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The productivity agenda: Moving beyond cost reduction in financial services

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In a new report titled: The productivity agenda – moving beyond cost reduction in financial services, PwC sets out the important challenges and opportunities facing the financial services industry and the ways in which senior executives should respond if they wish to move beyond simple cost cutting and improve profitability in the long term.

With banks struggling to improve their return on capital, many institutions are being forced to restructure and cut costs. Even in the asset management industry, where ROE is higher than the financial services industry as a whole, there is downward pressure on margins and profitability. Cost cutting will only deliver so much. If financial institutions are to improve profitability in the long term they need to fundamentally improve the productivity of the enterprise.

John Garvey, Global Financial Services Leader for PwC stated that: “The cost cutting agenda adopted by many institutions since the financial crisis has, in essence, de-globalised the industry to make it more local or national, shrunk global footprints, divested businesses, and shed clients. However, this process has run its course.  If profitability is to get anywhere near the highs of fifteen years ago, what’s needed now is a fundamental focus on building a sustainable productive business model that can compete with both incumbent institutions and digital-only competitors.”

Based on a detailed survey of the global financial services industry, PwC has identified six areas where financial institutions can focus their productivity efforts to boost long term sustainable profitability:

1: Better understanding the workforce

Our experience indicates that by simply tracking hours by task, organisations can improve productivity by 15% to 20%, and the implementation of service catalogues and multi-tier sourcing can bring another 20% improvement.Of the organisations that didn’t track work by hours and tasks, 62% believed such tracking would yield productivity benefits.

2: Rethinking change functions

Forty per cent of financial institutions are spending 20% of their entire budget on so-called ‘change-the-institution’ efforts.  However only 15% said they were satisfied with their ability to execute change.

3: Embracing the platform economy

Only 21% of financial institutions employ crowdsourcing tools today. Platforms can run challenges that tap the collective brainpower and resources of a crowd, driven by a sense of competition to develop the best response. We predict that gig employees will perform 15% to 20% of the work of a typical institution within five years. This translates into significant cost savings across the board, along with the potential to improve the level of talent and innovation delivered from the employee base.

4: Improving workforce digital IQ

As people live and work longer, and unemployment rates remain low, digital training and retraining of existing workforces is particularly crucial. Despite its importance, research shows that current efforts are not achieving the desired results. Of the financial-services leaders polled in PwC’s 2018 CEO Survey, 75% reported they were concerned about shortages of digital skills within the industry.

5: Bringing an agile mind-set to the mainstream

To keep up with digital-only competitors and rapidly deliver a seamless and instant customer experience, 77% of financial institutions are turning to agile somewhere in their organizations.

6: Mastering digital labour        

Over 50% of CEOs believe artificial intelligence (AI) will have a bigger impact than the internet.  Getting the balance right between tasks performed by AI and tasks performed by people will be key to future success for financial institutions.

“It is clear what financial institutions need to do to build future profitability and to remain competitive.  However doing it and making the necessary changes will be a huge challenge. Very soon we will start to see which CEOs have taken the productivity agenda seriously”, added John Garvey.

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Wide Variations in Post-COVID ‘Return to Normal’ Expectations

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London, UK, Covid-19 restrictions in place in Soho. IMF/Jeff Moore

A new IPSOS/World Economic Forum survey found that almost 60% expect a return to pre-COVID normal within the next 12 months. including 6% who think this is already the case, 9% who think it will take no more than three months, 13% four to six months, and 32% seven to 12 months (the median time). About one in five think it will take more than three years (10%) or that it will never happen (8%).

Views on when to expect a return to normal vary widely across countries: Over 70% of adults in Saudi Arabia, Russia, India, and mainland China are confident their life will return to pre-COVID normal within a year. In contrast, 80% in Japan and more than half in France, Italy, South Korea, and Spain expect it will take longer.

At a global level, expectations about how long it will take before one’s life can return to its pre-COVID normal and how long it will take for the pandemic to be contained are nearly identical. These findings suggest that people across the world consider that being able to return to “normal” life is entirely dependent on containing the pandemic.

An average of 45% of adults globally say their mental and emotional health has gotten worse since the beginning of the pandemic about a year ago. However, one in four say their mental health has improved since the beginning of the year (23%), about as many that say it has worsened (27%).

How long before coronavirus pandemic is contained?

Similar to life returning to pre-COVID normal, 58% on average across all countries and markets surveyed expect the pandemic to be contained within the next year, including 13% who think this is already the case or will happen within 3 months, 13% between four and six months and 32% between seven and 12 months (the median time in most markets).

Majorities in India, China, and Saudi Arabia think the pandemic is already contained or will be within the next 6 months. In contrast, four in five in Japan and more than half in Australia, France, Poland, Spain, and Sweden expect it will take more than a year.

Change in emotional and mental health since beginning of the pandemic about a year ago

On average across the 30 countries and markets surveyed, 45% of adults say their emotional and mental health has gotten worse since the beginning of the pandemic about a year ago, three times the proportion of adults who say it has improved (16%)

In 11 countries, at least half report a decline in their emotional and mental health with Turkey (61%), Chile (56%), and Hungary (56%) showing the largest proportions.

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African fisheries need reforms to boost resilience after Covid-19

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The African fisheries sector could benefit substantially from proper infrastructure and support services, which are generally lacking. The sector currently grapples with fragile value chains and marketing, weak management institutions and serious issues relating to the governance of fisheries resources.

These were the findings of a study that the African Natural Resources Centre conducted from March to May 2020. The centre is a non-lending department of the African Development Bank. The study focused on the impact of the Covid-19 pandemic in four countries – Morocco, Mauritania, Senegal and Seychelles. The countries’ economies depend heavily on marine fisheries. The fisheries sector is also a very large source of economic activity elsewhere in Africa. It provides millions of jobs all over the continent.

The study dwells on appropriate and timely measures that the four countries have taken to avoid severe supply disruptions, save thousands of jobs and maintain governance transparency amid the ongoing global uncertainty and crisis.

Infrastructure shortcomings include landing facilities, storage and processing capacity, social and sanitary equipment, water and power, ice production, and roads to access markets.

Based on the findings, researchers made recommendations to strengthen the resilience of Africa’s fisheries sector in the context of a prolonged crisis, and looking ahead to a post-Covid-19 recovery.

The report strongly advocates for:

– Increased acknowledgment of the essential role of marine fisheries stakeholders and the right of artisanal fishermen to access financial and material resources.

– Strengthening the collection of gender-disaggregated statistical data in a sector that employs a vast number of women and youth.

– Establishing infrastructure and support services at landing and processing sites of fishery products, with priority access to water.

– Investing in human capital to ensure high-level skills in the different areas of fisheries management.

– Improving governance frameworks by encouraging the private sector and civil society to participate in formulating sectoral policies and resource management measures.

The study recommends urgent reforms to make marine fisheries more resilient and enable the sector to contribute sustainably to the wealth of the continent’s coastal countries.

Marine fisheries are a crucial contributor to food security and quality of life in Africa. Good nutrition is a key factor to quality of life, and the marine fisheries sector supports the nutrition of more than 300 million people, the majority of whom are children, youth and women. It also provides more than 10 million direct and indirect jobs.

Dominated by artisanal fishing and traditional value chains, the fisheries sector in Africa is mainly informal and is rarely considered in public policies or in assessing the wealth of countries.

Like other sectors, the African fisheries sector has been severely hit by the Covid-19 pandemic. Covid has affected supply markets and regional trade. This has resulted in substantial economic losses for most households that depend on fisheries.

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Top Trends Impacting Global Economy, Society and Technology

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The new technologies of the Fourth Industrial Revolution, such as artificial intelligence (AI), the cloud and robotics, are changing the way we live, learn and do business at a rate unprecedented in human history. This seismic shift is playing out in a world characterized by unreliable political landscapes and increasing environmental instability.

Scenario planning in this environment can be very difficult for businesses, affecting their ability to plan for the future, and properly assess the risks and opportunities that may present themselves. The Technology Futures report, released in collaboration with Deloitte, provides leaders with data analysis tools to scenario plan and forecast future technology trends.

“The rapid pace of technological change, alongside the global crisis caused by COVID-19, means that leaders today need new tools to understand challenges and develop strategies in the face of an increasingly uncertain future. This report provides three new analytical tools for business leaders to think about the future in a dynamic environment,” said Ruth Hickin, Strategy and Impact Lead, Centre for the Fourth Industrial Revolution, World Economic Forum.

“We are delighted to collaborate with the World Economic Forum to take a disciplined look into the future, particularly as we emerge from a world-altering event, like COVID-19,” said Mike Bechtel, Managing Director and Chief Futurist, US Consulting, Deloitte, and lead author of the report. “We hope that by providing a clearer picture of how today’s nascent technologies will impact our future, we can play a meaningful part in driving innovation, collaboration and economic growth that improves life for all people.”

The report breaks down future trends into four categories for business leaders and provides some examples of what is likely to remain constant in the years ahead.

  • Information: With the volume of accessible data exploding and more of our personal lives lived online, the report projects the probable implications for remote learning, remote working and healthcare.
  • Locality: Since the onset of COVID-19, even more of our interpersonal interaction is virtual and physical experiences have dwindled. The report projects more niche, readily available virtual experiences available to consumers.
  • Economy: The report forecasts a growing likelihood that flexible and clean energy production will continue rising.
  • Education: Personalized education will likely grow, along with the availability of digitized and virtualized content.

In addition to strategic modelling, the report gives leaders a baseline history of how the Fourth Industrial Revolution has progressed. It highlights just how fast technology is evolving and outlines one way risk management could evolve to better address and adapt to it.

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