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Strategy & Consulting

Accelerating Europe's path to reinvention

Jänner 16, 2023 10-Minuten Zeit

RESEARCH REPORT

In brief

  • In response to the challenges facing their region, European businesses have responded with rapid transformation that has made them more resilient.
  • But they must close the gap with peers in North America and Asia Pacific, especially on technology-driven growth.
  • European executives agree that accelerated reinvention is needed.
  • We examine the strengths of European businesses today and chart their path to Total Enterprise Reinvention.

Executives face unprecedented challenges

Our latest survey of 2000 of some of the largest companies in Europe, United States and China shows that European businesses are facing their most testing environment yet.1 Challenges associated with the war in Ukraine, such as the energy crisis and rising inflation, are most pronounced in Europe. Interventions, such as the US Inflation Reduction Act of 2022 and Asia Pacific’s investments in green manufacturing, pose further competitive threats.

High dependency on energy imports

19% of European respondents cited rising energy costs as the top challenge to margins across industries.

Climate risk

91% of European companies will miss meeting their own net-zero targets based on current trends.[2]

Regional talent gap

The EU’s quarterly job vacancy rate of all available jobs in Q3 2022 is 2.9%, only slightly down from 3% in Q2 (the highest rate since 2013).[3]

Political fragmentation

76% of European executives anticipate increasing regional divergences and fragmentation of the world economy in the next 12 months.[4]

Manufacturing disruption

Some companies may consider relocating operations to avoid costs and to gain subsidies elsewhere.

Changing consumer behavior

60% of consumers say their priorities keep changing due to everything going on in the world.5

European growth is comparatively low

European companies are growing more slowly than those in North America and Asia Pacific. In 2023 and 2024, Europe will see just +1.8% growth vs. +3.1% in North America and +3.8% in Asia Pacific.

As measured by earnings before interest and taxes (EBIT) from 2017 to 2021, European companies saw a 9.6% five-year average margin—placing them ahead of Asia Pacific’s 7.8%, but well behind North America at 12.1%. Forecasts show Europe increasing to 12.9% vs. 15.2% for North America.

Exploring European strengths and weaknesses

From a global financial analysis of 2,854 companies with more than $1 billion annual revenues, we found a high proportion of companies in Europe achieving financial resilience despite recent disruption. From this sample, 25% have demonstrated high revenue growth and high profitability over a sustained 3-5 year period, and are expected to continue this trajectory for another 2 years. This is higher than the 20% share in Asia Pacific, but far lower than North America with 39%.

We also compared company performance in these regions across six areas: talent, technology, supply chain and operations, sales and customers, liquidity and costs, and sustainability.

Strengths: Overall, European businesses perform better in the following areas:

  • Sustainability: As measured by the ability to embed environmental, social and governance practices across the organization.
  • Talent: How the organization delivers on employees’ needs to unlock their full potential, from compensation and employee turnover to training and development, and health and safety.
  • Liquidity and costs: The organization’s ability to transform cost structures and generate liquidity to invest, with stronger performance on cashflow and debt as a share of revenue, for example.

Weaknesses: However, with a focus on the bottom line, they’re significantly behind in the following:

  • Sales and customers: The ability to sustain sales and grow a loyal customer base.
  • Technology: Applying it for growth through future systems infrastructure and capabilities that unlock the potential of cloud, data, artificial intelligence (AI) and the tech ecosystem. Cybersecurity and research and development (R&D) partnerships are also important.

The role of technology in reinvention

Three types of companies emerged in our research:

  • Reinventors - these companies are moving to adopt a strategy of Total Enterprise Reinvention and represent 6% of European companies surveyed, vs. 8% of those in North America; 9% in Asia Pacific.
  • Transformers - embrace technology as a core part of transformation but only transform parts of the enterprise, often as distinct and siloed projects. 90% of European companies are Transformers vs. 84% in North America; 86% in APAC.
  • Optimizers - they have optimized part of their operations, but have not used technology as a core part of their transformation. Just 4% of European companies vs. 8% in North America; 4% in APAC.6

Unpacking Europe’s technology deficit

As a whole, European companies are behind in using technology for top-line value creation. Less than half stand above the global average for technology penetration and mastery.

This deficit is hindering their transformation efforts: European executives are less likely to assess their current available technology as a significant enabler in the execution of their transformation program (16% vs. 21% globally).7

European manufacturing industries, especially aerospace and defense, mobility and life sciences, have made significant technology investments these past two years, more so even than their North American peers. The energy, travel and utilities industries have made the least progress. European industries overall are still behind their North American peers on the technology dimension.

European companies are closing the gap, however, accelerating implementation in the past two years in the following areas:

Cloud services

81% have increased implementation vs. 71% globally; 65% in North America

AI and automation

75% vs. 66% globally; 62% in North America

Security

76% vs. 69% globally; 63% in North America 8

Europe needs to shift from squeezing to investing

Europe’s strength in profitability vs. growth suggests companies historically tend to squeeze value from existing streams and operations instead of growing new ones.

16.9%

On average, European executives report that 16.9% of global revenues are invested in transformation initiatives like R&D, new technologies and joint ventures vs. 18.8% in China and 20% in US.9

$388bn

If European companies had invested in R&D at the same rate as North American companies, this would have equated to an additional $388 billion in investment over the past five years.10

European businesses commit to Total Enterprise Reinvention

Sustained investment in technology-driven transformation is the path to stronger growth, but European companies are trailing behind. The need to shift from efficiency to sustainable growth and innovative business models is urgent. And 402 executives we surveyed agree: A range of external forces—particularly the pace of innovation, shifting consumer preferences and climate change—have accelerated the need for reinvention.

We refer to it as Total Enterprise Reinvention. It requires businesses to adopt a deliberate, end-to-end strategy, one that combines new technologies and ways of working for a new performance frontier. It’s a departure from the sequential, time-bound, benchmark-based approach of the past. It’s an entirely different act requiring continuous reinvention of the entire enterprise: how it grows, how it operates, how it engages its ecosystem and how it creates 360° value for all stakeholders. And European CEOs are answering the call.

In fact, European executives see a stronger need for Total Enterprise Reinvention than their global peers.

Holistic: 80% of European businesses tout the reinvention of cross-functional capabilities as the central focus of their reinvention strategy and transformation programs, compared to 68% globally.11

Radical: 55% say they intend for their reinvention strategy and transformation programs to set a new level of performance for their industries, compared to the global average of 45%.

Undaunted: If there were to be a recession in their main markets in 2023, 87% said they’d speed up reinvention programs, vs. the global average of 75%.12

CEO-led: 60% of European CEOs are acting as the key sponsor of reinvention strategies—that’s 6.5 percentage points more than the global average across industries.13

Total Enterprise Reinvention is a deliberate strategy that aims to set a new performance frontier for companies and in most cases, the industries in which they operate. Centered around a strong digital core, it helps drive growth and optimize operations.

While European businesses have built extraordinary resilience in recent years, they must now evolve from Transformers to Reinventors to address the unique structural challenges they face. For them, the journey to reinvention begins by focusing on their strengths in the energy transition and talent while resolving their deficits in technology and customer needs.

  • Establish a digital foundation using cloud, data and AI to scale new processes and innovations across the enterprise. This is an ongoing effort with transformation programs that fund themselves through the value they create. A digital core is built on a modern, cloud-based infrastructure that is automated, agile and secure by design.
  • Amplify the power of digital through compressed transformation and use the digital core to scale new innovations that reinvent business and operating models. Apply new technologies–from AI to the metaverse–to drive efficiencies and foster sustainable growth with new products and services.
  • Elevate cybersecurity to the CEO level, not only to share accountability but to ensure it’s embedded in the growth strategy. In addition to taking a data-driven approach to risk management, work proactively with your industry’s ecosystem and policymakers to strengthen cybersecurity frameworks.

  • Work across your ecosystem to advance net-zero and circular principles for global competitiveness. Advocate for industry and governmental cooperation, policies and incentives to level the global playing field and fast-track execution.
  • Prioritize your transition to clean energy, with cross-industry decarbonization partnerships, industry net-zero roadmaps, and the adoption of green hydrogen, Carbon Capture and Storage (CCS), Small Modular Reactor (SMR) technology, or wind and solar power. Energy efficiency plays an important role in reducing emissions and costs.
  • Invest in “carbon intelligence” and ESG reporting and hold leadership accountable for progress. This includes “deep electrification” i.e. of manufacturing, cities and buildings as well as eMobility and reinforcing intelligent grids. Industries such as utilities and automotive play a key role in decarbonizing the production of power and heat.

  • See customers within the context of their full lives. Use human and machine intelligence to understand customers and their motivations in a holistic and dynamic way. Remain relevant by broadening your canvas of value creation to societal, environment, economic and other needs.
  • Solve for shifting customer scenarios. Abandon one-size-fits-all offerings for more personalized products and services. To do this, go beyond industry borders with extended partnerships, and rethink your talent, technology and processes to meet customer needs.
  • Simplify marketing operations to drive innovation and efficiency. Create simple and unified experiences for customers by integrating customer-facing functions across a single data and experience platform. Use data insights and automation to redesign marketing organizations to break silos, unleash creativity and improve innovation.

  • Place people at the center of reinvention. Establish your CHRO as the catalyst for change. Ensure strong connections and collaboration across the entire C-suite and bring all people along on your reinvention journey. Empower them by breaking down organizational, process and data siloes.
  • Access and create talent in innovative ways. Create blended teams with new skill sets that can flex and scale beyond company borders. Use internal and external data to obtain a granular understanding of skill needs. Use technology such as AI to unearth hidden talent and revamp hiring and recruiting practices.
  • Infuse a culture of inclusion across the organization. Invest in employee well-being and engagement to ensure you are leaving your people “Net Better Off.” Foster a hybrid working environment and culture in which people from all levels can contribute to their full potential, supported by a strong sense of belonging and purpose.

Methodology

We leveraged outside-in data to construct a set of indexes (0-100) around six company-level dimensions that proved to have a significant impact on profitable growth. The analysis covered 2,854 companies globally. These dimensions include companies’ cost and liquidity structure, performance around sustainability, talent, supply chain and operations, sales and customers and technology adoption. The dataset enabled us to track how companies are building strengths holistically across their different functional capabilities to withstand pressure derived from disruption.

From the list of 2,854 companies, we had 2,114 companies for which consensus forecasts (based on analyst consensus estimates) were available. Using this consistent sample, we calculated the regional comparison for Revenue Growth and EBIT Margin for the past five years (2017–2021) and forecasted two years (2023e–2024e):

All financial data is sourced from S&P Capital IQ and the forecasts for all companies are based on consensus analyst estimates (sourced from S&P Capital IQ) as of October 31, 2022.

Accenture Research commissioned McGuire Research to survey CXOs. Our respondents were asked a set of questions regarding the current market situation as well as their performance in the following dimensions: profitable growth, supply chain, sustainability, customers, talent and technology.

The web-based surveys were fielded in October and November 2022, covering C-suite executives in companies with annual revenues of US$1bn or more, across 12 industries.

Sample sizes:

  • Europe N=1,450 (Margin of error of +/- 3.1% at the midpoint of the 95% confidence interval)
  • United States N=300 (Margin of error of +/- 4.3% at the midpoint of the 95% confidence interval)
  • China N=250 (Margin of error of +/- 3.2% at the midpoint of the 95% confidence interval)

Accenture Research conducted a survey of 1,516 C-suite executives (of which n=402 were in Europe) in November 2022. Respondents were asked about their organization’s approach to business transformation and reinvention strategy, as well as about their specific programs and success factors.

We conducted the survey in ten countries: Australia, Canada, China, France, Germany, India, Italy, Japan, United Kingdom and the United States.

Respondents represented 19 industries: Aerospace & Defense; Airline, Travel & Transport; Automotive; Retail Banking; Capital Markets; Chemicals; Communications, Media & Entertainment; Consumer Goods & Services; Energy; Healthcare; High Technology; Industrial Goods & Equipment; Insurance; Natural Resources; Pharmaceuticals, Bio Tech & Life Sciences; Public Services; Retail; Software & Platforms; and Utilities.

References

1 Accenture, Business Strengths Survey of 2000 C-Suite leaders in 10 markets (N=1,450 in Europe [France, Germany, Italy, Netherlands, Nordics, Spain, Switzerland and the UK]. N=250 in China. N=350 in the United States. Fielded October-November 2022 across multiple industries.)

2 Accenture, Accelerating Global Companies towards Net Zero by 2050, 2022.

3 Eurostat, Job Vacancy Statistics, accessed 19 December 2022.

4 Accenture, CXO Pulse Survey 7th Wave, September 2022.

5 Accenture, The Human Paradox: from customer centricity to life centricity, July 2022.

6 Accenture Total Enterprise Reinvention CxO Survey fielded in November 2022. Europe sample n=402. Groups were identified based on their responses to five questions related to the components of a Total Enterprise Reinvention strategy. Total Enterprise Reinventors met all the criteria. Transformers met some criteria. Optimizers met no criteria. Figures in some of the regional data may not total to 100% due to number rounding.

7 Accenture, Total Enterprise Reinvention CxO Survey, 2022.

8 Accenture, Business Strengths Survey, 2022.

9 Accenture, Business Strengths Survey, 2022.

10 Accenture Research analysis based on S&P Capital IQ. Excludes financial services companies. The cumulative figure is based on the sample of companies covered in the analysis and is arrived at by applying the North American rate of investment in R&D to European companies to arrive at the approximate shortfall. Sample Size: 1,843 of which Europe: 909, North America: 486 and Asia Pacific: 448.

11 Accenture, Total Enterprise Reinvention CxO Survey, 2022.

12 Accenture, Total Enterprise Reinvention CxO Survey, 2022.

13 Accenture, Total Enterprise Reinvention CxO Survey, 2022.

Jean-Marc Ollagnier

CEO – EMEA

Jean-Marc is the chief executive officer of Accenture in Europe and is a member of Accenture’s Global Management Committee.

Michael Brueckner

Lead – Strategy, EMEA

Michael leads Growth & Strategy for Europe, overseeing all aspects of Accenture’s strategy In Europe.

Svenja Falk

Managing Director – Research, EMEA

Prof.Dr. Svenja Falk leads Europe operations for Accenture Research, heads Accenture's Berlin office and is a member of the Accenture Foundation Executive Board.

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