Reach on

The value of digital to our personal lives

PwC insights

Digital never sleeps. Neither can your business

What does a business need to do to thrive in a digital landscape? How can a business drive itself forward?

Nowadays it’s essential for a company to reach ‘On’. What do we mean by this? Reaching ‘On’ is an aspirational state for businesses of today and a call to action to become one of the successes of the future.

They’re networks which are themselves ‘On’ because they’re open, they’re 24/7

These businesses embrace speed, empowerment and trust within their own organisations. They’ll also apply the same principles when they engage with those outside it.

They’ll seize the opportunities of the digital world, creating new standards for innovation, agility, service and impact. And they’ll engage with the virtual networks that are evolving all the time. These are networks that connect their customers, suppliers, employees and stakeholders in organic, self-organising communities. They’re networks which are themselves ‘On’ because they’re open, they’re 24/7 and they harness the collective intelligence of the crowd.

Networking will become more and more important within businesses too, as we move from a traditional hierarchical model of ‘command and control’ to flatter and more flexible structures. The advantage here is that ability to adapt quickly to change, help foster new ideas, encourage collaboration, and thrive on diversity.

Businesses that reach ‘On’ will be able to pioneer with confidence. They’ll be connected with the right networks and participate actively. They’ll engage in a positive, energetic way, which is relevant to their brand. And they’ll use the insight they gain to drive their business forward. Having reached ‘On’ they can move forward in an ongoing cycle of improvement and reinvention to the next phase of the digital revolution and beyond.

PwC insights

Are you an agile business? Find out now

To succeed in a digital world, companies need a different operating model. They need to remove complexity. They need to be able to react quickly. Find out if you’ve got what it takes.

The bigger you are, the more complex you are. Size gives you scale, financial stability, and geographical reach, but it can also make you slow to respond and resistant to new ideas. Your company may be a multinational, but to succeed today you need the hunger and entrepreneurial spirit of a start-up. To succeed in a world that’s changing faster than ever, a business must be agile above all else.

Many firms are working with systems, processes and organisational structures that are the result of retrofitting and historical accident, rather than conscious choice. In today’s business environment this tends to consume costs that you simply can no longer afford. You need a flexible, scalable operating model that allows you to make and implement decisions quickly. You need to react to new opportunities, anticipate new trends and deploy resources where they will be most profitable.

  • These are the attributes that will ensure future success in business. The principles of ‘simplify, standardise and share’ are key to removing unnecessary complexity.
  • Simplify: identify processes and systems that are overly complex by challenging how they are delivered and comparing them to industry leading practice, as well as the best examples within the organisation as a whole.
  • Standardise: identify processes and systems across the organisation that can be standardised to reduce cost, improve customer experience and deliver business objectives.
  • Share: ensure that these new models of working are shared across the whole organisation to improve performance across the business.

Doing this is not easy and it can entail some tough choices, but the benefits can be significant and in some cases immediate: a better and more joined-up customer experience; greater employee empowerment; increased morale; more accurate management information and lower costs in the long run. Just by using common IT systems a business can increase effectiveness and improve efficiency by 15 to 25%.

What value can you create by removing complexity?

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Using data

Data can tell you more about the customer and help you run your business better

Digital is all about data. It’s now possible to collect, store, analyse and manipulate an unprecedented volume of data in fractional amounts of time. Bigger and better data can help you save time and money, improve your reporting, increase productivity, identify and manage risk, and monitor performance more effectively.

In other words, it can help you run your business much more efficiently. But that’s just the start. By turning information into knowledge, you can use it to manage your business not just run it. Data will help you support sharper and faster decision-making, target marketing spend on more profitable markets and customers, and enrich your innovation.

Explosion
of digital data is revolutionising business – fuelled by SMAC

The UK supermarkets were at the forefront of the Big Data revolution and have been mining their vast storecard databases for at least 15 years. Other sectors have now caught up, but a relatively small number have made the next step: knowledge becomes actionable insight and a genuine competitive differentiator. The key here is that the digital revolution isn’t just about the quantity of data available, but the quality, richness and diversity of that data.

In other words, data is no longer sidelined in the IT silo, it’s at the very heart of the business.

Companies can now monitor what people look at on their websites, where they go in their stores, and what they say about both experiences on social media – all in real time. The sheer volume of data is what makes personalisation possible and that’s an idea whose time has very definitely come.

Leading players are using data much more cleverly to enhance their profitability and build brand loyalty. They are doing this differently to conventional data mining, which is often done ‘in the background’ and can be resented by shoppers as a result, because they feel their privacy is under threat and their data likely to be used purely for marketing purposes.

The new model is built on trust and begins with the customer and what they want to achieve. Such a high degree of personalisation means that customers will happily share their personal data, because they get something they value in exchange. There is one important caveat though: only those brands already perceived as trustworthy can even enter this game, and that trust must continue be earned and reinforced over time.

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The fastest route to growth used to be globalisation. Not any more

In the last five years, the emphasis has shifted from new markets to new ideas. How can digital technology help your organisation achieve growth through innovation?

In a 2013 PwC survey, Breakthrough innovation and growth, we asked over 1,700 international executives what they thought the biggest source of growth would be over the next five years. 93% of them said ‘innovation’. Five years ago the answer would have been globalisation, but now the emphasis has shifted from new markets, to new ideas and new ways of working.

In other words, innovation isn’t just driving change – it’s creating change. The most forward-thinking companies are no longer seeing the future solely in terms of innovative products and services, but the outcomes they can offer their customers. They’re not just interested in incremental process improvements, but in whole new business models.

How are they doing it? By moving innovation out of a silo and into the mainstream.

These businesses actively encourage all their staff to be ‘intrapreneurs’. They incentivise everyone to find, share, test and commercialise new ideas, whatever their role or job title. And they use digital technology to help make this happen. It makes creative collaboration easier, both inside and outside the business, and gives instant access to that 24/7 sounding board and testing ground: social media.

This is a much more open, inventive and dynamic approach to innovation. It requires a much more empowered culture and a much higher tolerance of failure. But the ideas it generates have a far higher chance of being the breakthrough innovations that can transform your company or be a game-changer in the market.

As our survey proved, these are the kind of ideas that the most innovative business are finding and exploiting, and they have the results to prove it. Over the last three years, growth rates for the most innovative companies in our study were at least 16% ahead of the least innovative. Our respondents agreed that this ‘innovation gap’ is likely to widen over the next five years. In cash terms, this could add up to as much as a £300m advantage for the average company.

The road to growth

In our 2013 survey, we asked over 1,700 international executives where they thought growth would come from over the next five years. 93% of them said through innovation.

In fact, the leading innovators in our study are anticipating an extra 6% per annum in growth. The visual below explains the survey in detail.

PwC insights

Trust is as important in the digital age as coal was in the industrial age

Can your customers trust you? Can you trust your systems? To succeed in the digital world, you need to be able to answer yes to both questions.

It’s hard to overstate how important trust is becoming. In the digital world, trust comes in two forms: trust you earn from your customers, employees, suppliers and partners. And trust in the resilience of your own systems and processes.

Once it’s gone, it’s very hard to get it back

The first type of trust is the most intangible of all your intangible assets. Recent events have proved how easy it is for even the world’s largest and most well-respected brand names to lose public trust. And once it’s gone, it’s very hard to get it back.

Trust is the net result of how you and your employees behave, which is why openness, transparency and an ethical approach to business are more vital now than ever before. In a digital economy a good brand only gets you as far as first base. It’s trust that keeps you in the game.

The other type of trust is more conventional: protecting your people, data and systems is standard operating procedure, but in a digital world you can no longer build a wall (real or virtual) around the assets you need to secure. Businesses are more interconnected than ever before and that’s one of the reasons why digital is opening up so many new opportunities.

But interconnectedness brings risks too, making your organisation more permeable, and more exposed. It could be hackers hijacking your Twitter account, thieves stealing customers’ credit card details, or the additional vulnerabilities inherent in moving to cloud-based data storage. The new economy brings with it a myriad of new digital threats, which means you need reliable and resilient systems that you, and your suppliers can depend on and your customers will trust.

It’s impossible to protect everything with 100% security, but some assets are crucial to your competitive advantage and the long-term success of your business. So you need to focus your resources there. Please click here to learn more about protecting your assets and identifying and addressing complex issues. From the obvious like cyber security, to the wider implications for governance, sourcing, and regulatory compliance.

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Two things we can be certain of in life: taxes, and the world becoming more digitised

What challenges do businesses face in the international tax environment? We outline some of the issues you need to be aware about.

Digital technology is changing how businesses operate in fundamental ways, though one that may not immediately come to mind is taxation. There have, however, been a number of high-profile examples of multinational businesses apparently exploiting anomalies in the international tax system and there is a public perception that ‘digital businesses’ are at the forefront of this. This is one reason why the OECD now has a task force looking at tax and the digital economy.

There is concern that certain businesses are using the rules to avoid taxing their profits at all

The current system of bi-lateral tax treaties has its origins in the 1930s OECD model tax treaty. The objective of creating this system was to avoid the double taxation of the same profits in two different jurisdictions. But now there is concern that certain businesses are using the rules to avoid taxing their profits at all.

So, how can this happen? At the risk of oversimplifying the issues, the tax treaty network works on the basis that a state will only tax profits made if the business in question is ‘trading in’ their territory. The sales revenue generation from ‘trading with’ (i.e. selling to customers in one state from outside that state) can be subject to sales taxes such as VAT or customs duties, but the underlying profit is not taxed in the importing state.

This was a relatively straightforward concept to apply in the 1930s, but in the modern economy, vastly improved communications technology means that it is now possible to deconstruct the value chain of a business and locate the most profitable parts in low-tax jurisdictions. Tax planning of this kind has been around for 30 years or more, but it has only been with the advent of the internet and mobile communications that it has become relatively straightforward to implement for most businesses. In short, in the digital economy, it is much harder to work out who is doing what, where, and with who.

So, what changes may we see in the international tax environment, and what challenges might they create for business?

Sales tax reforms

We have already seen the EU change VAT rules such that, from 1 January 2015, businesses selling into an EU country have to apply the VAT rate of the customer’s territory, not the supplier’s. This will create extra compliance burdens and systems costs for business.

Trading ‘in’ vs trading ‘with’

We are likely to see changes to the ‘permanent establishment’ definition, which determines when a business is subject to profits tax in a particular territory. As business and governments adapt to these changes, we are likely to see a rise in tax disputes and the risk of double taxation.

Intangible assets

There is likely to be a big debate about the extent to which intangible assets are generating profits, and whether taxable income should be attributed to customers’ activities, or the collection of customer data.

Businesses with large numbers of intangibles may find that governments look for new ways to tax the profits generated by intangibles, while limiting the tax relief for development costs. This becomes a particular problem for businesses which invest in many projects, but only make significant profits from a few successful ones.

Unilateral changes

While the potential changes to the global tax treaty regime are debated, there is a real risk of unilateral change, as individual countries try to prevent challenges to their tax bases – one example is the Italian e-advertising tax changes. This will create uncertainty and compliance burdens for businesses.

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