PwC’s Annual Global CEO Survey has provided very valuable insights on the perceptions and expectations of global leaders regarding digital transformation and its implications. How do these expectations differ across industries? What are the perceived threats of this wave of digital transformation, and how does it relate to actual threats in the last decade?
Surprisingly, this pandemic has improved the outlook into the future compared to previous years. We think that the benefits that digitalization has brought to companies, as a by-product of the pandemic, is the main driver for the optimistic views of CEOs in the next year. PwC report shows that 76% of CEOs say that the global economy will improve in the next 12 months. This percentage, compared to the 22% that resulted from the 2019 survey shows that there was a marked improvement in expectations (1).
Different industries and recovery expectations
The impact that the pandemic had on different industries has been irregular, as the restrictions change the way people work, live and travel. In particular, the hospitality, leisure and transportation industries are displayed in PwC’s report as the most affected due to the nature of their operations and their business models. In fact, using the Credit Analytics Probability of Default Market Signals model (PDMS), we can observe which industries were the most affected, while evaluating if the perceptions of CEOs match the results given by this model.
PwC’s report shows that the impact of the pandemic was clearly reflected in the confidence levels of CEOs, where those in technology industries were more optimistic and confident regarding growth expectations than their peers in every other industry. This is expected, since the pandemic has forced companies to be creative and shift to different ways of achieving results and delivering services or products, using technology to a greater extent. Thus, technology companies are grasping the benefits by servicing other companies in this digital transformation.
On the other hand, CEOs of hospitality and transportation companies expect a slow recovery, with expectations to return to pre-pandemic revenue levels ranging from 1 to 3 years (1). Given the evolution in the last two months, we expect that these expectations have worsened, since the vaccination plans have faced numerous problems, even in wealthy countries.
We also observe that the PDMS model confirms leisure facilities, airlines and restaurants as the top industries most impacted by the COVID-19 pandemic (2). In particular, the Airline industry had a pre-pandemic median probability of default of 2.75%. On April 2 2020, this probability reached a peak of 26.9% to then flatten again in the end August at 6.36%. Restaurants have similar trends.
Interestingly, according to the PD model Oil & Gas Drilling is one of the top affected industries as well (2). This industry has perhaps been among the firsts to suffer large consequences from the pandemic, as demonstrated by the crash in demand of last year resulting in a colossal drop in oil prices, that fell to an historic negative $37 per barrel on april 20 2020 (3).
What concerns has digital acceleration raised?
CYBER THREAT
PwC’s report shows that CEOs from Western Europe and North America are extremely concerned with cyber threats. It became the number one perceived environmental threat for technology, asset and wealth management, insurance, private equity, banking and capital markets sectors (1).
In fact, we observe there is a significant increase in the Cybersecurity spending in the U.S during the last decade (from $27.4B in 2010 to $66B in 2018), showing that it is a real concern (4). Cyberattackers continue to develop new techniques in the shape of malicious programs that have resulted in trillions of losses, mainly in healthcare, manufacturing, transportation and financial services industries.
Reviewing the last decade, from 2010 many companies started to hire cybersecurity professionals in a generalized feeling of uncertainty towards digitalization. A new field called Ethical Hacking emerged, which consists of discovering vulnerabilities before actual malicious hackers do it.
One of the most common types of attacks is Phishing, which consists in tricking users into revealing sensitive data that can be used in malicious activities, such as usernames, passwords and banking credentials. Historically, many companies have been victims of this type of cybercrime. In 2017, Google and Facebook were victims of a Lithuaninan citizen who pretended to be an Asian manufacturer and received over $100 million, wired to untraceable bank accounts (4). Although the criminal was caught two years later, it raised the perceived threat of companies around the world.
It is well known that new technology brings new crime and companies need to consider this in their future investments. With this massive increase in digital transformations, it is important that companies take care of cybersecurity parallelly to digitalization to avoid setbacks in the progress made. However, despite the rising concerns, PwC’s report reveals that not all CEOs are planning to increase their long term investment on cybersecurity and data privacy parallely to digital transformation. This suggests that there is not enough awareness among CEOs of the risks that digitalization poses to companies in the long term.
MISINFORMATION
Another concern worth mentioning is misinformation. The share of CEOs extremely concerned with misinformation grew from 16% to 28% in one year (1). We believe this is because the digital acceleration that has resulted from the pandemic has not been backed up by appropriate policies that prevent the spread of harmful lies in social networks and the internet. Technology allows sharing content anonymously in an immediate way around the world, threatening businesses’ and individuals’ reputation.
Thus, as digitalization becomes the priority for businesses of all sizes, there is a rising need to address this issue in the next few years. Indeed, there is a common belief that misinformation only threats politics, but companies too can be victims. As a matter of fact, while cybersecurity is majorly addressing technical issues, disinformation campaigns are the next big threat for companies.
Disinformation is the deliberate spread of false information shared to harm a competitor. It is perceived as the new weapon that can manipulate the market or harm the reputation of a competitor firm. Contrary to cyberattacks, it is harder for companies to prevent misinformation attacks from happening. As a consequence, firms shall be prepared to protect themselves in case they happened. How? PwC describes the protection plan in 4 steps (5):
● Assessing risks. Quantify risk in terms of reputational impact.
● Monitor social Media. Engage in sentiment analysis: what are people saying about your company and who could share misinformation?
● Fortify the brand against misinformation. Communication is the first weapon against misinformation.
● Create a disinformation recovery plan. Be ready to tackle down misinformation when it will eventually arrive. An ounce of prevention equals a ton of cure.
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