PwC Chairman Dennis Nally
Three Keys to the Future
The call of new markets, emerging technologies, the need to constantly keep abreast with a world that never pauses – one of the world's foremost business consultants shares his views on the current, shifting paradigm.
Three Keys to the FutureBy Elaine Huang, Yuan Chou
From CommonWealth Magazine (vol. 513 )
Dennis M. Nally became chairman of PwC International Ltd. in 2010, just as Asia's rise was sweeping the world.
Born in Washington DC, Nally joined PricewaterhouseCoopers straight out of college and has served the company for 39 years – longer, he jokes, than he has been married to his wife.
At 60, Nally has bountiful experience in consulting large European and American corporations, and in recent years he has been a frequent speaker at such major economic conferences as the World Economic Forum and the APEC CEO Summit. Though he has always resided in the United States, the Asian market has never been far from his mind.
In mid-December, Nally visited Taiwan for the first time to take part in a PwC partner conference. Staying in Taipei for less than 24 hours, he found time to sit down with CommonWealth Magazine for an exclusive interview, shortly before flying to Beijing.
In fact, Nally had already been in Asia for a week, visiting Indonesia, Vietnam, Malaysia and Hong Kong before arriving in Taipei, ceaselessly meeting a series of clients and partners. The importance he places on the Asian market speaks for itself.
Following are highlights from the interview:
Q: Could you share your views on what changes management and business organization should make in the slow-growth era?
A: The whole notion of growth in a slow-growth environment is a really critical issue. It doesn't mean companies won't be successful, or that there are no opportunities out there. But people need to think about where the opportunities are, and how to capture them.
First and foremost, we all know the shift in the global economy, from the developed to the developing world. It's where all the growth is, and where it will be for the foreseeable future. So many companies are really trying to understand what they have to do to be successful.
For example, the old idea of developing a product in Chicago and sending it to a market like Taiwan – that's the old model. How companies get their business models re-engineered, so that they are closer to the new markets, so they understand the unique attributes of the markets, so they can make sure their products and services are tailored and responsive to those opportunities – that's a huge change.
So the first point would be, there is a significant business model transformation taking place in many companies. It requires relocating R&D activities into the emerging markets, getting senior leadership to understand the opportunities in these markets, their consumer preferences and demands, and how to deliver their products to those markets. It's a fundamental shift that's going on today. Those who embrace that kind of thought process are those who will compete effectively where the growth is. Those with old thinking will find themselves outdated or potentially obsolete. That's issue No. 1.
Issue No. 2, I think, is that we are continuing to see a significant progression in technology – the ability to use new technological tools to better understand what is going on in the market place, to understand different customer preferences, segmentation, etc. We call it data analytics – how you use that information to really get your products and services much more targeted and focused.
Trend No. 3 – the whole issue of social media is changing the dynamics of how businesses interact with their customers, with their employees, how open and transparent they are. That's having a significant effect on how you think about the organization going forward. And that will continue to be a trend for the foreseeable future.
Q: You said your customers are moving their focus to new markets, but at the same time manufacturing seems to be moving back to the U.S. Is that really happening?
A: I think, coming out of the financial crisis, we are dealing with a global economy. The fact that you are competitive in one country, does not necessarily allow you to be competitive globally. So what you are seeing is a constant move to ensure organizations are competitive from a global perspective.
Ten years ago, manufacturing wasn't competitive in the U.S. But given the environment that's moved around here over the last several years, it is more competitive today than it was 10 years ago.
My view is, the key to an organization is to never get locked into one way of thinking about this. The organization has got to be agile and resilient, and as these kinds of trends evolve and change, you have to capture that changing environment. So you are right, you do see a move back to the U.S. from a manufacturing standpoint. That environment could shift 5 to 8 years from now, like it did ten years ago. So the organizations that are nimble enough to spot that and deal with it are going to be the ones that are successful in the longer term.
Q: Many CEOs seem to be focused on emerging markets. But what are the key challenges for CEOs who move into an emerging market?
A: I would broaden it out a little bit. I would say, any company that is looking at doing business in a new market – it could be from a company based in a developed country looking at a developing country, or conversely, it could be a company based in a developing country looking to market in a developed country. Lots of interesting challenges. How do you ensure you really understand the market? How do you understand the business practices? How do you understand the competitive positioning? How do you understand how to do business in that environment? How do you understand the regulatory environment? All of those go to whether or not you can in fact be successful as you enter into a new market. Lots of different ways to do that: equity investments, true joint ventures, alliances, etc. They are all critical to how you effectively minimizing the risk of entering a new market – especially in a slow-growth era.
Q: The G2 – the U.S. and China – are both undergoing transitions in political leadership. This could potentially change the political and economic environment. So what do you suggest to CEOs? How should they look at these markets?
A: I think today, the fact is governments are more intertwined with business than we've ever seen before, that's a fact of life. So the geopolitical environment has clearly got to be part of this understanding. Whenever you have a change in leadership, what does that mean? What are the policies that are going to be enacted? Are there going to be changes? How do you ensure that you understand what kind of thinking is progressing into the political debates, and how that will influence regulations, trade practices, the ability to really compete in that marketplace? That's another set of factors that clearly needs to be understood – probably more important today than ever before. To me, that's one of the consequences coming out of the financial crisis. You see governments much more engaged in the economy than you ever have in the past. So businesses definitely need to be much more in tune. Understanding that environment – Is it business-friendly? Are there rules and regulations and laws? Are they driving business in a positive way? What are the trade policies or tariffs that affect your ability to compete? All of those are really critical factors. They always have been, and will continue to be important in the foreseeable future.
Q: What will be the challenges to a company like PwC?
A: For PwC, I would tell you, our business mirrors what happens to our clients. So when you look at what's happening in Europe, in a slow-growth environment – we need to adapt to that whole situation. We need to help our clients understand that and deal with it, advise them how to think about repositioning and restructuring their businesses to be competitive. Obviously, different parts of the world have different challenges, but it's really about understanding those environments, and making sure that we are being responsive to what we see there, and helping our clients navigate through these challenging times. That's critical for us.
The No. 1 issue we are really focused on is talent. If you go back to our Global CEO survey a year ago, the issue of talent was one of the top issues raised by the CEO community. Not having enough talent, not having the right talent, not having them in right place to effectively develop the business. And we at PwC are no different, so we are very focused on the attraction of talent, how we retain and develop that talent, how we give those individuals the right kind of experiences so they can be successful in the longer term. That's the No. 1 issue, and we are very focused on it. We see that, as a professional service firm, all we have is people. We don't have the factory. Our people walk in and out every single day. So it's key to create the right environment, allowing our people to really grow, developing programs for them so they can define their success from a career point of view. And enabling them to make that happen, it's a big part of what we do.
Q: Do you have a program at PwC that sends employees overseas?
A: Absolutely. We describe it as mobility. The issue of mobility is incredibly critical and important. Having individuals that have the opportunity to really participate first-hand in another economy – it broadens their perspective, gives them a level of knowledge and experience they didn't have before. That's an important part of it.
But we also think by exposing them to different practices and cultures, it makes them a better individual, it broadens their thought process in terms of how they deal with issues and challenges. It's the old saying, the world is getting smaller and smaller. If that's the case – and we really see that – then how we give our people the kind of experiences that allow them to be effective in this smaller world is important. So it's knowledge and also personal experience. It's really critical. So we encourage it. The issue of mobility is a big part of it, and we think it's a necessary way to think about PwC for the longer term. We really encourage our people to actively participate in those opportunities.
Q: Do you see a way to recovery for Europe and the U.S.?
A: I think they are two separate issues. I think Europe has fundamental challenges to the economy. I think we will continue to see Europe in a very slow-growth environment for a period of time. I think they've demonstrated that they are making progress, they are dealing with the issues of sovereign debt, and they are doing it in a way that does not disrupt the whole economy. But if they work through those issues and challenges, it will take a period of years. So hopefully they will continue down the path of not having a major disruption, and if they can do that, they will be able to work their way out of it in a period of years.
The U.S. is different. Their economy is actually growing today, and the big issue in the U.S. is, are they going to get on with the restructuring of what they have to deal with? How they deal with debt, deficit, spending, taxes, regulations. But in 2013, the substantive debate and discussions are going to have to take place, about how to deal with spending, these big social programs, taxes, revenues and regulations, and get some clarity on these real issues. I personally think until that kind of clarity is provided, you will see businesses continue to be very cautious. Because they will not invest and hire until they know what the rules of the game are. Tell me what the rules are. I may not like them, but at least I know what the rules are, and I can understand how to develop my business and execute my strategy. I think that's what the business community in the U.S. is really looking for. They are looking for closure and clarity, on how to deal with the big issues. And once that happens, we will continue to see the U.S. economy grow and prosper.
Q: We did an issue on Indonesia. The No. 1 market CEOs in Asia are interested in is Indonesia.
A: It's no different from any market that has potential. Significant population, good demographic, an evolving economy that will create a large middle class, which is why there is so much opportunity there. The economy has tremendous potential. The government needs to continue to move forward with various reforms which are critical for investors to get comfortable. That is a good market to build on for the future, so it has tremendous potential. But again, it's got to continue to evolve and develop in order to realize that potential. So from a PwC standpoint, it's an important and attractive market for the foreseeable future.
Q: What is your view of the BRIC countries?
A: The view that's coming out of the financial crisis is, the whole global economy is interconnected. So the idea that a country can be insulated from the global environment – it doesn't work. Some people say globalization is an interesting fad that will go away. I think the financial crisis has demonstrated the opposite. It has demonstrated how connected things really are – the capital markets, the economy, etc. Even though the BRICs have so many great opportunities, they are all dependent and tied to the global economy. So I think understanding that environment and adapting to it is critical. The age when a territory or country could think only about issues within their own four walls is long gone. So the BRICs are still growing, and often better than anyone else, but certainly not where they were in the past.
So it goes for the significance of this part of the world in the future. When you look at Vietnam, Indonesia, Malaysia, Taiwan, these economies have tremendous potential. Everyone is always focused on the BRICs, but there are other important economies here for the future. Which is why I spent the last ten days here trying to understand what's going on. There are lots of opportunities going on beyond just the BRICs, and many CEOs are focused on that as the next wave. We haven't even talked about Africa, the Middle East, so when you look at the wealth of opportunities that are out there, they really require an in-depth understanding of how those economies are developing, what their challenges and real opportunities are, and how you can potentially capture opportunities there. That is a big part of what people are looking for.
Q: So it's a question of which market you choose and how you position yourself?
A: Yes. There are lots of opportunities out there, and most would say this is a classic case of the "risk vs. reward" thought process. Maybe you can't be in every developing market at one time, but you need to understand how best you can capture success in those markets, and make choices, prioritize. And that will drive whether or not you can be successful.