CEO briefing 2014 the business agenda for europe

EU companies also have ambitious overseas investment strategies for growth through the sale of new products and services to new customers – particularly in non-BRIC rapidly growing emerg

The Business Agenda for Europe:

Growth in a Digital World

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Business confidence is returning globally and many leaders are more optimistic about the outlook for their organisations, expressing bold ambitions for growth

While the European Union (EU) is slowly recovering from the recession, the impact of the euro zone crisis is still evident in the continually growing gap in competitiveness with other major global economies Countries such as the United States and China have increased their investment in new digital technologies and innovation as a means to drive growth, while adoption in the major EU economies

is lagging as these executives remain less convinced about digital and the impact it can have on their business

With the impact of traditional levers such as fiscal and monetary policy currently limited, the EU finds itself in

a unique set of circumstances in which digital presents itself as a powerful lever which can be effectively used to bridge the ever-widening competitiveness gap

Digital technologies are enabling organisations to transform the way they do business, with opportunities

to enhance their efficiency, create new ways of interacting with their customers and reduce the time from product design to market launch

Accenture believes that enthusiastic adoption of digital technologies will make

it possible for Europe to return to higher economic growth and reduce this widening global competitiveness gap With its high penetration rates across Broadband, Mobile and smartphones as well as eGovernment services, the EU is in a good position

to exploit its strong performance in the adoption of technology In order to succeed in rebuilding competitiveness in both the short and long term however, Europe’s business and policy makers must take urgent steps to convert its strong digital potential into higher levels of productivity, innovation and growth.The EU can become a leader in a new era

of digital business The time to act is now

Foreword

2 Foreword

Jo Deblaere

Chief Operating Officer

and Group Chief Executive –

Accenture, Europe

While the economic outlook has been more positive in recent months, the European Union has yet to see a genuine, positive shift in the competitiveness of its economies In order to stop the gap

in European competitiveness growing and potentially gain ground, business leaders and policy makers will need to urgently address the two critical areas

of productivity and innovation

Europe is home to 14 of the world’s 50 largest companies The region has a strong corporate base with significant capacity for innovation and advanced technology infrastructures It also boasts a significant number of entrepreneurs and young businesses as well as a sophisticated consumer base, that tend to be experienced with and receptive to the use of a wide variety of technologies in their daily lives

The potential impact of digital technologies

on businesses and industries across the

EU is hard to overstate These disruptive technologies are breaking down industry boundaries and requiring organisations

to reinvent themselves by developing or adapting to new business models They are also fundamentally changing the behaviour

of citizens and consumers, who exhibit

a seemingly boundless appetite for all things digital If embraced enthusiastically, digital technologies will enable new business outcomes, multi-channel customer experiences, digital customer interactions, digital sales, and digital channel distribution options

EU companies also have ambitious overseas investment strategies for growth through the sale of new products and services to new customers – particularly in non-BRIC rapidly growing emerging markets Despite this, the majority of EU executives confirm their digital investments are primarily focused on increasing productivity and internal efficiency to reduce costs While cost is a necessary focus, executives may need to rebalance their investment

to better support their ambitious growth plans This will enable companies to generate new levels of innovation and growth to better serve customers and consumers that demand new products, services, and better experiences Investment

in people and organisational structure is also necessary in order to fully capitalise

on implementation of new technologies.The steps needed to close Europe’s competitiveness gap with their global counterparts will require a significant and concerted effort from business and government if Europe wants to replicate its historic success as the driving force

of industrialisation and become a leader

in the new era of the digital business It’s time to seize the opportunity

Introduction

Mauro Macchi

Senior Managing Director –

Accenture Strategy, Europe,

Africa, Middle East and

Latin America

The business landscape

for Europe

4 The business landscape for Europe

As executives within the European Union (EU)

evaluate the business landscape and shape their

strategies regarding the year ahead, their optimism

for the world’s economic prospects is more muted

than that of their global peers according to a

survey conducted by The Economist Intelligence

Unit (EIU) for Accenture’s CEO Briefing 2014.

Furthermore, their enthusiasm for the

capabilities of digital technologies is

decidedly less pronounced than that of

C-suite executives outside the EU These

two preoccupations may be interrelated

as productivity growth in the EU languishes

behind other major economies The need

to innovate and improve competitiveness

is clear, but so far, this challenge has not

been met with the urgency it deserves

Within the five largest EU economies

– Germany, UK, France, Italy and Spain –

a wide diversity of views prevails While

44 percent of executives globally are

bullish on the world’s economic outlook,

this rises to 48 percent among those

from the UK but falls among those from

Germany (30 percent), and France and

Italy (both 31 percent), where optimism

is decidedly weaker.1

For Italy, Luigi Ferraris, CFO at Enel

Group, the European energy utility, sees

improvement from the country’s poor GDP

performance in 2013 and signs of a rise

in the employment rate However, for now

he predicts continued challenges for the

economy “Poor competitiveness, labour

market rigidity and tight credit conditions

will continue to affect the economic outlook

at least in the short term,” he says

Meanwhile, 70 percent of executives based

in Spain are optimistic about prospects in their home market in the next 12 months, compared with only just over half of those based in France (52 percent) and Italy (51 percent).2 This is perhaps surprising, given the continued impact of the economic crisis

on the Spanish market However, some leading executives see southern Europe’s prospects improving, as does Franck Cohen, President for Europe, the Middle East and Africa “Last year, South Europe grew by double digits for SAP,” he says “That’s a clear indication that people are investing.”

This is in line with analysis from the EIU, which sees subdued growth for Spain in the medium term, but signs of increased competitiveness as private consumption and gross fixed investment turn more positive

When it comes to the outlook for profitability

in their own companies, German executives are more confident than most – despite their caution on prospects for global economic growth – with 82 percent expecting increased profits over the next year, compared with 71 percent among their global peers.3

This is reflected in EIU forecasts, which recognise Germany’s economy as more resilient than those in the wider eurozone,

with a modest increase in GDP and a gradual firming of underlying demand after a weaker 2013 This upbeat view

on profitability is also shared among executives from the UK (85 percent), who see increased profits in the coming

12 months.4 Steve Morriss, CEO of European operations at AECOM, a provider

of professional technical and management support services to sectors ranging from energy to construction, is amongst those who see the UK’s outlook improving “In our business, we see some of the earliest indicators for the return of confidence in private developments in building,” he says

“And there’s no doubt that’s really picking up in the UK.”

The consensus view among executives across these five countries is that manufacturing, energy and healthcare are likely to perform well in the coming year However, there are some nuanced surprises with the automotive sector in France showing remarkable confidence

Consumer goods features prominently

in the UK while the construction and real estate sector is frequently cited by executives based in Germany.5

Figure 1: Q1 – In the next 12 months, to what extent are you optimistic or pessimistic

about the prospects for the following Percentage optimistic about the next 12 months:

Figure 2: Q4 – Thinking about your organisation in the next 12 months, do you expect the following

to increase, decrease or stay the same? Expectations of profit growth in next 12 months:

Figure 2 source: Accenture, “CEO Briefing 2014 | The Global Agenda: Competing in a Digital World.”

6 An ambitious push for growth

As EU companies emerge from the economic malaise of recent years, cost cutting remains

on the agenda but the emphasis has changed

An ambitious push

for growth

Germany-based executives expect a year

of increased reductions in costs but

also see a period of workforce increases

ahead - a difficult combination.6

But while cost reductions are still being

implemented across major markets in the EU,

the positioning is far more optimistic than in

recent years “Cost-cutting is not our focus,”

says Mr Morriss “A couple of years ago, we

got our business into a position where it was

able to make money in a depressed economy

But while you’re always looking for the

odd efficiency here and there, we are

absolutely in growth mode.”

Mr Cohen sees this approach being adopted

broadly across the region “My sense in

western Europe is that people have been

cutting costs for the past seven or eight

years,” he says “Now they are in a different

mode – and they have to innovate to

develop their business.”

Amongst the EU countries, the UK

and Germany stand out for their more

ambitious growth strategies While globally

36 percent of respondents are aiming

to sell new products or services to new

customers, in their home markets with

similar proportions in France, Italy and

Spain, this rises to 50 percent amongst

UK-based executives and to 53 percent for those based in Germany.7 When it comes

to export markets this difference becomes even more pronounced For example, the proportion of executives aiming to grow

by selling new products to new customers

in overseas mature markets is 72 percent amongst German-based executives, and

63 percent among UK-based executives (compared with a 47 percent global average).8

Companies are also looking to invest where they see prospects for growth – and for many, that means focusing on emerging markets “Emerging markets will continue their economic growth cycle, although some of them have been affected by a swift contraction in foreign funds and sharp currency depreciation,” says Mr Ferraris

He also sees the recovery in mature markets benefiting emerging economies Among EU respondents, Germany-based executives are more positive than their global peers 9 and (along with UK-based executives) have the most ambitious overseas investment strategies, particularly in non-BRIC (Brazil, Russia, India and China) rapidly growing emerging markets

Figure 3: Q9c – Which of the following strategies will be most important

to driving revenue growth in your company over the next three years?

Outside your home market – Emerging markets growth strategy:

Fully 82 percent of Germany-based

executives say they plan to shift their focus

from BRIC countries towards other, more

rapidly growing emerging markets, as do

74 percent of UK-based executives.10

Similarly, when it comes to their strategies

in emerging markets, executives in Germany

(82 percent) the UK (74 percent) emerge as

the most ambitious in saying that selling

new products and services to new customers

is their strategy (versus 54 percent overall).11

For SAP, this strategy reflects demand from

young companies that are developing rapidly

“Companies in emerging markets need the

whole enchilada of the software we are

selling because they have nothing today,”

explains Mr Cohen “European companies

are equipped in basic functionality and

are buying advanced products.”

For western European companies to compete in emerging markets, Mr Cohen argues that they need to be prepared to innovate “They can’t outspend the guys in Asia,” he says “So they have to outsmart them with innovation.”

More than most, Germany, the UK and Italy are responding to this need

Executives in these countries see research and development (R&D) investments as

a critical part of their strategies While overall, 80 percent of all executives surveyed are increasing their R&D investment in the coming year, this rises

to 96 percent amongst Germany-based executives, 94 percent among

Italy-based executives and 90 percent among UK-based executives.12

For Enel Group, investment strategies are shaped according to market demands and the pace of growth in each region

In mature markets, this means maximising cash flow, optimising the distribution network management, cutting costs and adding value through investments in smart grid technology

By contrast, in emerging markets, the company plans to capitalise on population growth and urbanisation, as well as the expansion of access to electricity services and the development of traditional thermal generation as well as renewables “The growth in emerging markets will be mainly seized through an increase in renewable capacity, in addition to conventional generation capacity in areas such as Latin America, to satisfy those countries’ fast-growing electricity needs,” says

Selling new products/

services to existing customers

Selling existing products/

services to new customers

Selling new products/

services to new customers

Selling existing products/

services to existing customers

8 Too hesitant to embrace technology change

Despite the need to innovate to avoid losing further competitiveness, responses from

executives in the UK, Germany, Italy, France and Spain indicate that EU countries are lagging

behind the global norm when it comes to the importance placed on digital technologies

Too hesitant to embrace

technology change

While most respondents see “significant

change” as a result of advances in digital

technologies (particularly in the UK,

where 61 percent of executives agree),

amongst the five largest EU markets, only

France-based executives (and just 11 percent

of them) see digital technologies as having

a “transformational” effect on business.13

This is surprising, given that these

executives are based in mature markets

that need to compete on quality and

innovation It also contrasts with the

emphasis executives in Germany, the

UK and Italy place on R&D investments

Although R&D is clearly on the agenda,

many companies are less likely to emphasise

information technologies to improve their

competitive position than their Asian

or North American peers

For Mr Cohen, however, technology is a

powerful force for disruption “It’s going

to affect the vast majority of industries,”

he says “For some of them, the changes are

dramatic, especially in the media, telecoms

and music, but others, like more traditional

consumer products companies, will also

have to reinvent themselves.”

Even for industries that remain rooted

in the physical – such as infrastructure, architecture and construction – digital technologies are bringing about dramatic operational changes

“The design and construction phases are being transformed,” says Mr Morriss

“People are talking about building information modelling in terms of 3D, 4D, 5D, 6D as they start to describe overlay of cost and construction sequencing – and that will be a significant improvement.” For the energy sector, technology is permitting an increased focus on the customer and a decentralisation of energy production “These changes are expected

to have on the energy sector the same disruptive consequences that the internet had on telecommunications,” says Mr Ferraris “If this materialises, digital could represent one of the most important key success factors, and could lead to integration between digital systems and the power system.”

Figure 4: Q16 – Please select the statement that best describes your

company’s approach to digital business investments (such as cloud computing,

data analytics, machine-to-machine communications, social and mobile).

Not all companies appear to acknowledge

these advances In fact, both Germany-

and France-based respondents lag behind

the global averages in the importance

they attach to digital technologies and

their assessment of what they can do

for their businesses

This is in line with EIU data which

highlight sluggish growth in the markets

for information and communications

technology (ICT) in France and Germany

In France, growth rates are forecast to

decline from an already low 0.7 percent

in 2013 to 0.6 percent in 2014 Germany

experienced paltry growth of 0.1 percent

in ICT in 2013, well below the overall

economy’s growth Compare that with the

US or Canada, both of which experienced

faster ICT growth than their (already

stronger) overall GDP growth rates

Although respondents from Germany, Italy, Spain and the UK agree with their global peers that digital technologies are important for the delivery of new goods and services, only 27 percent of France-based executives say this is the case (the global average is 46 percent).14

Meanwhile, rather than focusing on the power of technology to help grow their business, executives in Germany (70 percent) and Italy (69 percent) see its main purpose

as increasing efficiency and cutting costs.15

This may be a failure of imagination as Europe’s companies are less likely consider the revenue growth potential of these technologies While 45 percent of executives globally see digital technologies as a means

of growing sales, this proportion falls to

33 percent in the EU5 and a mere 25 percent among Germany-based executives.16

In short, EU executives appear to be underrating what digital technologies can do for their businesses compared with their peers in other regions

Moreover, they are more likely to see these investments focus on the promotion

of efficiency This can overlook a more transformative approach to harnessing technology advances

10 Missing the boat on digital competitiveness

Missing the boat on

digital competitiveness

If many EU executives discount the potential

for technology to help expand their

businesses, some are also down playing

its importance in cementing relationships

with customers While 61 percent of all

respondents recognise the importance of

digital technologies to improve the customer

experience, in Germany the proportion

is only 49 percent and Italy 51 percent.17

Their peers in the US and in Asia are far

more likely to value these opportunities

to deepen customer connections with

69 percent in the US and 89 percent in

China citing this use of digital technologies

However, UK-based respondents stand

out for their recognition of the role digital

technology can play to meet new consumer

demands with a majority (70 percent)

highlighting this as a route to improved

customer experience.18 They are also more

likely to recognise the importance of data

analytics to their businesses (65 percent)

than the global average (53 percent)

or their EU5 peers (47 percent)

Mr Cohen believes this approach is critical

if companies are to survive in an era where

customers want to access goods and

services at any time and from anywhere

“They have to reinvent the customer

experience, and technology today allows

that,” he says Understanding the uses of

data and connectivity is crucial for many

businesses to maintain their edge

For Mr Morriss, technology adoption is key

to a company’s competitive advantage

“We see a real opportunity in our industry,”

he says “The ability to out compete smaller

competitors by investing in technology

and making the best use of it, is really

important for us.”

Capitalising on new technologies

takes more than financial investments,

however it also investment in people and

In the survey, change management is seen

as one of the biggest challenges to digital implementation among EU executives, with large proportions in each country citing this among their top three challenges

to implementing digital technologies.19

Other important obstacles cited by EU executives include poor funding, silos between departments, low customer demand, skills shortages and a lack of senior executive support

Figure 5: Q17 – How important are investments in digital technologies (such as cloud computing, E-commerce, data analytics, machine-to-machine communication, social and mobile) to the following areas of your business? Recognising digital’s importance for customer experience:

GlobalaverageGermanyUKFranceItalySpain

Figure 6: Q14 – How important will the following digital technologies

be for your company in the next 12 months? Cloud computing,

E-commerce, Machine-to-machine communications, Social media,

Mobile and Data analytics.

Machine-to-machinecommunicationsData analyticsE-commerce

Figure 6 source: Accenture, “CEO Briefing 2014 | The Global Agenda: Competing in a Digital World.”

See: http://www.accenture.com/ceobriefing

17 Figure 5: Q17

19 Appendix, Q19

18 Figure 5: Q17

12 Conclusion