ye

ars

1%5%

6%

44

%

40

%

10

%

Very

agg

ress

ive

Mod

erat

ely

aggr

esiv

e

Very

con

serv

ativ

e

Mod

erat

ely

cons

erva

tive

FIG

UR

E 4

How

wou

ld y

ou c

hara

cter

ize

your

ove

rall

gro

wth

str

ateg

y?

Idea

lly, t

his

thre

e-ye

ar ti

me

horiz

on fo

r inc

reas

ed M

&A

act

ivity

wou

ld a

lign

to a

per

iod

in w

hich

ther

e is

gre

ater

cer

tain

ty

arou

nd b

usin

ess

tax

refo

rm—

an it

em th

at s

urve

y re

spon

dent

s

iden

tified

as

havi

ng re

lativ

ely

high

pos

sibl

e im

pact

on

thei

r

com

pani

es. W

e’re

see

ing

that

the

curr

ent u

ncer

tain

out

look

for

refo

rm is

par

ticul

arly

cha

lleng

ing

for c

ompa

nies

und

erta

king

M&

A tr

ansa

ctio

ns to

day.

It c

asts

a s

hado

w o

ver t

he ta

x ou

tlook

for t

he ta

rget

com

pany

’s op

erat

ions

as

wel

l as

the

oppo

rtun

ities

for t

ax-e

ffici

ent i

nteg

ratio

n of

the

com

bini

ng b

usin

esse

s, b

oth

of w

hich

mak

e pr

icin

g de

als

toda

y m

ore

diffi

cult.

– Li

sa M

adde

n

Nat

iona

l Pra

ctic

e Le

ader

, KP

MG

Mer

gers

& A

cqui

sitio

ns T

ax.

“

”

M&

A a

ctiv

ity

should

be p

icki

ng u

p in

the

near

futu

re, ac

cord

ing t

o t

he s

urv

ey

resu

lts.

Looki

ng a

head

to t

hre

e y

ear

s fr

om

today

,

more

CE

Os

surv

eye

d (42%

) pla

n t

o b

e

purs

uin

g s

trat

egie

s bas

ed o

n b

oth

org

anic

and M

&A

-bas

ed g

row

th.

“O

rgan

izat

ions

are h

old

ing o

n t

o m

assi

ve

amounts

of

cash

, in

tere

st r

ates

hav

e

rem

ained a

t his

toric

low

s, a

nd c

onsu

mer

confidence

is r

isin

g. These

posi

tive

eco

nom

ic in

dic

ators

poin

t to

a g

enera

l

feelin

g o

f optim

ism

in t

he c

orp

ora

te a

rena,

”

says

Dan

Tie

man

n, K

PM

G’s

tra

nsa

ctio

ns

and r

est

ruct

uring le

ad f

or

the A

merica

s.

“W

hen a

tar

get

that

com

ple

ments

an

org

aniz

atio

n’s

gro

wth

str

ategy

beco

mes

avai

lable

, purs

uin

g M

&A

pre

sents

an

attr

active

opport

unity

for

corp

ora

te p

laye

rs

to c

reat

e lo

ng-t

erm

equity

valu

e f

or

their

stak

ehold

ers

.”

Of

cours

e, purs

uin

g M

&A

s is

, firs

t an

d

fore

most

, a

quest

ion o

f fit.

Celg

ene, a

bio

phar

mac

eutica

l com

pan

y fo

cuse

d o

n

deve

lopin

g p

roduct

s fo

r th

e t

reat

ment

of

cance

r an

d im

mune-in

flam

mat

ory

dis

eas

es,

has

com

ple

ted m

ultip

le s

trat

egic

par

tners

hip

s. C

EO

Robert

Hugin

mak

es

no f

utu

re p

redic

tions

and s

tress

es

the

import

ance

of

synerg

ies

when d

eci

din

g

about

acquis

itio

ns

or

par

tners

hip

s. “

We

don’t h

ave a

tar

get

for

what

we p

lan t

o d

o

goin

g f

orw

ard t

his

year

or

in f

utu

re y

ear

s

[in t

erm

s of

deal

s],”

he s

ays.

“H

avin

g a

stro

ng in

tern

al r

ese

arch

cap

abili

ty g

ives

us

insi

ghts

into

pro

gra

ms

that

would

pro

duce

syn

erg

ies

to p

roduce

dis

ruptive

tech

nolo

gie

s an

d li

fe-e

nhan

cing t

hera

pie

s in

the in

tere

st o

f pat

ients

, heal

thca

re s

yste

ms

and e

conom

ies

worldw

ide.”

“E

xecu

tive

s ar

e t

urn

ing t

heir a

ttention t

o

deal

s th

at b

ring r

eve

nue a

nd c

ost

syn

erg

ies

to t

heir o

rgan

izat

ions,

” a

dds

Tiem

ann, “an

d

they

are w

illin

g t

o p

ay a

pre

miu

m f

or

those

targ

ets

. O

therw

ise, buye

rs a

re w

illin

g t

o

wai

t on t

he s

idelin

es

for

the r

ight

targ

et

to

beco

me a

vaila

ble

that

will

eff

ect

ively

and

effi

ciently

inte

gra

te w

ith t

heir o

rgan

izat

ion.”

Sett

ing t

he C

ours

e f

or

Gro

wth

: C

EO

Pers

pectives /

09

Sta

ying

rele

vant

am

ong

disr

uptio

ns

The c

once

rn a

bout

stay

ing r

ele

vant

is r

unnin

g h

igh a

mong C

EO

s. T

he

maj

ority

worr

y ab

out

the r

ele

vance

of

their p

roduct

s th

ree y

ear

s fr

om

now

, ar

e

conce

rned a

bout

curr

ent

com

petito

rs

taki

ng b

usi

ness

aw

ay a

nd a

re w

ary

of

new

entr

ants

. W

hen a

sked w

heth

er

she is

more

conce

rned a

bout

exi

stin

g c

om

petito

rs o

r

new

entr

ants

, S

heri M

cCoy,

CE

O o

f A

von,

said

sim

ply

: “B

oth

.”

Sta

ying a

bre

ast

of

com

petito

rs a

nd

consu

mers

ove

r th

e n

ext

thre

e y

ear

s w

ill

require n

ew

appro

aches

and o

ften d

iffe

rent

tools

than

it d

id in

the p

ast.

Com

petition

has

beco

me in

dust

ry-a

gnost

ic in

the s

ense

that

a c

om

pan

y fr

om

any

indust

ry c

an

influence

ove

rall

consu

mer

behav

iors

and

exp

ect

atio

ns.

It

thus

benefits

CE

Os

to

obse

rve a

ll new

entr

ants

. This

appro

ach c

an

be il

lust

rate

d b

y th

e e

xam

ple

of

WellP

oin

t’s

Sw

edis

h. D

esp

ite o

pera

ting in

heal

thca

re,

whic

h is

am

ong t

he m

ost

dis

rupte

d a

nd

idio

syncr

atic

indust

ries,

he c

arefu

lly s

tudie

s

new

entr

ants

in o

ther

indust

ries

looki

ng f

or

new

consu

mer

trends

they

are in

troduci

ng.

(See s

idebar

at

right,

WellP

oin

t: P

utt

ing

the C

onsum

er

at

the C

ente

r.) K

eyB

ank’

s

Mooney

is a

lso v

ery

ale

rt t

o t

he w

aves

that

tech

nolo

gy

com

pan

ies

can m

ake in

her

indust

ry. (S

ee s

idebar

, K

eyB

ank: B

ankin

g o

n

Safe

ty, pag

e 1

3.)

One im

port

ant

way

to s

tay

rele

vant

is t

o li

sten t

o c

onsu

mers

. In

deed, th

e

KP

MG

stu

dy

show

s th

at m

ore

inte

ract

ion

with c

ust

om

ers

and c

lients

is a

top

org

aniz

atio

nal

priority

for

CE

Os.

In t

he e

ra

of

the d

igital

ly s

avvy

cust

om

er, t

he id

ea

of

bein

g c

ust

om

er-ce

ntr

ic h

as t

aken o

n n

ew

mean

ing.

10 /

Sett

ing t

he C

ours

e f

or

Gro

wth

: C

EO

Pers

pectives

90%

conc

erne

d ab

out c

ompe

tito

rs ta

king

busi

ness

aw

ay

72%

rele

vanc

e of

pro

duct

s/se

rvic

es th

ree

year

s

from

now

59%

new

ent

rant

s di

srup

ting

bus

ines

s m

odel

FIG

UR

E 6

How

con

cern

ed a

re y

ou a

bout

the

foll

owin

g?

Wellp

oin

t: P

utt

ing

th

e C

on

su

mer

at

the C

en

ter

Hea

lth in

sura

nce

gian

t Wel

lPoi

nt’s

CEO

, Jos

eph

R. S

wed

ish,

sta

nds

out i

n ho

w h

e th

inks

abo

ut th

e

com

petit

ion

by lo

okin

g be

yond

his

ow

n in

dust

ry. H

e

belie

ves

that

com

pani

es li

ke A

maz

on.c

om a

nd U

ber,

a

car-

orde

ring

ser

vice

, hav

e ch

ange

d th

e w

ay c

usto

mer

s

thin

k ab

out s

ervi

ces.

Tra

nsla

ting

thes

e ne

w e

ntra

nts’

stra

tegi

es in

to h

is fi

eld,

he

note

s th

at “

the

AC

A h

as

shift

ed h

ealth

care

’s c

ente

r of

gra

vity

tow

ard

the

cust

omer

—an

d so

mus

t we.

“We

need

to p

ut th

e en

d-co

nsum

er a

t the

cen

ter

of

ever

ythi

ng, a

nd th

ese

end-

cons

umer

s ca

libra

te th

eir

expe

ctat

ions

of u

s ag

ains

t the

like

s of

Am

azon

and

Ube

r,” h

e ad

ds. E

xpon

entia

l adv

ance

s in

dig

ital h

ealth

tech

nolo

gy w

ill s

igni

fican

tly c

hang

e ho

w c

usto

mer

s

acce

ss a

nd c

onsu

me

heal

thca

re. T

his

mea

ns

empl

oyin

g ne

w te

chno

logi

es a

nd n

ew b

usin

ess

mod

els

in th

e he

alth

care

indu

stry

. “W

e ne

ed to

inno

vate

to

rem

ain

rele

vant

and

to d

efen

d ou

r bu

sine

ss a

gain

st

untr

aditi

onal

new

ent

rant

s th

at m

ay d

isru

pt o

ur

indu

stry

,” s

ays

Sw

edis

h.

Sett

ing t

he C

ours

e f

or

Gro

wth

: C

EO

Pers

pectives /

11

Sta

ying

rele

vant

am

ong

disr

uptio

ns (c

ont.)

12 /

Sett

ing t

he C

ours

e f

or

Gro

wth

: C

EO

Pers

pectives

This

new

appro

ach is

bas

ed o

n u

tiliz

ing d

ata

pert

ainin

g t

o c

ust

om

er

info

rmat

ion, sa

ys

Lin

da

Imonti, P

rinci

pal

, N

atio

nal

Busi

ness

Inte

lligence

Lead

er/

West

Advi

sory

lead

er

in

Advi

sory

Serv

ices

at K

PM

G. (S

ee s

idebar

,

The P

ow

er

of

Info

rmation.) “

Org

aniz

atio

ns

unders

tand t

hat

if t

hey

anal

yze t

he

cust

om

er, g

ainin

g f

urt

her

unders

tandin

g

in h

ow

to a

ttra

ct, ac

quire, m

anag

e a

nd

reta

in c

ust

om

ers

in a

mean

ingfu

l way

, th

e

com

pan

y cr

eat

es

a m

ore

sat

isfied c

ust

om

er

and t

hus

an im

pac

t on t

he t

op li

ne,”

say

s

Imonti. P

ep B

oys

is o

ne e

xam

ple

of

a sm

art

use

of

Cust

om

er

Dat

a S

egm

enta

tion (S

ee

sidebar

, P

ep B

oys: K

now

Your

Custo

mer,

pag

e 1

4.)

KP

MG

’s H

unte

r poin

ts o

ut

that

man

y of

these

new

cust

om

ers

are

mem

bers

of

the m

illennia

l genera

tion, an

d t

he s

hifts

in

attitu

des

they

bring w

ith t

hem

are

much

more

sig

nifi

cant

than

in t

he p

revi

ous

genera

tions

of

bab

y boom

ers

or

Gen X

’ers

.

“It

’s g

oin

g t

o r

equire b

ett

er

unders

tandin

g

of

how

the c

ust

om

ers

are

diffe

rent

and

what

their n

eeds

mig

ht

be,”

say

s H

unte

r.

THE

PO

WER

OF

INFO

RM

ATI

ON

Q&

A w

ith

Lind

a Im

onti

, Nat

iona

l Bus

ines

s In

tell

igen

ce L

eade

r/W

est

Adv

isor

y le

ader

in A

dvis

ory

Ser

vice

s at

KP

MG

Wha

t is

the

best

def

ense

aga

inst

com

peti

tors

, eit

her

exis

ting

com

peti

tors

or n

ew m

arke

t ent

rant

s? O

ne o

f a c

ompa

ny’s

gre

ates

t def

ense

s ag

ains

t

com

petit

ors,

and

how

they

’ll s

tay

in a

pos

ition

of c

ompe

titiv

e ad

vant

age,

is

bein

g an

info

rmat

ion-

driv

en o

rgan

izat

ion.

Info

rmat

ion

will

dri

ve a

leve

l of

pote

ntia

l inn

ovat

ion,

spe

ed to

mar

ket a

nd c

usto

mer

inte

ract

ion

in a

way

that

we

have

n’t h

ad th

e ab

ility

to d

o in

the

past

. The

key

is to

cre

ate

info

rmat

ion

that

allo

ws

you

to n

ot o

nly

see

hist

oric

ally

but

to p

rovi

de p

redi

ctiv

e

info

rmat

ion.

Whe

n yo

u ut

ilize

pre

dict

ive

info

rmat

ion,

you

ena

ble

futu

re

com

petit

ive

posi

tioni

ng.

Are

CEO

s aw

are

of th

e im

port

ance

of d

ata

anal

ytic

s? T

here

’s b

een

a

fund

amen

tal s

hift

in u

nder

stan

ding

of t

he v

alue

of d

ata.

In p

revi

ous

year

s,

data

was

rea

lly v

iew

ed a

s a

tech

nolo

gy a

sset

. Tod

ay, c

ompa

nies

rec

ogni

ze

that

it’s

not

sim

ply

the

data

that

’s a

n as

set,

it’s

the

info

rmat

ion

they

gle

an

from

that

dat

a. T

he r

ight

info

rmat

ion

is th

e as

set.

Doe

s th

e da

ta li

ve in

var

ious

poc

kets

of t

he o

rgan

izat

ions

or

is it

uti

lize

d

ente

rpri

se-

wid

e? T

he p

ower

com

es fr

om d

ata

whe

n th

e do

ts a

re

conn

ecte

d. G

oing

forw

ard,

org

aniz

atio

ns d

o un

ders

tand

the

bene

fits

of

bein

g an

info

rmat

ion-

cent

ric

and

inte

llige

nt e

nter

pris

e. T

he C

EO h

as a

ver

y

larg

e ro

le in

mak

ing

this

hap

pen.

Whe

n it’

s an

ent

erpr

ise-

wid

e cu

lture

to

utili

ze in

form

atio

n to

mak

e bu

sine

ss d

ecis

ions

, tha

t’s w

here

the

pow

er

com

es in

. Tha

t’s w

here

you

get

and

mai

ntai

n th

e co

mpe

titiv

e ed

ge.

Ove

r the

pas

t few

yea

rs, m

anuf

actu

rers

hav

e se

en a

n ex

plos

ion

of n

ew te

chno

logi

es a

nd in

nova

tive

deve

lopm

ents

in m

ater

ials

scie

nce,

adv

ance

d m

anuf

actu

ring

and

syne

rgis

tic o

pera

ting

mod

els.

With

this

sea

cha

nge,

man

ufac

ture

rs th

e w

orld

ove

r are

now

sta

rtin

g to

take

sto

ck o

f the

mor

e co

mpl

ex w

orld

that

they

are

oper

atin

g in

and

use

that

insi

ght t

o re

defin

e ‘th

e ar

t of t

he

poss

ible

,’ fu

ndam

enta

lly tr

ansf

orm

ing

the

way

man

ufac

ture

rs

com

pete

and

suc

ceed

.

– Je

ff D

obbs

G

loba

l Cha

ir, In

dust

rial

Man

ufac

turi

ng a

nd

Par

tner

with

KP

MG

in th

e U

.S.

“

”

Keyb

an

k: B

an

kin

g O

n S

afe

ty

“I s

ee m

ore

com

petit

ive

disr

upto

rs o

n

the

land

scap

e th

an I’

ve e

ver

seen

,” s

ays

Key

Ban

k’s

CEO

, Bet

h M

oone

y. W

hile

Key

Ban

k ha

s a

grou

p of

ban

ks it

com

pete

s

with

, Moo

ney

is v

ery

awar

e th

at te

chno

logy

can

resu

lt in

new

ent

rant

s in

to b

anki

ng.

“Doe

s G

oogl

e fig

ure

out h

ow to

ow

n th

e

wal

let?

Doe

s W

al-M

art fi

gure

out

how

to

real

ly b

ank

ever

ybod

y?”

won

ders

Moo

ney.

Com

pani

es a

re a

ttem

ptin

g to

use

som

e ne

w

tech

nolo

gies

to b

ypas

s w

hat h

as b

een

the

trad

ition

al p

aym

ent s

yste

m.

The

crux

will

be

whe

ther

a n

on-b

anki

ng

inst

itutio

n ca

n fig

ure

out h

ow to

mov

e

mon

ey s

afel

y. “

Ban

ks h

ave

to p

lay

to th

eir

stre

ngth

s,”

says

Moo

ney.

Reg

iona

l ban

ks

have

the

size

and

sca

le to

mee

t com

petit

ive

dem

ands

, be

nim

ble

and

com

ply

with

regu

lato

ry r

equi

rem

ents

at t

he s

ame

time.

“We

keep

you

r m

oney

and

you

r in

form

atio

n

safe

and

sec

ure,

” sa

ys M

oone

y.

Sta

ying

rele

vant

am

ong

disr

uptio

ns (c

ont.)

Pep

Bo

ys: K

no

w Y

ou

r C

usto

mers

Pep

Boy

s, th

e au

tom

otiv

e af

term

arke

t ser

vice

and

ret

ail c

hain

, is

a

good

exa

mpl

e of

a c

ompa

ny u

sing

ana

lytic

s to

dri

ve fu

ture

gro

wth

. The

com

pany

is b

ettin

g on

org

anic

gro

wth

bas

ed o

n se

rvic

e, w

hich

is a

bigg

er m

arke

t seg

men

t tha

n th

e D

o It

You

rsel

f. A

lthou

gh th

e D

IY m

arke

t

has

bene

fited

ove

r re

cent

yea

rs d

ue to

the

wea

k ec

onom

y, s

ervi

ce is

expe

cted

to g

row

slig

htly

fast

er th

an D

IY in

the

futu

re.

But

DIY

cus

tom

ers

are

a ve

ry d

iffer

ent s

egm

ent t

han

serv

ice

cust

omer

s. T

he fo

rmer

sho

p on

pri

ce, t

he la

tter

are

mor

e in

tere

sted

in

the

avai

labi

lity

and

qual

ity o

f ser

vice

. To

unde

rsta

nd h

ow to

tailo

r its

offe

ring

s to

diff

eren

t cus

tom

er s

egm

ents

, Pep

Boy

s an

alyz

ed it

s lo

yalty

data

base

of 2

4 m

illio

n cu

stom

ers.

The

ana

lysi

s yi

elde

d fiv

e di

ffer

ent

cust

omer

type

s, fr

om th

e “E

cono

mic

al E

d” w

ho s

hops

bas

ed o

n pr

ice

to “

Hea

vy H

itter

s” w

ho fr

eque

ntly

rel

y on

Pep

Boy

s fo

r th

eir

serv

ices

and

reta

il ne

eds,

to im

age-

cons

ciou

s cu

stom

ers

who

wan

t the

ir c

ars

to

look

goo

d. B

ased

on

thes

e cu

stom

er ty

pes,

Pep

Boy

s is

add

ing

Ser

vice

and

Tire

Cen

ters

, reb

rand

ing

its S

uper

Cen

ters

to p

ositi

on th

em a

s

the

“bes

t alte

rnat

ive

to th

e de

aler

” to

cat

er to

a le

ss p

rice

-con

scio

us

cust

omer

dem

ogra

phic

, and

als

o en

hanc

ing

its d

igita

l ope

ratio

ns to

crea

te a

sm

ooth

sho

ppin

g an

d se

rvic

e co

ntin

uum

.

14 /

Sett

ing t

he C

ours

e f

or

Gro

wth

: C

EO

Pers

pectives

On t

he fl

ip s

ide, co

mpan

ies

need t

o

stay

rele

vant

not

just

to t

heir m

illennia

l

cust

om

ers

but

to t

heir m

illennia

l

work

forc

es

as w

ell.

CE

Os

unders

tand t

he

import

ance

of

hum

an c

apital

. O

nly

a t

hird o

f

resp

ondents

(34%

) ag

ree t

hat

they

hav

e a

n

adequat

e w

ork

forc

e a

nd s

ee n

o d

isru

ptions

in t

he n

ext

thre

e y

ear

s. T

he a

ppro

ach t

o

hum

an c

apital

may

not

be k

eepin

g u

p

with t

he t

imes,

though. Ju

st 3

0 p

erc

ent

of

the C

EO

s re

port

that

their c

om

pan

ies

are

exp

loring n

on-t

raditio

nal

way

s of

attr

acting

em

plo

yees.

Hunte

r belie

ves

that

to e

ngag

e m

illennia

l

em

plo

yees,

CE

Os

will

need t

o b

e in

syn

c

with t

he z

eitgeis

t. “

Mill

ennia

ls d

on’t t

hin

k

of

them

selv

es

as w

ork

ing f

or

som

eone.

They

don’t f

eel t

ied t

o t

heir e

mplo

yer,” s

ays

Hunte

r. “

Yet

that

doesn

’t m

ean

they

cannot

be a

gre

at a

sset,

esp

eci

ally

in t

erm

s of

innova

tion.”

Engag

ing m

illennia

ls, w

heth

er

by

inve

stin

g in

their id

eas

or

their id

eal

s, is

one w

ay t

o k

eep t

hem

within

a c

om

pan

y,

inst

ead

of

lett

ing t

hem

leav

e t

o jo

in—

or

beco

me—

its

com

petito

rs.

19%

I am

spe

ndin

g si

gnifi

cant

ly m

ore

face

tim

e pe

rson

ally

wit

h ou

r

clie

nts

and

cust

omer

s

44%

I hav

e ch

arge

d se

nior

lead

ersh

ip to

inve

st m

ore

tim

e pe

rson

ally

wit

h ou

r cl

ient

s an

d cu

stom

ers

55%

We

are

trai

ning

our

juni

or s

taff

at a

n ea

rlie

r ag

e so

they

can

inte

ract

wit

h cl

ient

s an

d cu

stom

ers

23%

We

have

not

cha

nged

our

cus

tom

er s

trat

egy

at th

is p

oint

but

are

plan

ning

to.

* M

ultip

le r

esponses a

llow

ed.

FIG

UR

E 7

How

are

you

fost

erin

g a

mor

e cu

stom

er-c

entr

ic o

rgan

izat

ion?

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es /////

11111555555

Pre

dict

ive

chan

ge

How

do c

om

pan

ies

stay

rele

vant in

a

fast

-chan

gin

g w

orld

? C

onsi

derin

g the

ove

rwhelm

ing n

um

ber of sh

ifts

in

tech

nolo

gy

and c

ust

om

er behav

ior,

to n

ame

just

a few

are

as, t

he p

ort

folio

of id

eas

to

choose

fro

m is

vas

t. “

One o

f th

e b

iggest

pro

ble

ms

org

aniz

atio

ns

face

is tak

ing o

n too

much

too fas

t an

d n

ot fo

cusi

ng e

nough. A

s

a re

sult,

they

do a

lot of th

ings

mar

gin

ally

,”

says

Ste

ven H

ill, V

ice C

hai

rman

, Str

ategic

Inve

stm

ents

, KP

MG

.

Hill s

ays

the k

ey

to a

succ

ess

ful

tran

sform

atio

n is

not goin

g a

bout it

in a

n a

d

hoc

and h

urr

ied m

anner but to

be in

stead

focu

sed “

on p

riorit

izat

ion a

nd then rig

oro

us

and thoughtf

ul i

mple

menta

tion.”

“It is

about

limiti

ng the n

um

ber of w

rong m

ove

s an

d

corr

ect

ing m

ista

kes

fast

,” s

ays

Hill.

We a

re li

ving in

inte

rest

ing tim

es,

with

multi

ple

tra

nsf

orm

atio

n trig

gers

all

pre

sent

at the s

ame tim

e, a

ll equal

ly in

tense

. Am

ong

maj

or fo

rces

that

can

lead

com

pan

ies

to

tran

sform

their

busi

ness

and o

pera

ting

models

are

sig

nifi

cant sh

ifts

in tech

nolo

gy,

the

em

erg

ence

of a

dig

itally

sav

vy c

ust

om

er an

d

regula

tory

ove

rhau

ls. C

EO

s definite

ly real

ize

that

they

need to in

nova

te a

nd tra

nsf

orm

. A

vast

maj

orit

y of co

mpan

y le

aders

in the s

urv

ey

(76%

) are

at so

me s

tage o

f opera

ting m

odel

tran

sform

atio

n—

asse

ssin

g the n

eed, p

lannin

g

for it,

sta

rtin

g o

r hav

ing ju

st im

ple

mente

d it

.

Chan

ge is

ongoin

g. H

ow

eve

r, th

e fre

quency

with

whic

h c

om

pan

ies

take

the m

eas

ure

of

their

opera

ting m

odels

var

ies.

The m

ajorit

y

of re

spondents

(54%

) ass

ess

their

opera

ting

models

year

ly. F

inan

cial

serv

ices

firm

s ar

e

the m

ost

vig

ilant, w

ith the h

ighest

num

ber of

CE

Os

surv

eye

d s

ayin

g that

their

com

pan

ies

(43%

) eva

luat

e their

opera

ting m

odels

quar

terly

.

Avo

n’s

chie

f exe

cutiv

e o

ffice

r, S

heri

McC

oy,

says

“W

e a

re a

lway

s eva

luat

ing a

nd p

ress

ure

-

test

ing o

ur opera

ting m

odel a

nd a

re n

ot af

raid

to m

ake a

dju

stm

ents

where

needed.”

McC

oy

unders

tands

that

in d

eve

loped m

arke

ts s

uch

as the U

.S.,

it is

key

to b

e o

n the c

utt

ing

edge o

f dig

ital,

so A

von h

as b

een in

vest

ing

in d

igita

l tech

nolo

gie

s as

well

as m

obile

and

e-c

om

merc

e. I

n E

uro

pe, t

he c

om

pan

y is

looki

ng a

t in

nova

tive w

ays

to d

eliv

er pro

duct

s

to it

s R

epre

senta

tives,

and it

has

intr

oduce

d

dro

p b

oxe

s in

par

ts o

f E

uro

pe. A

von h

as a

lso

begun s

ele

ctiv

ely

leve

ragin

g it

s ch

annels

to

brin

g in

new

bra

nds.

It is

exp

erim

entin

g w

ith

multi

chan

nel t

hro

ugh L

iz E

arle

, a n

atura

lly

activ

e s

kinca

re b

rand that

Avo

n a

cquire

d

in 2

010.

McC

oy

does

not fo

rget to

sta

y pers

onal

ly

engag

ed in

her purs

uit

to im

pro

ve the

opera

ting m

odel.

“W

heneve

r I t

rave

l for

busi

ness

, I a

lway

s m

eet w

ith s

mal

l gro

ups

of

asso

ciat

es

and R

epre

senta

tives

to g

et th

eir

feedbac

k, a

nd the in

sight th

ey

pro

vide m

e is

incr

edib

ly v

aluab

le,”

she s

ays.

There

are

diff

ere

nt w

ays

of th

inki

ng a

bout th

e

busi

ness

and o

pera

ting m

odels

and d

efinin

g

tran

sform

atio

n. P

G&

E C

EO

Anth

ony

F. E

arle

y

Jr. s

ays

he c

om

es

at it

fro

m tw

o v

ery

diff

ere

nt

pers

pect

ives—

contin

ual

and the b

ig p

ictu

re.

16 /

Sett

ing t

he C

ours

e f

or

Gro

wth

: C

EO

Pers

pectives

15

%

29

%

16

%

16

%

24

%

Ass

essi

ng th

e ne

ed fo

r a b

usin

ess

tran

sfor

mat

ion

Plan

ning

a tr

ansf

orm

atio

n in

itiat

ive

Com

plet

ed a

tran

sfor

mat

ion

initi

ativ

e (w

ithin

pas

t tw

o ye

ars)

We

are

not c

onsi

derin

g at

this

tim

e

Sta

rted

the

impl

emen

tatio

n (w

ithin

pas

t tw

o ye

ars)

FIG

UR

E 8

Whe

re a

re y

ou in

the

cont

inuu

m o

f tra

nsfo

rmin

g yo

ur o

pera

ting

mod

el

(pla

nnin

g, s

tart

ed, i

mpl

emen

ting

or

not t

rans

form

ing)

?

16%

18%

12%

54

%

Qu

art

erl

y

Yea

rly

Eve

ry 2

-4

yea

rs

No

t p

art

of

a r

eg

ula

r fo

llow

-up

pro

gra

m

FIG

UR

E 9

How

oft

en to

you

eva

luat

e yo

ur o

pera

ting

mod

el?

The c

ontin

ual

appro

ach is

reflect

ed in

hav

ing

a deta

iled lo

ng-ran

ge in

tegra

ted p

lannin

g

pro

cess

, with

month

ly b

usi

ness

pla

n revi

ew

s

and s

peci

al a

ttentio

n o

n a

more

fre

quent bas

is

if nece

ssar

y.

The b

ig-p

ictu

re thin

king in

volv

es

gett

ing read

y

for th

e futu

re b

ased o

n m

ajor fo

rces

affe

ctin

g

the e

nerg

y se

ctor.

These

are

inte

rest

ing

and c

hal

lengin

g tim

es

for th

e e

nerg

y se

ctor.

“To

day

’s e

nerg

y co

mpan

y has

neve

r opera

ted

in s

uch

a d

ynam

ic, c

hal

lengin

g a

nd u

nce

rtai

n

envi

ronm

ent,” s

ays

Regin

a M

ayor,

advi

sory

indust

ry le

ader,

energ

y &

nat

ura

l reso

urc

es,

KP

MG

. “The lo

ng-term

gro

wth

outlo

ok

is

pro

mis

ing b

ut fille

d w

ith u

nce

rtai

ntie

s. T

here

are a

num

ber of si

gnifi

cant tr

ansf

orm

atio

nal

forc

es

at w

ork

chan

gin

g the in

dust

ry in

pro

found y

et unpre

dic

table

way

s.”

Am

ong these

forc

es

are the e

merg

ence

of

dis

trib

ute

d g

enera

tion tech

nolo

gie

s, s

uch

as rooft

op s

ola

r, or th

e p

ote

ntia

l of fu

el

cell

tech

nolo

gy.

PG

&E

consi

ders

poss

ible

scenar

ios

of how

the e

nerg

y se

ctor ca

n

deve

lop a

nd lo

oks

at co

mm

onal

ities

in e

ach

scenar

io to d

ete

rmin

e w

hat

chan

ges

need to

be im

ple

mente

d.

For in

nova

tion, i

t is

cru

cial

to h

ave c

om

pan

y-

wid

e p

roce

sses

in p

lace

. “To

gro

w, c

om

pan

ies

must

firs

t ac

cura

tely

ass

ess

how

equip

ped

they

are to d

rive in

nova

tion a

nd s

urf

ace g

ood

ideas

thro

ughout th

eir

entir

e o

rgan

izat

ion,”

says

Pat

Dola

n, n

atio

nal

lead

er,

consu

mer

mar

kets

, KP

MG

.

Such

pro

cess

es

may

incl

ude e

nte

rpris

e-

wid

e p

latf

orm

s fo

r sh

arin

g id

eas

, rew

ardin

g

em

plo

yees

for cr

eat

ivity

, a p

roce

ss for

appro

ving id

eas

and fundin

g p

roje

cts,

and

oft

en a

lso a

pro

cess

for cr

eat

ing n

ew

units

to d

eve

lop n

ew

ideas

and tak

e them

to

mar

ket fa

ster.

Today

, just

17 p

erc

ent of

com

pan

y le

aders

surv

eye

d s

ay that

they

hav

e im

ple

mente

d a

n in

nova

tion p

roce

ss

acro

ss a

ll units

. It sh

ould

be n

ote

d that

man

y

more

(47%

) of th

e b

iggest

com

pan

ies,

with

reve

nues

ove

r $10 b

illio

n, h

ave a

form

al,

com

pan

y-w

ide in

nova

tion p

roce

ss.

Unders

tandin

g the d

iffere

nce

betw

een the

“deve

lopm

ent”

engin

e (e

nco

mpas

sing

innova

tion a

nd tra

nsf

orm

atio

n) a

nd the

“opera

tional

” e

ngin

e is

als

o c

ruci

al to the

succ

ess

of in

nova

tion, a

ccord

ing to K

PM

G’s

Hill. T

he d

isci

plin

es

require

d for deve

lopm

ent

and o

pera

tions

are im

port

ant, b

ut diff

ere

nt.

Say

s H

ill, “

Most

org

aniz

atio

ns

hav

e in

credib

ly

stro

ng o

pera

ting c

ultu

res

that

hav

e b

een

honed o

ver tim

e. H

ow

eve

r, th

e c

ultu

re a

nd

pro

cess

es

rela

ting to in

nova

tion a

re o

ften n

ot

equal

ly w

ell

deve

loped o

r eve

n reco

gniz

ed

as d

istin

ct.”

Com

poundin

g the is

sue, i

nnova

tion o

r

tran

sform

atio

n c

an a

lso h

ave o

pera

tional

effi

cienci

es

as their

goal

. In fac

t, the

top fac

tors

influenci

ng b

usi

ness

model

tran

sform

atio

n a

re p

ure

ly o

pera

tional

and fi

nan

cial

. (S

ee F

ig. 1

1) F

urt

herm

ore

,

TRA

NS

FOR

MA

TIO

N C

HA

LLEN

GES

Q&

A W

ith

Ste

phen

G. H

asty

, U.S

. Inn

ovat

ion

Lead

er fo

r A

dvis

ory,

KP

MG

Whi

ch p

art o

f bus

ines

s tr

ansf

orm

atio

n is

mor

e di

fficu

lt: s

trat

egic

vis

ion

or it

s ex

ecut

ion?

M

ost c

ompa

nies

get

the

visi

on r

ight

. The

har

der

part

is to

exe

cute

on

the

tran

sfor

mat

ion.

A la

rge

num

ber

of c

ompa

nies

don

’t ac

hiev

e th

e de

sire

d bu

sine

ss r

esul

t. S

ome

of th

e

chal

leng

es to

exe

cutio

n of

bus

ines

s tr

ansf

orm

atio

n ar

e th

e pe

ople

dim

ensi

on. I

t is

impo

rtan

t

to u

nder

stan

d th

e cu

lture

of t

he c

ompa

ny, a

long

with

its

capa

city

to a

bsor

b ch

ange

. Defi

ning

met

rics

, whi

ch c

an m

easu

re tr

ansf

orm

atio

n ou

tcom

es, w

ill im

prov

e th

e ab

ility

to a

chie

ve th

e

desi

red

busi

ness

res

ults

.

Are

cer

tain

cor

pora

te c

ultu

res

favo

rabl

e fo

r ac

hiev

ing

succ

essf

ul tr

ansf

orm

atio

n?

The

desi

gn o

f the

tran

sfor

mat

ion

prog

ram

has

to fi

t the

cul

ture

. Org

aniz

atio

ns th

at h

ave

an e

nter

pris

e-w

ide

agen

da a

nd fo

rmal

pro

cess

es d

o be

tter

at t

rans

form

atio

n. O

verl

y

dece

ntra

lized

org

aniz

atio

ns m

ay h

ave

trou

ble

with

cha

nge,

bec

ause

in m

any

case

s w

hat i

s

optim

al fo

r an

indi

vidu

al fu

nctio

n m

ight

not

be

optim

al fo

r th

e en

terp

rise

as

a w

hole

. With

suc

h

orga

niza

tions

it is

ess

entia

l to

ensu

re th

e bu

y-in

of a

ll th

e ne

cess

ary

part

ies

at th

e st

art o

f the

tran

sfor

mat

ion.

The

regu

lato

ry e

nvir

onm

ent i

s a

sign

ifica

nt d

rive

r of

bus

ines

s tr

ansf

orm

atio

ns, e

spec

iall

y

in th

e fin

anci

al a

nd h

ealt

hcar

e se

ctor

s. A

re th

ere

any

less

ons

spec

ific

to r

egul

ator

y-ba

sed

tran

sfor

mat

ions

? Th

e ke

y to

a s

ucce

ssfu

l reg

ulat

ory-

base

d tr

ansf

orm

atio

n is

bei

ng a

ble

to

unde

rsta

nd c

urre

nt r

egul

atio

ns a

nd th

eir

poss

ible

futu

re in

terp

reta

tions

. It i

s cr

ucia

l for

the

regu

lato

ry r

equi

rem

ents

to b

e de

sign

ed u

pfro

nt to

avo

id r

ewor

k. It

is a

lso

nece

ssar

y to

des

ign

the

syst

ems

with

eno

ugh

flexi

bilit

y to

be

adap

tabl

e to

futu

re r

egul

ator

y ch

ange

and

to a

llow

for

diff

eren

t int

erpr

etat

ions

of r

egul

atio

ns.

Sett

ing t

he C

ours

e f

or

Gro

wth

: C

EO

Pers

pectives /

17

17

%

25

%

11

%

20

%

27

%

Dev

elop

ed a

nd im

plem

ente

d ac

ross

all

units

Dev

elop

ed a

nd s

tart

ed im

plem

enta

tion

Plan

s to

dev

elop

No

proc

ess

or p

lans

to d

evel

op

Dev

elop

ing,

not

yet

impl

emen

ting

FIG

UR

E 1

0

Do

you

have

a fo

rmal

, com

pany

-wid

e pr

oces

s fo

r in

nova

tion

?

Pre

dict

ive

chan

ge (c

ont.)

resp

ondents

indic

ated that

the s

ucc

ess

of th

e

opera

ting m

odel t

ransf

orm

atio

n is

meas

ure

d

most

ly b

y finan

cial

metr

ics,

such

as

incr

eas

ed

pro

fita

bility

(53%

), gro

wth

in reve

nue (4

1%

)

and o

vera

ll co

st reduct

ions

(40%

).

Exa

mple

s of su

ch tie

-ins

of in

nova

tion a

nd

effi

ciency

abound. P

G&

E’s

Ear

ley

is e

speci

ally

inte

rest

ed in

the a

bility

to a

nal

yze B

ig D

ata

about cu

stom

ers

’ usa

ge o

f ele

ctric

ity—

whic

h

is b

ein

g g

athere

d b

y sm

art m

ete

rs—

to

unders

tand h

ow

bett

er to

opera

te e

nerg

y

deliv

ery

sys

tem

s. W

ellP

oin

t’s S

wedis

h trie

s

to s

quar

e the c

ost

s of in

nova

tion w

ith the

valu

e-b

ased m

odel o

f heal

thca

re d

eliv

ery

. He

belie

ves

that

som

e in

nova

tions’

ast

ronom

ical

pric

e tag

s do n

ot co

rrela

te w

ith v

alue. “

Is a

$1,0

00 p

ill e

ver ju

stifi

able

for w

hat

can

’t b

e

consi

dere

d a

n o

rphan

dru

g b

y an

y st

retc

h o

f

the im

agin

atio

n?

We n

eed in

nova

tion, b

ut

there

needs

to b

e s

om

e rest

rain

t,” h

e s

ays.

Sin

ce o

pera

tional

and in

nova

tive p

rogra

ms

oft

en in

ters

ect

in b

usi

ness

model

tran

sform

atio

n, c

onflic

ts c

an a

rise if

ince

ntiv

es

and g

oal

s ar

e n

ot exp

licitl

y ad

dre

ssed. K

PM

G’s

Hill n

ote

s th

at in

centiv

es

for in

nova

tion

and d

eve

lopm

ent ar

e o

ften d

iffere

nt fr

om

opera

tions.

“This

dic

hoto

my

can c

reat

e

an is

sue in

man

agem

ent w

hen c

om

pan

y

lead

ers

hip

exp

ect

s opera

tors

to e

xecu

te

agai

nst

innova

tion w

ithout re

engin

eerin

g

ince

ntiv

es,

” h

e s

ays.

18 /

Sett

ing t

he C

ou

Cours

ers

e f

or

Gr

Gr

Gro

wro

wro

wro

wro

wro

wth

:th

:th

:th

:th

: C

E C

E C

E C

E C

E C

EO

PO

PO

PO

PO

PO

PO

PO

PO

PO

PO

PO

PO

PO

Pers

ers

ers

ers

ers

ers

pec

pectives

(con

t.)

How

eve

r, C

EO

s need to b

e le

ss in

volv

ed in

scal

e in

nova

tions,

defined a

s ac

cele

ratio

ns

of cu

rrent ca

pab

ilitie

s th

at d

on’t c

om

pel t

he

org

aniz

atio

n to u

nderg

o m

ajor ch

anges.

This

seem

ingly

han

ds-

off

att

itude o

n the

par

t of C

EO

s re

veal

ed b

y th

e K

PM

G s

tudy

may

ste

m fro

m a

big

-pic

ture

pers

pect

ive o

n

innova

tion. W

hile

CE

Os

are n

ot in

volv

ed in

all o

f it

dire

ctly

, they

are thin

king a

bout how

innova

tion fi

ts in

to o

r af

fect

s th

eir

busi

ness

and o

pera

ting m

odels

, and h

ow

it c

an c

han

ge

their

indust

ries.

PG

&E

’s E

arle

y is

invo

lved in

innova

tion o

n

man

y diff

ere

nt le

vels

, sta

rtin

g w

ith h

um

an

capita

l. A

lot of th

e C

EO

lead

ers

hip

in

innova

tion m

ean

s cr

eat

ing the rig

ht in

nova

tion

team

s by

hiri

ng le

aders

. One s

uch

innova

tive

hire

was

PG

&E

’s c

hie

f in

form

atio

n o

ffice

r,

who c

om

es

from

a reta

il co

mpan

y. T

hat

hire

was

not a

typic

al c

hoic

e for an

energ

y

5%

45

%

32

%

18

%

I lar

gely

driv

e in

nova

tion

at o

ur fi

rm

Our

exe

cutiv

e te

am d

rives

inno

vatio

n

Inno

vatio

n is

driv

en b

otto

m u

p in

our

org

aniz

atio

n

We

depl

oy a

wor

king

team

that

driv

es in

nova

tion

FIG

UR

E 1

2

Wha

t is

CEO

invo

lvem

ent i

n in

nova

tion

?

com

pan

y, b

ut E

arle

y sa

id h

e w

ante

d to h

ave a

dat

a pers

on fro

m the reta

il in

dust

ry, k

now

n for

its e

dge in

dat

a an

alyt

ics

ove

r oth

er in

dust

ries.

It h

as a

lread

y benefite

d P

G&

E in

term

s of

know

-how

and fas

ter tim

elin

es.

Innova

tion s

hould

be p

art of an

eco

syst

em

,

rath

er th

an ju

st w

ithin

an o

rgan

izat

ion’s

four

wal

ls. I

nnova

ting w

ith c

ust

om

ers

, supplie

rs,

dis

trib

uto

rs, a

nd o

ther par

tners

can

brin

g ric

h

insi

ghts

about ch

angin

g m

arke

t dyn

amic

s.

“If y

ou d

on’t h

ave a

n a

bility

to s

ee w

hat

’s

hap

penin

g a

cross

your va

lue c

hai

n, t

hat

’s a

maj

or blin

d s

pot,” s

ays

Hill.

While

the in

nova

tion e

cosy

stem

is c

ruci

al

acro

ss a

ll in

dust

ries,

Gar

y S

ilberg

, nat

ional

auto

motiv

e le

ader fo

r K

PM

G in

the U

.S.,

stre

sses

its im

port

ance

for th

e a

uto

motiv

e

sect

or: “

Car

s co

ntin

ue to e

volv

e in

to h

ighly

com

ple

x co

mpute

rs, a

nd the a

uto

indust

ry

will n

eed to a

ggre

ssiv

ely

inve

st in

R&

D a

nd

deve

lop n

ew

par

tners

hip

s w

ith n

on-tra

diti

onal

auto

supplie

rs to fost

er te

chnolo

gy

innova

tion.

31

%

30

%

19

%

12

%

8%

Gre

ater

effi

cien

cies

thro

ugho

ut th

e or

gani

zatio

n

Cos

t red

uctio

ns

Sta

ying

cur

rent

with

evo

lvin

g re

gula

tions

Opt

imiz

ing

exis

ting

tech

nolo

gy a

nd in

fras

truc

ture

Mai

ntai

ning

a c

ompe

titiv

e po

sitio

n in

the

mar

ketp

lace

FIG

UR

E 1

1

Fact

ors

influ

enci

ng o

pera

ting

mod

el

Dat

a an

alyt

ics

is b

egin

nin

g to fi

ll so

me o

f

the in

form

atio

n c

has

ms

that

exi

st b

etw

een

opera

tions

and in

nova

tion e

ngin

es.

How

eve

r,

mak

ing s

ure

that

these

tw

o e

ngin

es

work

in tan

dem

require

s not ju

st the in

form

atio

n

syst

em

s but al

so p

eople

. And the h

um

an

syst

em

s th

at c

onnect

the a

uto

mat

ed s

yste

ms

in a

corp

ora

tion a

re n

ot ye

t w

ell

inve

nto

ried.

Thus,

it is

cru

cial

to h

ave v

isib

le C

EO

engag

em

ent in

tra

nsf

orm

atio

n e

ffort

s. J

ust

5 p

erc

ent of C

EO

s ar

e p

ers

onal

ly in

volv

ed

in in

nova

tion, a

ccord

ing to the K

PM

G s

tudy.

CE

Os

cannot ju

st b

e “

invo

lved” in

dis

ruptiv

e

innova

tion in

itiat

ives;

they

must

vis

ibly

lead

tran

sform

ativ

e in

itiat

ives

that

require

busi

ness

or opera

ting m

odel c

han

ge o

r si

gnifi

cant

chan

ge in

behav

iors

or m

indse

t. “

Ideas

are

ple

ntif

ul,

but th

e h

ardest

par

t of in

nova

tion

is e

ffect

ive e

xecu

tion. W

ithout th

e d

irect

invo

lvem

ent fr

om

the top o

f th

e h

ouse

, such

initi

ativ

es

are a

t a

much

hig

her ris

k fo

r fa

ilure

,”

says

Hill.

We’v

e s

een s

eve

ral O

EM

s su

ccess

fully

colla

bora

te w

ith tech

com

pan

ies,

while

oth

ers

hav

e s

truggle

d. G

ett

ing this

rig

ht in

the futu

re w

ill b

e c

ritic

al, g

iven the e

norm

ous

tech

nolo

gic

al in

nova

tion o

ccurr

ing in

the

vehic

le.”

Innova

tion n

eeds

to b

e resp

onsi

ve to

ext

ern

al fac

tors

and a

lso c

om

e fro

m a

pla

ce o

f co

nfidence

with

in a

n o

rgan

izat

ion.

“The c

om

pan

ies

with

the m

ost

succ

ess

ful

innova

tion w

ill b

e those

that

can

ove

rcom

e

innova

tion u

nce

rtai

nty

, wheth

er sp

arke

d b

y

shift

ing c

ust

om

er dyn

amic

s, li

mite

d b

udgets

,

conflic

ting v

isio

ns

or a

lack

of co

nfidence

in

their

ability

to p

ick

win

nin

g tech

nolo

gie

s,” s

ays

Gar

y M

atusz

ak, g

lobal

chai

rman

, tech

nolo

gy,

media

and tele

com

munic

atio

ns

at K

PM

G.

That

unce

rtai

nty

can

be reduce

d o

r elim

inat

ed

by

hav

ing a

dis

ciplin

ed a

nd rig

oro

us

appro

ach

and v

ia thoughtf

ul e

ngag

em

ent of th

e C

EO

.

Sett

ing t

he C

ours

e f

or

Gro

wth

: C

EO

Pers

pectives /

19

Reg

ulat

ory

envi

ronm

ent:

mor

e im

pact

than

the

econ

omy

The tw

o s

ect

ors

curr

ently

most

aff

ect

ed

by

the regula

tory

envi

ronm

ent in

the U

.S.

are h

eal

thca

re a

nd fi

nan

cial

serv

ices.

The

Aff

ord

able

Car

e A

ct a

nd o

ther re

gula

tions

are c

ausi

ng a

n o

verh

aul t

ow

ard a

pat

ient-

centr

ic m

odel t

hat

chan

ges

how

heal

thca

re

is d

eliv

ere

d, h

ow

it’s

pai

d for an

d w

hat

const

itute

s va

lue in

heal

th d

eliv

ery

. Ed G

inia

t,

lead

er of th

e h

eal

thca

re a

nd li

fe s

cience

s

sect

or at

KP

MG

, sta

tes:

“The top thre

e ris

ks

in h

eal

thca

re a

re c

om

plia

nce

, com

plia

nce

and c

om

plia

nce

.”

Georg

e S

. Bar

rett

, chai

rman

and C

EO

of

heal

thca

re s

erv

ices

com

pan

y C

ardin

al H

eal

th,

Inc.

, unders

core

s th

e d

ynam

ic p

art of th

e

regula

tory

envi

ronm

ent w

hen h

e s

ays:

“A

nyo

ne in

heal

thca

re w

ho feels

tota

lly

satis

fied o

r re

laxe

d is

not pay

ing a

ttentio

n.

Betw

een the regula

tory

and le

gis

lativ

e

chan

ges

and the s

imple

real

ities

of our

nat

ional

heal

th, b

oth

eco

nom

ic a

nd p

hys

ical

,

it is

cle

ar that

heal

thca

re w

ill c

han

ge.”

We h

ave e

nte

red a

new

regula

tory

envi

ronm

ent, o

ne that

is in

tended to

chan

ge h

ow

busi

ness

is d

one. N

o

wonder th

en that

the regula

tory

envi

ronm

ent

is the top is

sue that

can

hav

e the m

ost

impac

t on a

com

pan

y ac

cord

ing to U

.S.

CE

Os

surv

eye

d. (

See F

ig. 1

3) I

n fi

nan

cial

serv

ices

and c

onsu

mer m

arke

ts, c

orp

ora

te

tax

refo

rm tak

es

pre

cedence

. In h

eal

thca

re,

the h

eal

thca

re refo

rm is

most

import

ant, w

hile

in tech

nolo

gy

CE

Os

surv

eye

d p

oin

t to

cyb

er

secu

rity

as the h

ighest

-impac

t is

sue.

CE

Os

surv

eye

d a

lso s

ay that

adap

ting to

gove

rnm

ent re

gula

tion is

their

seco

nd m

ost

criti

cal c

hal

lenge, t

rum

pin

g c

hal

lenges

rela

ting

to fi

nan

cial

s or opera

tional

effi

ciency

. As

a

resu

lt, 3

4 p

erc

ent of C

EO

s ar

e s

pendin

g m

ore

time w

ith regula

tors

or gove

rnm

ent offi

cial

s,

or co

nsi

derin

g d

oin

g s

o.

1 S

ecurities &

Exchange C

om

mis

sio

n; C

om

modity F

utu

res T

radin

g C

om

mis

sio

n; Federa

l R

eserv

e S

yste

m;

Federa

l D

eposit Insura

nce C

orp

ora

tion; Fin

ancia

l In

dustr

y R

egula

tory

Auth

ority

; O

ffice o

f th

e C

om

ptr

olle

r of

the

Curr

ency; N

ational C

redit U

nio

n A

dm

inis

tration; C

onsum

er

Fin

ancia

l P

rote

ction B

ure

au.

2 U

.S. C

ongre

ss; The C

om

mitte

e o

n F

inancia

l S

erv

ices; D

odd-F

rank B

urd

en T

racker

In the fi

nan

cial

sect

or,

there

are

a n

um

ber

of re

gula

tory

man

dat

es

orie

nte

d tow

ard

tran

spar

ency

and reduci

ng o

vera

ll m

arke

t ris

k.

The s

heer quan

tity

of re

gula

tions

com

ing a

t

finan

cial

serv

ices

com

pan

ies

can b

e h

ard to

gra

sp. T

hey

incl

ude D

odd-F

rank,

the V

olc

ker

rule

, Bas

el 3

, the routin

e rule

mak

ing o

f up to

eig

ht diff

ere

nt fe

dera

l regula

tors

,1 a

s w

ell

as

stat

e regula

tors

, Offi

ce o

f th

e C

om

ptr

olle

r

of th

e C

urr

ency

, SE

C, a

nd F

DIC

. The e

ffort

to c

om

ply

will b

e s

taggerin

g. T

he fi

rst 224

rule

s of D

odd-F

rank

that

hav

e b

een w

ritte

n

by

regula

tors

tak

e u

p 7

,365 p

ages;

the p

rivat

e

sect

or w

ill d

evo

te a

n e

norm

ous

amount of

time a

nd reso

urc

es

com

ply

ing w

ith them

.2

20 /

Sett

ing t

he C

ours

e f

or

Gro

wth

: C

EO

Pers

pectives

FIG

UR

E 1

3

Issu

es th

at c

an h

ave

the

mos

t im

pact

on

your

co

mpa

ny (r

anke

d in

des

cend

ing

orde

r)

e R

egul

ator

y en

viro

nmen

t

r C

orpo

rate

tax

refo

rm

t G

loba

l eco

nom

ic g

row

th

u C

yber

sec

urit

y

i H

ealt

hcar

e re

form

o G

as p

rice

s

The

effo

rt to

com

ply

will

be

stag

gerin

g. T

he fi

rst 2

24 ru

les

of D

odd-

Fran

k th

at h

ave

been

writ

ten

by re

gula

tors

take

up

7,36

5 pa

ges;

the

priv

ate

sect

or

will

dev

ote

an e

norm

ous

amou

nt

of ti

me

and

reso

urce

s co

mpl

ying

with

them

.

Reg

ulat

ory

envi

ronm

ent:

mor

e im

pact

than

the

econ

omy

(con

t.)

REG

ULA

TOR

Y T

RA

NS

FOR

MA

TIO

N

Q&

A W

ith

Tim

Zub

er, R

egul

ator

y C

ente

r Le

ader

at K

PM

G

How

wou

ld y

ou a

sses

s th

e cu

rren

t reg

ulat

ory

envi

ronm

ent?

The

eve

r in

crea

sing

pac

e of

glob

aliz

atio

n as

wel

l as

polit

ical

and

fina

ncia

l vol

atili

ty h

as r

esul

ted

in th

e pr

olife

ratio

n of

regu

latio

ns. T

he g

loba

l pac

e of

reg

ulat

ory

chan

ge is

acc

eler

atin

g. F

irst

and

fore

mos

t are

indu

stry

-

spec

ific

regu

latio

ns, f

or e

xam

ple,

in th

e fin

anci

al s

ervi

ces

indu

stry

and

hea

lthca

re. T

here

are

also

“in

dust

ry a

gnos

tic”

regu

latio

ns th

at c

ross

mul

tiple

indu

stri

es, s

uch

as a

nti-

mon

ey

laun

deri

ng r

ules

.

Are

thes

e re

gula

tion

s a

burd

en o

r do

they

als

o pr

esen

t an

oppo

rtun

ity?

Com

plyi

ng w

ith

regu

latio

ns g

ener

ally

cre

ates

a d

rag

on b

usin

esse

s. F

or e

xam

ple,

reg

ulat

ory

com

plia

nce

can

add

cost

s, s

low

dow

n pr

oces

ses,

and

res

tric

t exp

ansi

on. H

owev

er, t

hat b

eing

sai

d, c

ompa

nies

are

begi

nnin

g to

rea

lize

that

not

onl

y ca

n th

ey c

ompl

y w

ell,

but t

hey

can

begi

n to

der

ive

a co

mpe

titiv

e

adva

ntag

e by

com

plyi

ng c

ost e

ffec

tivel

y. T

he b

est c

ompa

nies

are

now

beg

inni

ng to

der

ive

new

valu

e ou

t of r

egul

ator

y co

mpl

ianc

e pr

oces

ses.

One

way

we

help

them

to d

o so

is to

take

dat

a an

d

insi

ghts

that

in th

e pa

st h

ave

been

use

d al

mos

t exc

lusi

vely

for

com

plia

nce

purp

oses

and

use

them

to d

rive

add

ition

al v

alue

. For

exa

mpl

e, s

ales

dat

a re

quir

ed s

olel

y fo

r in

dire

ct ta

x co

mpl

ianc

e

purp

oses

may

be

anal

yzed

to p

rovi

de n

ew o

r be

tter

insi

ght o

n pr

oduc

t and

cus

tom

er p

rofit

abili

ty

that

oth

erw

ise

was

not

kno

wn

or k

now

able

. With

thes

e in

sigh

ts, b

ette

r de

cisi

on m

akin

g ou

tsid

e

of th

e ta

x fu

nctio

n m

ay b

e po

ssib

le.

The

regu

lato

ry e

nvir

onm

ent i

s so

impa

ctfu

l tha

t in

high

ly r

egul

ated

indu

stri

es c

ompa

nies

are

chan

ging

thei

r bu

sine

ss m

odel

s du

e to

reg

ulat

ions

. How

wel

l the

y do

that

may

dic

tate

thei

r

mar

ketp

lace

pos

ition

for

the

fore

seea

ble

futu

re.

Wha

t is

the

best

app

roac

h to

der

ive

com

peti

tive

adv

anta

ge fr

om th

e re

gula

tory

env

iron

men

t?

A b

est p

ract

ice

is to

take

a h

olis

tic a

ppro

ach

to r

egul

ator

y-ba

sed

busi

ness

tran

sfor

mat

ion.

Issu

es

for

CEO

s to

con

side

r ar

e w

hat r

egul

ator

y tr

ansf

orm

atio

n m

eans

in te

rms

of th

eir

peop

le, p

roce

ss,

tech

nolo

gy, d

ata

and

thei

r cl

ient

s. R

egul

atio

n is

not

goi

ng to

go

away

, and

as

econ

omie

s be

com

e

mor

e co

nnec

ted,

reg

ulat

ions

are

onl

y go

ing

to p

rolif

erat

e an

d be

com

e m

ore

com

plic

ated

. It’s

impo

rtan

t to

have

a m

icro

vie

w a

bout

spe

cific

reg

ulat

ions

, and

als

o ha

ve a

mac

ro v

iew

abo

ut

wha

t the

reg

ulat

ory

envi

ronm

ent a

nd s

peci

fic r

egul

ator

y th

emes

mea

n fo

r th

e w

hole

ent

erpr

ise.

The regula

tory

envi

ronm

ent is

chan

gin

g the

finan

cial

serv

ices

indust

ry, i

n term

s of both

how

it d

oes

busi

ness

and h

ow

it m

anag

es

itself.

“The e

ntir

e b

usi

ness

model o

f th

e

finan

cial

serv

ices

indust

ry is

bein

g c

hal

lenged

right now

,” s

ays

Pam

ela

Mar

tin, M

anag

ing

Dire

ctor,

Am

eric

as’ R

egula

tory

Cente

r of

Exc

elle

nce

, KP

MG

.

New

regula

tions

are e

xpensi

ve in

term

s of

com

plia

nce

, as

com

pan

ies

need to tra

nsf

orm

dat

a tr

acki

ng a

nd g

atherin

g s

yste

ms,

report

ing funct

ions

and, i

n s

om

e c

ases,

their

org

aniz

atio

nal

str

uct

ure

s. A

t th

e s

ame tim

e,

these

regula

tions

can li

mit

reve

nue g

row

th

and p

rofita

bility

by,

for exa

mple

, incr

eas

ing

capita

l rat

io require

ments

, and li

miti

ng c

ert

ain

pro

duct

s or ac

tiviti

es

(e.g

., pro

prie

tary

tra

din

g).

“To

gro

w, fi

nan

cial

firm

s hav

e to c

om

bin

e

and b

alan

ce thre

e d

istin

ct a

nd c

om

petin

g

ele

ments

that

must

be m

ade to fi

t to

geth

er,”

says

Sco

tt M

arce

llo, n

atio

nal

lead

er fo

r

finan

cial

serv

ices

and b

oar

d m

em

ber,

KP

MG

LLP.

“They

hav

e to c

om

ply

with

a c

om

ple

x

and g

row

ing s

et of re

gula

tions,

they

hav

e to

optim

ize their

busi

ness

models

and p

roce

sses

to s

ave c

ost

s, a

nd they

hav

e to g

et cl

ose

r to

their

cust

om

ers

, all

at the s

ame tim

e.”

Pro

sperit

y B

ank’

s ch

airm

an a

nd C

EO

,

Dav

id Z

alm

an, p

uts

the c

urr

ent re

gula

tory

envi

ronm

ent in

pers

pect

ive: “

I’ve b

een in

ban

king s

ince

1978, a

nd today

, pro

bab

ly

ove

r hal

f of m

y tim

e is

spent w

ith regula

tory

require

ments

. The regula

tory

burd

en is

a

thre

at to tra

diti

onal

com

munity

ban

king.

/S

ett

ing t

he C

ours

e f

or

Gro

wth

: C

EO

Pers

pectives

FIG

UR

E 1

4

Wha

t are

the

mos

t cri

tica

l cha

llen

ges

you

expe

ct to

face

as

CEO

ov

er th

e ne

xt th

ree

year

s? (T

op 5

, ran

ked

in d

esce

ndin

g or

der)

e E

xpan

ding

geo

grap

hcal

ly

r A

dapt

ing

to g

over

nmen

t reg

ulat

ion

t S

tren

gthe

ning

our

bra

nd*

u F

ocus

ing

on o

pera

tion

al e

xcel

lenc

e*

i S

purr

ing

inno

vati

on

*sa

me

valu

e

It is

tro

ublin

g that

we d

on’t a

lway

s kn

ow

what

the regula

tors

are

goin

g to w

ant.”

Oth

er in

dust

ries

are a

lso a

ffect

ed b

y a

stro

ng

regula

tory

com

ponent. In

the h

eav

ily regula

ted

com

munic

atio

ns

indust

ry, c

om

pan

ies

hav

e to

meet Federa

l Com

munic

atio

ns

Com

mis

sion

require

ments

. In the e

nerg

y se

ctor th

e

sam

e h

old

s tr

ue for th

e rule

s se

t by

the

Envi

ronm

enta

l Pro

tect

ion A

gency

, sta

te

regula

tory

agenci

es,

or th

e N

ucl

ear

Regula

tory

Com

mis

sion.

“In

the e

nerg

y se

ctor,

federa

l and s

tate

regula

tory

agendas

are

bein

g h

eav

ily

influence

d b

y cu

stom

ers

’ desi

re for gre

ener

energ

y optio

ns,

the p

rom

ise o

f em

erg

ing

smar

t te

chnolo

gie

s, e

nerg

y su

stai

nab

ility

and

the n

eed for sa

fe o

pera

tions,

” s

ays

John

Kunas

ek,

U.S

. sect

or le

ader fo

r energ

y, n

atura

l

reso

urc

es

and c

hem

ical

s at

KP

MG

. “Thus,

federa

l and s

tate

regula

tory

polic

ies

and

actio

ns

contin

ue to o

rient to

war

ds

additi

onal

cust

om

er ch

oic

e, i

nce

ntiv

es

for in

vest

ment

in in

nova

tion, s

afe o

pera

tions,

and g

reener

energ

y st

andar

ds.

”

PG

&E

’s E

arle

y ca

n p

ers

onal

ly id

entif

y w

ith

the focu

s on the regula

tory

issu

es.

“A

const

ruct

ive regula

tory

envi

ronm

ent ca

n e

ither

help

or hurt

us.

I ab

solu

tely

spend tim

e w

ith

stat

e a

nd federa

l regula

tors

. As

CE

O, m

ost

of m

y tim

e is

spent on regula

tory

issu

es.

”

//

223

In th

e en

ergy

sec

tor,

fede

ral a

nd s

tate

regu

lato

ry a

gend

as a

re b

eing

hea

vily

influ

ence

d by

cus

tom

ers’

des

ire fo

r

addi

tiona

l cho

ice

of e

nerg

y so

urce

s, th

e

prom

ise

of e

mer

ging

tech

nolo

gies

, glo

bal

sust

aina

bilit

y an

d ne

ed o

f saf

e op

erat

ions

.

– Jo

hn K

unas

ek

U.S

. Sec

tor

Lead

er, E

nerg

y, N

atur

al R

esou

rces

an

d C

hem

ical

s, K

PM

G

“

”

Ris

k m

anag

emen

t: ha

rnes

sed

for e

ffici

ent g

row

th

Amid

dis

ruptive

tech

nolo

gic

al c

han

ges,

an e

nhan

ced r

egula

tory

envi

ronm

ent

and t

he n

ew

dig

ital

ly s

avvy

consu

mer,

gro

wth

com

es

with e

ver

multip

lyin

g

laye

rs o

f risk

. C

EO

s ar

e f

ully

aw

are o

f

these

ris

ks a

nd a

re e

xtre

mely

conce

rned

about

man

agin

g t

hem

. R

isk

regis

ters

as

the s

eco

nd m

ost

import

ant

conce

rn, af

ter

finan

cial

perf

orm

ance

.

The fal

lout af

ter th

e m

ost

rece

nt finan

cial

cris

is

and the h

its to reputa

tions

take

n b

y m

any

com

pan

ies

hav

e h

ad their

eff

ect

. Today

,

91 p

erc

ent of C

EO

s re

spondin

g to the

surv

ey

are p

ers

onal

ly in

volv

ed in

the ris

k

man

agem

ent of th

eir

com

pan

ies.

(See

Fig

. 16) M

ore

than

hal

f (5

3%

) of C

EO

s of

com

pan

ies

with

reve

nues

ove

r $10 b

illio

n

desc

ribe them

selv

es

as e

xtre

mely

invo

lved

in ris

k pla

nnin

g, c

om

par

ed w

ith 3

3 p

erc

ent of

all C

EO

s su

rveye

d. F

or th

e ris

k m

anag

em

ent

stra

tegy

to b

e e

ffect

ive, i

t needs

to b

e

com

pre

hensi

ve in

term

s of co

nte

nt (s

ourc

es

of ris

k) a

nd follo

w a

rig

oro

us

pro

cess

. That

pro

cess

needs

to b

e e

mbedded thro

ughout

the w

hole

org

aniz

atio

n a

nd n

eeds

to fi

t

its c

ultu

re.

The b

asis

of a

pro

duct

ive ris

k m

anag

em

ent

stra

tegy

is h

arness

ing it

for gro

wth

, looki

ng a

t

the o

rgan

izat

ion thro

ugh a

ris

k le

ns

equiv

alent

to a

gro

wth

lens

when c

har

ting a

gro

wth

stra

tegy,

say

s M

ichae

l Nola

n, U

.S. a

nd g

lobal

par

tner in

char

ge for K

PM

G’s

Ris

k C

onsu

lting

Serv

ices.

A s

ucc

ess

ful g

row

th s

trat

egy

is

contin

gent on u

nders

tandin

g a

nd a

cceptin

g

the ris

ks a

ssoci

ated w

ith the a

ssum

ptio

ns

the

stra

tegy

is b

uilt

upon. S

trat

egic

ris

k ca

nnot

be o

vere

stim

ated. T

he m

ajorit

y of su

bst

antia

l

mar

ket ca

pita

lizat

ion d

rops

that

com

pan

ies

incu

r ar

e d

ue to s

om

e fai

lure

in d

eal

ing w

ith

stra

tegic

ris

k.

The p

ush

and p

ull

betw

een ris

k m

anag

em

ent

and g

row

th is

esp

eci

ally

pro

nounce

d in

the

finan

cial

serv

ices

sect

or.

The regula

tory

envi

ronm

ent has

lim

ited s

om

e p

oss

ibilitie

s

in reve

nue a

nd p

rofita

bility

gro

wth

. In the

afte

rmat

h o

f th

e fi

nan

cial

cris

is a

nd g

lobal

rece

ssio

n, c

om

pan

ies

are u

nder a

gre

at d

eal

of pre

ssure

to fi

nd n

ew

way

s to

gro

w, t

o

serv

e c

ust

om

ers

in a

way

that

is reflect

ive o

f

the tre

mendous

tech

nolo

gic

al c

han

ges

that

hav

e o

ccurr

ed, t

o a

chie

ve p

rofita

ble

gro

wth

in

an e

ra o

f ext

raord

inar

ily lo

w in

tere

st rat

es,

and

yet to

man

age ris

k eff

ect

ively

and c

om

ply

with

the in

tense

regula

tory

envi

ronm

ent.

“A

renew

ed e

mphas

is o

n in

vest

ing in

and

pro

fess

ional

izin

g the ris

k m

anag

em

ent

funct

ions

will b

e c

ritic

al in

ach

ievi

ng the rig

ht

bal

ance

betw

een ris

k an

d rew

ard,”

say

s B

rian

B. S

tephens,

par

tner,

nat

ional

sect

or le

ader

for ban

king a

nd c

apita

l mar

kets

, KP

MG

. It

should

not co

me a

s a

surp

rise then that

more

finan

cial

serv

ices

CE

Os

than

those

in o

ther

indust

ries,

40 p

erc

ent, a

re e

xtre

mely

invo

lved

in ris

k m

anag

em

ent, a

ccord

ing to the s

urv

ey.

Unders

tandin

g the ris

k co

nte

nt m

ean

s

know

ing the s

ourc

es

of ris

k, their

pro

bab

ility

and in

tensi

ty. R

egula

tory

pre

ssure

is s

een a

s

the is

sue p

osi

ng the g

reat

est

thre

at, a

ccord

ing

to a

report

fro

m K

PM

G, E

xpect

atio

ns

of R

isk

Man

agem

ent O

utp

acin

g C

apab

ilitie

s—It’s

Tim

e for A

ctio

n.

Avo

idin

g S

ho

cks: R

isk M

an

ag

em

en

t A

nd

Ele

ctr

icit

y

Libe

rty

Pow

er’s

ris

k m

anag

emen

t str

ateg

y, w

hich

aff

ects

its

grow

th p

lans

,

cons

ists

of t

hree

ele

men

ts: p

eopl

e, p

roce

sses

and

met

rics

. CEO

Dav

id

Her

nand

ez b

elie

ves

that

the

bigg

est r

isk

for

any

com

pany

is n

ot h

avin

g th

e ri

ght

team

to e

xecu

te it

s st

rate

gy –

a r

isk

he b

elie

ves

Libe

rty

Pow

er h

as s

ucce

ssfu

lly

man

aged

by

build

ing

a te

am o

f hun

gry,

hum

ble

and

smar

t peo

ple.

Sec

ond,

he

belie

ves

that

his

com

pany

has

the

righ

t pro

cess

es a

nd o

rgan

izat

iona

l str

uctu

re

in p

lace

to m

itiga

te it

s ri

sk e

xpos

ure

and

to b

e ni

mbl

e in

res

pons

e to

cha

ngin

g

mar

ket f

orce

s. T

hird

, Lib

erty

trac

ks th

e ri

ght m

etri

cs. “

That

’s th

e on

ly w

ay w

e

can

tell

if ou

r pr

oces

ses

are

perf

orm

ing

wel

l,” h

e sa

ys.

24 /

Sett

ing t

he C

ours

e f

or

Gro

wth

: C

EO

Pers

pectives

FIG

UR

E 1

5

Top

conc

erns

abo

ut m

y

co

mpa

ny (r

anke

d in

des

cend

ing

orde

r)

e F

inan

cial

per

form

ance

r R

isk

man

agem

ent c

once

rns

t W

orkf

orce

issu

es

u O

pera

tion

al is

sues

i A

bili

ty to

inno

vate

RIS

K O

PTI

MIZ

ATI

ON

Q&

A W

ith

Mic

hael

Nol

an, G

loba

l Par

tner

in C

harg

e

for

KP

MG

’s R

isk

Con

sult

ing

Ser

vice

s

How

can

ris

k be

har

ness

ed to

dri

ve e

ffici

ent g

row

th?

Com

pani

es h

ave

to u

nder

stan

d ho

w m

uch

risk

they

are

will

ing

to ta

ke to

ach

ieve

a c

erta

in g

row

th le

vel.

CEO

s ha

ve a

n in

here

nt u

nder

stan

ding

of w

hat t

heir

risk

app

etite

is. T

he c

halle

nge

with

that

is th

at th

ere

may

be

an in

cons

iste

ncy

betw

een

the

CEO

, sen

ior

man

agem

ent a

nd th

e bo

ard.

Hav

ing

a m

ore

form

aliz

ed

risk

app

etite

sta

tem

ent p

reve

nts

that

. It a

lso

help

s to

answ

er g

row

th q

uest

ions

: Are

we

taki

ng to

o m

uch

risk

? A

re w

e ta

king

eno

ugh

risk

?

Do

com

pani

es h

ave

thei

r ri

sk a

ppet

ite

stat

emen

ts?

Whi

le n

earl

y al

l C-s

uite

exe

cutiv

es r

ecog

nize

ris

k

man

agem

ent a

s an

impo

rtan

t ing

redi

ent i

n th

eir

orga

niza

tion’

s ov

eral

l bus

ines

s su

cces

s, o

nly

one

in fi

ve h

ave

fully

dev

elop

ed a

nd im

plem

ente

d a

risk

appe

tite

stat

emen

t. N

earl

y a

quar

ter

have

them

in

deve

lopm

ent.

Whi

le s

ome

prog

ress

has

bee

n m

ade,

com

pani

es n

eed

to d

o m

ore

in th

is s

pace

.

Wha

t’s th

e im

port

ance

of h

avin

g a

wel

l-ar

ticu

late

d

and

com

mun

icat

ed r

isk

profi

le?

In to

day’

s w

orld

of e

nhan

ced

risk

s, th

e bo

ard

and

the

shar

ehol

ders

are

aski

ng m

ore

ques

tions

aro

und

risk

. Not

hav

ing

a

wel

l-ar

ticul

ated

and

com

mun

icat

ed r

isk

profi

le in

itse

lf

mea

ns ta

king

on

an u

nnec

essa

ry r

isk.

Sett

ing t

he C

ours

e f

or

Gro

wth

: C

EO

Pers

pectives /

25

Ris

k m

anag

emen

t: ha

rnes

sed

for e

ffici

ent g

row

th (c

ont.)

riski

est

com

moditi

es,

beca

use

it c

an’t e

asily

be s

tore

d a

nd p

rices

chan

ge b

y th

e m

inute

.

While

CE

Os

surv

eye

d h

ave in

creas

ed the

inte

nsi

ty o

f th

eir

focu

s on ris

k, the p

roce

sses

and the c

apab

ilitie

s of ris

k m

anag

em

ent

hav

en’t c

aught up w

ith the e

xpect

atio

ns

of

regula

tors

, shar

ehold

ers

, boar

ds

and e

ven

the C

EO

s th

em

selv

es,

say

s K

PM

G’s

Nola

n.

He p

oin

ts to the thre

e li

nes

of defe

nse

agai

nst

ris

k.

Opera

tions

is the fi

rst lin

e. T

he s

eco

nd

line is

com

plia

nce

and ris

k m

anag

em

ent,

whic

h s

ets

the p

olic

ies

and p

roce

dure

s an

d

monito

rs o

pera

tions.

The third

line is

inte

rnal

audit,

whic

h p

rovi

des

assu

rance

that

ris

k

man

agem

ent is

work

ing. T

hese

thre

e la

yers

need to b

e a

ligned for ris

k m

anag

em

ent to

funct

ion. F

rom

Nola

n’s

exp

erie

nce

, for m

any

com

pan

ies

the m

ost

pro

ble

mat

ic is

the fi

rst

and s

eco

nd li

nes

of defe

nse

, due to the la

ck

of ris

k m

anag

em

ent co

mpete

nci

es.

Succ

ess

ful r

isk

man

agem

ent is

fully

inte

gra

ted

with

in the c

om

pan

y. “

Silo

s ar

e n

o lo

nger

acce

pta

ble

in ris

k m

anag

em

ent,” s

ays

Deon

Min

naa

r, U

.S. l

ead

par

tner fo

r gove

rnan

ce,

risk

and c

om

plia

nce

. Org

aniz

atio

ns

are

movi

ng tow

ard a

n in

tegra

ted a

ppro

ach to

risk

man

agem

ent, w

here

eve

rybody

has

a

“N

ew

finan

cial

regula

tion is

in the fore

front

of th

is tre

nd, b

ut th

e fi

nan

cial

serv

ices

indust

ry is

not th

e o

nly

sect

or fe

elin

g the

heat

. Heal

thca

re, m

anufa

cturin

g, t

ech

nolo

gy,

energ

y an

d o

ther in

dust

ries

face

man

y new

gove

rnm

ent ru

les,

” a

ccord

ing to the report

.

Regula

tory

pre

ssure

was

rat

ed the top ris

k

in fi

nan

cial

serv

ices,

energ

y an

d n

atura

l

reso

urc

es.

“G

ove

rnm

ent pre

ssure

to c

onta

in

spendin

g,”

a regula

tory

issu

e, w

as the top ris

k

in h

eal

thca

re, a

ccord

ing to the report

.

Eac

h in

dust

ry p

rese

nts

its

indiv

idual

rost

er

of so

urc

es

of ris

k. In

the e

nerg

y in

dust

ry, f

or

inst

ance

, ele

ctric

ity is

inhere

ntly

one o

f th

e

single

vie

w o

f ris

k w

ithin

the o

rgan

izat

ion

and s

har

es

risk

info

rmat

ion a

cross

tra

diti

onal

silo

s. W

hile

lead

ing ris

k m

anag

em

ent fr

om

the top is

crit

ical

ly im

port

ant, s

o is

lead

ing

from

the m

iddle

, str

ess

es

Nola

n. O

nly

such

a

thoughtf

ul,

rigoro

us

and in

tegra

ted a

ppro

ach

to ris

k m

anag

em

ent w

ill g

ive c

om

pan

ies

an

unders

tandin

g o

f th

e full

impac

t of pote

ntia

l

risks

on their

glo

bal

org

aniz

atio

n.

26 /

Sett

ing t

he C

ours

e f

or

Gro

wth

: C

EO

Pers

pectives

27

%

32

%

31

%

10

%

Proa

ctiv

ely

disc

usse

d on

a re

gula

r bas

is

Dis

cuss

ed p

roac

tivel

y, b

ut n

ot o

n a

regu

lar b

asis

Not

a re

gula

r top

ic o

f dis

cuss

ion

Dis

cuss

ed o

n an

as-

need

ed b

asis

FIG

UR

E 1

7

How

is c

risi

s ri

sk p

lann

ing

hand

led

wit

hin

your

org

aniz

atio

n?

33

%

56

%

2% 9

%

I lea

d th

e di

scus

sion

s

I hav

e a

stro

ng v

oice

in th

e di

scus

sion

s

We

do n

ot h

ave

a ris

k pl

anni

ng p

roce

ss in

pla

ce

I tak

e pa

rt in

the

disc

ussi

ons

FIG

UR

E 1

6

How

invo

lved

are

you

in r

isk

plan

ning

?

PR

IVA

TE S

ECTO

R A

S A

GR

OW

TH E

NG

INE

Q&

A W

ith

Bri

an H

ughe

s, N

atio

nal P

riva

te M

arke

ts G

roup

Lea

der

at K

PM

G

The

maj

orit

y of

CEO

s fr

om p

riva

te c

ompa

nies

are

con

fiden

t abo

ut th

eir

grow

th p

rosp

ects

.

How

ever

, few

er p

riva

te C

EOs

than

CEO

s of

pub

lic

com

pani

es d

escr

ibe

thei

r gr

owth

str

ateg

y

as a

ggre

ssiv

e, a

nd m

ore

of th

em a

re fo

cuse

d on

ope

rati

onal

effi

cien

cy v

ersu

s gr

owth

. Wha

t

is b

ehin

d th

ese

diff

eren

ces?

The

sur

vey

resu

lts s

how

muc

h op

timis

m in

the

priv

ate

sect

or.

Pri

vate

com

pani

es h

ave

mor

e ag

ility

than

pub

lic c

ompa

nies

, whi

ch a

re c

onst

rain

ed b

y th

e

dem

ands

of q

uart

erly

rep

ortin

g. T

he fo

cus

on e

ffici

ency

and

cos

t red

uctio

n st

rate

gies

res

ults

from

the

fact

that

pri

vate

com

pani

es a

re n

ot a

cces

sing

the

publ

ic m

arke

ts fo

r th

eir

capi

tal

need

s. T

hey

need

to m

ake

extr

a su

re th

at th

ey’r

e gr

owin

g re

venu

es p

rofit

ably

.

You

men

tion

ed th

at p

riva

te c

ompa

nies

hav

e to

face

mor

e pr

essu

res

but a

lso

have

adva

ntag

es. L

et’s

firs

t foc

us o

n th

e ex

tra

pres

sure

s. W

hat a

re th

ey, a

nd w

hat’s

the

best

way

to h

andl

e th

em?

It’s

larg

ely

a m

atte

r of

res

ourc

es a

nd in

fras

truc

ture

. The

stu

dy s

how

s th

at th

e

regu

lato

ry e

nvir

onm

ent i

s to

p of

min

d fo

r bo

th p

riva

te a

nd p

ublic

com

pani

es. C

ompa

red

with

publ

ic c

ompa

nies

, pri

vate

com

pani

es m

ay n

ot h

ave

the

size

, com

plex

ity a

nd in

fras

truc

ture

to

addr

ess

regu

lato

ry c

hang

e as

qui

ckly

as

the

publ

ic c

ompa

nies

.

In te

rms

of s

tayi

ng c

ompe

titiv

e, th

e st

udy

show

s th

at p

riva

te c

ompa

nies

are

mor

e co

ncer

ned

abou

t new

mar

ket e

ntra

nts.

Pri

vate

com

pany

ow

ners

or

man

ager

s ar

e fo

cuse

d on

the

bott

om

line.

Sta

ying

on

top

of th

e ne

wes

t tec

hnol

ogie

s an

d la

test

inno

vatio

ns c

an b

e a

chal

leng

e.

It’s

incu

mbe

nt o

n pr

ivat

e co

mpa

nies

to w

ork

with

the

appr

opri

ate

part

ies

to m

ake

sure

that

they

’re

gett

ing

rele

vant

and

tim

ely

info

rmat

ion

rega

rdin

g w

hat’s

goi

ng o

n in

the

exte

rnal

envi

ronm

ent.

Inde

ed, t

he s

tudy

con

firm

s th

at p

riva

te c

ompa

nies

rel

y on

out

side

par

ties

mor

e

than

pub

lic o

nes

do. (

See

Fig

. 18)

Wha

t are

the

adva

ntag

es o

f bei

ng a

pri

vate

com

pany

? P

riva

te c

ompa

nies

tend

to h

ave

a

mor

e re

laxe

d go

vern

ance

str

uctu

re th

an p

ublic

com

pani

es, w

hich

allo

ws

the

CEO

s an

d th

e

othe

r C

-lev

el e

xecu

tives

to s

pend

mor

e tim

e w

ith th

eir

cust

omer

s an

d w

ith th

eir

peop

le in

the

com

pany

. Ind

eed,

the

stud

y sh

ows

that

pri

vate

CEO

s in

tend

to s

pend

eve

n m

ore

time

with

thei

r cu

stom

ers.

A re

new

ed e

mph

asis

on

inve

stin

g in

and

pro

fess

iona

lizin

g th

e

risk

man

agem

ent f

unct

ions

will

be

criti

cal i

n ac

hiev

ing

the

right

bala

nce

betw

een

risk

and

rew

ard.

– B

rian

B. S

teph

ens

Par

tner

, Nat

iona

l Sec

tor

Lead

er fo

r B

anki

ng a

nd C

apita

l Mar

kets

, KP

MG

“

”Sett

ing t

he C

ours

e f

or

Gro

wth

: C

EO

Pers

pectives /

27

10%

38%

52%

18% 41

%

41%

Enga

ged

outs

ide

advi

sors

Str

ateg

y ha

s no

t cha

nged

Mor

e co

llabo

ratio

n w

ith

man

agem

ent c

omm

ittee

FIG

UR

E 1

8

In li

ght o

f the

rec

ent e

cono

mic

unc

erta

inty

, how

has

you

r de

cisi

on-m

akin

g

stra

tegy

as

a C

EO c

hang

ed?

Pu

bli

c C

om

pa

nie

sP

riva

te C

om

pa

nie

s

Con

clus

ion

It’s

tran

sfor

m o

r w

ithe

r. The c

urr

ents

and c

ross

-curr

ents

of ch

ange k

eep

swirlin

g, w

ith m

ultip

le tra

nsf

orm

atio

n triggers

pre

sent si

multan

eousl

y.

Am

ong m

ajor fo

rces

that

can

lead

com

pan

ies

to tra

nsf

orm

their o

pera

ting

busi

ness

models

are

sig

nifi

cant sh

ifts

in tech

nolo

gy,

the e

merg

ence

of a

dig

ital

ly s

avvy

cust

om

er, a

nd rap

id regula

tory

shifts

. C

EO

s re

cogniz

e the

need to in

nova

te a

nd tra

nsf

orm

ove

r th

e n

ext

thre

e y

ear

s. M

ore

than

thre

e-

quar

ters

of co

mpan

ies

are in

som

e s

tage o

f tr

ansf

orm

ing their o

pera

ting

models

. The c

han

ge h

appens

thro

ugh o

ngoin

g p

roce

sses,

as

well

as test

ing

big

-pic

ture

, fu

turist

ic s

cenar

ios.

While

innova

tion is

a k

ey

diffe

rentiat

or, few

org

aniz

atio

ns

curr

ently

opera

te w

ith c

om

pan

y-w

ide p

roce

sses

in p

lace

that

ensu

re that

cre

ativ

ity

bubble

s up.

Sta

ying

rel

evan

t mean

s nav

igat

ing a

new

com

petitive

landsc

ape, in

cludin

g

awar

eness

of in

dust

ry-a

gnost

ic tre

nds

and d

isru

ptions.

A c

om

pan

y fr

om

any

sect

or ca

n in

fluence

ove

rall

consu

mer behav

iors

and e

xpect

atio

ns

about

conve

nie

nce

, se

rvic

e a

nd c

ost

. C

EO

s se

e m

ore

com

petitive

dis

rupto

rs o

n

the la

ndsc

ape than

eve

r, m

any

from

com

pan

ies

that

they

trad

itio

nal

ly h

ave

not co

mpete

d a

gai

nst

. These

new

indust

ry e

ntr

ants

cre

ate n

ew

cust

om

er

exp

ect

atio

ns,

incl

udin

g a

mong the n

ew

est

cust

om

ers

, th

e m

illennia

l

genera

tion. The s

hifts

in a

ttitudes

they

bring w

ith them

are

much

more

signifi

cant th

an in

the p

revi

ous

genera

tions

of bab

y boom

ers

or G

en X

’ers

.

Mill

ennia

ls a

re a

lso a

gro

up to w

atch

as

they

ente

r th

e w

ork

forc

e a

nd b

ring

new

exp

ect

atio

ns

as e

mplo

yees.

Bec

omin

g an

info

rmat

ion-

driv

en o

rgan

izat

ion

is a

key

stra

tegy

for

nav

igat

ing n

ew

chal

lenges

and d

efe

ndin

g a

gai

nst

com

petito

rs, either

exi

stin

g riv

als

or new

mar

ket entr

ants

. S

mar

tly

utiliz

ing d

ata

anal

ytic

s al

low

s

org

aniz

atio

ns

to s

tay

in a

posi

tion o

f co

mpetitive

adva

nta

ge. A

t th

is s

tage

much

of th

e d

ata

anal

ytic

s is

aim

ed a

t gat

hering c

ust

om

er in

form

atio

n. B

y

anal

yzin

g c

ust

om

ers

, org

aniz

atio

ns

deepen their u

nders

tandin

g o

f how

to

attr

act th

em

, ac

quire them

, an

d reta

in them

. P

erh

aps

the m

ost

exc

itin

g

aspect

of dat

a an

alyt

ics

is that

it c

an b

e p

redic

tive

and b

e u

sed for fo

rwar

d-

looki

ng g

row

th, unlik

e tra

ditio

nal

metr

ics.

The p

oss

ible

applic

atio

ns

of big

dat

a go far

beyo

nd c

ust

om

er se

gm

enta

tion. D

ata

anal

ytic

s is

begin

nin

g to

fill

som

e o

f th

e in

form

atio

n c

has

ms

betw

een d

iffe

rent fu

nct

ions,

whic

h,

for exa

mple

, sh

ould

lead

to b

reak

ing d

ow

n s

ilos.

How

eve

r, m

akin

g s

ure

that

dat

a does

its

job requires

not ju

st in

form

atio

n s

yste

ms

but al

so p

eople

netw

ork

s. T

he n

ext

fro

ntier is

build

ing team

s of ta

lente

d in

div

idual

s to

put

new

info

rmat

ion to u

se.

Effic

ient

gro

wth

is th

e le

ns thro

ugh w

hic

h e

very

asp

ect

of th

e

org

aniz

atio

n a

nd e

xtern

al forc

es

affe

ctin

g it

should

be v

iew

ed. This

incl

udes

areas

that

are

tra

ditio

nal

ly p

erc

eiv

ed m

ore

as

burd

ens

than

as

opport

unitie

s

to g

row

, su

ch a

s th

e e

nhan

ced regula

tory

envi

ronm

ent or risk

man

agem

ent.

We h

ave e

nte

red a

new

regula

tory

envi

ronm

ent, o

ne that

is c

han

gin

g h

ow

busi

ness

is d

one in

multip

le s

ect

ors

. To

gro

w, firm

s need n

ot only

to g

et

the regula

tions

right –

they

also

must

imple

ment th

em

in a

way

that

aff

ord

s

com

petitive

adva

nta

ge. A

mid

dis

ruptive

tech

nolo

gic

al c

han

ges,

an e

nhan

ced

regula

tory

envi

ronm

ent an

d the n

ew

dig

ital

ly s

avvy

consu

mer, g

row

th

com

es

with e

ver m

ultip

lyin

g la

yers

of risk

. A

succ

ess

ful g

row

th s

trat

egy

is

contingent on u

nders

tandin

g a

nd a

ccepting the ris

ks a

ssoci

ated w

ith the

assu

mptions

the s

trat

egy

is b

uilt

upon.

Looki

ng o

ut on the n

ext

thre

e y

ear

s, C

EO

s se

e o

pport

unitie

s in

the s

tead

ily im

pro

ving e

conom

y –

but th

ey

rem

ain

focu

sed o

n e

ffici

ent gro

wth

, an

d a

re w

ary

of new

chal

lenges

in a

sig

nifi

cantly

diffe

rent, p

ost

-reco

very

mar

ketp

lace

.

Am

id a

n u

npre

cedente

d w

ave o

f tr

ansf

orm

ativ

e c

han

ges,

sett

ing the c

ours

e for gro

wth

will

require n

ew

stra

tegie

s, n

ew

tools

and n

ew

thin

king.

/S

ett

ing t

he C

ours

e f

or

Gro

wth

: C

EO

Pers

pectives

Ack

now

ledg

emen

tsK

PM

G w

ishes

to a

cknow

ledge t

he s

upport

of

Forb

es

Insi

ghts

in c

reat

ing t

his

report

.

Forb

es

Insi

ghts

is t

he s

trat

egic

rese

arch

and t

hought

lead

ers

hip

pra

ctic

e o

f Forb

es

Media

,

publis

her

of

Forb

es

mag

azin

e a

nd F

orb

es.

com

, w

hose

com

bin

ed m

edia

pro

pert

ies

reac

h

near

ly 5

0 m

illio

n b

usi

ness

deci

sion m

akers

worldw

ide o

n a

month

ly b

asis

.

Forb

es

Insi

ghts

conduct

ed in

terv

iew

s w

ith s

eve

ral U

.S.-bas

ed C

EO

s to

build

conte

nt

for

this

report

and w

ould

like

to t

han

k th

e f

ollo

win

g c

hie

f exe

cutive

s fo

r sh

arin

g t

heir t

ime,

exp

ert

ise a

nd v

isio

ns:

Geo

rge S

. B

arr

ett

, C

ardin

al H

eal

th

An

tho

ny F

. E

arl

ey J

r., P

G&

E C

orp

ora

tion

Jeff

M. Fett

ig, W

hirlp

ool C

orp

ora

tion

David

Hern

an

dez, Lib

ert

y P

ow

er

Ro

bert

J. H

ug

in, C

elg

ene

Tam

ara

L. Lu

nd

gre

n, S

chnitze

r S

teel I

ndust

ries

Sh

eri

McC

oy, A

von

Beth

Mo

on

ey, K

eyB

ank

Mic

hael R

. O

dell, P

ep B

oys

Jo

sep

h R

. S

wed

ish

, W

ellP

oin

t

David

Zalm

an

, P

rosp

erity

Ban

k

Met

hodo

logy

The s

urv

ey

dat

a publis

hed in

this

report

is b

ased o

n a

surv

ey

of

400 U

.S.-bas

ed c

hie

f

exe

cutive

s. M

any

key

indust

ries

are r

epre

sente

d, in

cludin

g fi

nan

cial

serv

ices,

auto

motive

,

man

ufa

cturing, te

chnolo

gy,

consu

mer

mar

kets

, heal

thca

re a

nd e

nerg

y. O

ne h

undre

d t

hirty

-

four

CE

Os

cam

e f

rom

com

pan

ies

with r

eve

nues

betw

een $

500 m

illio

n a

nd $

999 m

illio

n,

234 f

rom

com

pan

ies

with r

eve

nues

from

$1 b

illio

n t

o $

9.9

bill

ion, an

d 3

2 f

rom

com

pan

ies

with r

eve

nues

of

$10 b

illio

n o

r m

ore

. O

ne h

undre

d s

eve

nty

-four

CE

Os

cam

e f

rom

public

com

pan

ies

and 2

26 f

rom

priva

te c

om

pan

ies.

KP

MG

: an

exp

eri

en

ced

team

, a g

lob

al n

etw

ork

KP

MG

LLP,

the a

udit, ta

x an

d a

dvi

sory

firm

(kp

mg.c

om

/us)

, is

the U

.S. m

em

ber

firm

of

KP

MG

Inte

rnat

ional

Coopera

tive

(“K

PM

G Inte

rnat

ional

”). K

PM

G Inte

rnat

ional

’s m

em

ber

firm

s hav

e 1

52,0

00 p

rofe

ssio

nal

s, in

cludin

g m

ore

than

8,6

00 p

artn

ers

, in

156 c

ountr

ies.

As

a le

adin

g p

rofe

ssio

nal

serv

ices

firm

, K

PM

G L

LP

pro

vides

audit, ta

x, a

nd a

dvi

sory

serv

ices

and in

dust

ry in

sight

to h

elp

org

aniz

atio

ns

seiz

e o

pport

unitie

s, o

verc

om

e

com

ple

x ch

alle

nges

and n

egotiat

e r

isk

to b

ett

er

perf

orm

in t

he d

ynam

ic a

nd c

hal

lengin

g

envi

ronm

ents

in w

hic

h t

hey

do b

usi

ness

.

Our

hig

h-p

erf

orm

ance

culture

pro

mote

s usi

ng o

ur

exp

erience

and in

sight

to s

implif

y

com

ple

x ch

alle

nges,

seek

new

opport

unitie

s an

d d

eliv

er

info

rmed p

ers

pect

ives

and c

lear

meth

odolo

gie

s of

valu

e t

o c

lients

and s

take

hold

ers

. O

ur

clie

nt

focu

s, c

om

mitm

ent

to

exc

elle

nce

, glo

bal

min

d-s

et,

and c

onsi

stent

deliv

ery

build

tru

sted r

ela

tionsh

ips

that

are

at t

he c

ore

of

our

busi

ness

and r

eputa

tion.

The info

rmation c

onta

ined h

ere

in is o

f a g

enera

l natu

re a

nd is n

ot

inte

nded t

o a

ddre

ss t

he c

ircum

sta

nces

of

any p

art

icula

r in

div

idual or

entity

.

The p

ers

pectives o

f surv

ey r

espondents

do n

ot

necessarily

repre

sent

the v

iew

s o

f K

PM

G L

LP.

The v

iew

s a

nd o

pin

ions e

xpre

ssed h

ere

in a

re t

hose o

f th

e a

uth

or/

inte

rvie

wee a

nd d

o n

ot

necessarily

re

pre

sent

the v

iew

s a

nd o

pin

ions o

f K

PM

G L

LP.

Sett

ing t

he C

ours

e f

or

Gro

wth

: C

EO

Pers

pectives /

29

© 2

014 K

PM

G Inte

rnat

ional

Coopera

tive

(“K

PM

G Inte

rnat

ional

”), a

Sw

iss

entity

. M

em

ber

firm

s of

the K

PM

G n

etw

ork

of

independent

firm

s ar

e a

ffilia

ted w

ith

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