New York, NY, December 13, 2012—Booz & Company has developed its annual collection of Industry Perspectives addressing major challenges and new opportunities for companies to consider in the year ahead. Booz & Company’s practice leaders developed the perspectives from industry discussions, observations of shifting market dynamics, and careful analysis of the sectors the firm serves.
For many industries, 2012 marked a strategic inflection point. For healthcare organizations, the Supreme Court decision and the president’s reelection have made the implementation of the Affordable Care Act inevitable. In the oil and gas industry, supply is rising faster than demand, a reversal of the trend that lifted prices and fueled industry profits over much of the past decade. The auto industry is experiencing a phase of such rapid and broad innovation that it’s challenging for automakers to invest in R&D across all technologies.
Other industries are experiencing similar shifts, including cost pressures within capital markets and a reinvention of the R&D model in the life sciences sector. The Industry Perspectives explain how companies can plan for and address the trends specific to their industry and adapt to broader changes, such as the post-presidential-election business climate, the potential impact of new technologies, and the emphasis on structural and investment innovations that will drive profitability and company growth in the future.
The Industry Perspectives are available here or via the individual links below.
Aerospace: Industry Poised for Growth
- Driven by new products and a recovering market for business jets and commercial helicopters, the civil aerospace sector is ready for growth.
- Increasing production rates coupled with unsustainable development costs, demands for fuel efficiency, and digitization pose serious risks, and could have significant financial implications for the entire sector.
Automotive: Shift in Innovation Process
- The automotive industry is on the cusp of a fundamental shift in its long-standing model of innovation—which had been centered on large OEMs and major suppliers—toward a more decentralized approach in which OEMs serve as integrators, and large and small suppliers play an expanded role.
Capital Markets: Continuing Mechanization of Wall Street
- Centralized clearing for derivative instruments, a higher volume of electronic trading, and intense demand for analytics are pushing the market toward equilibrium. One result of this trend is cost pressure on sell-side firms, which will become even more visible in 2013.
Chemicals: Slowing Growth and Rising Concerns Over Asia
- The industry needs to make internal changes with a focus on growth, and ensure that strategic acquisitions support key capabilities.
- Companies need to explore new product markets—beyond the traditional chemical/materials sector—and also adjust to the changing feedstock landscape .
Defense: Importance of Flexibility and Alternative Value Creation
- The primary mechanism for shareholder value creation by most defense companies over the past decade—growth in an expanding market—is no longer available. Creating value will require alternative methods, some of which will be understandably unfamiliar to current management teams.
- Today’s threats are less predictable and tend to evolve more rapidly, a shift that has raised questions about whether the capabilities systems of the typical defense company are obsolete. Defense companies need faster development and fielding cycles to remain relevant for large portions of their core markets .
Health—Payor and Provider: Consumerization, Consolidation, and Innovation
- The growth in the cost of care is unsustainable. In 2012 alone, healthcare costs rose two times faster than inflation, and the number of individual members of high-deductible plans has tripled since 2006.
- The industry must become more consumer-centric; it lags well behind hospitality, financial services, and retail in customer satisfaction.
- The sustainability of many healthcare organizations is going to be threatened, which is why making the right choices about investments, mergers and acquisitions, and IT innovations is critical .
Industrials: Breaking the Slow Growth Pattern
- The imperative for companies in the industrial sector is to position themselves for growth while maintaining agility.
- To boost profits and achieve sustained growth, companies must make the investment choices that take advantage of coming growth opportunities, develop new ways to better manage their product portfolios, and prepare themselves to benefit as the business world becomes more and more digitized.
Life Sciences/Pharmaceuticals: Finding a Distinctive Voice
- 2013 will be a year of growth for pharmaceutical companies that adapt their business models with a sharp view of where to drive share and profitability.
- Those that strongly differentiate their capabilities from those of competitors and take a candid look at their current operating model, essentially creating an innovative approach and funding the pipeline, will rise above the field .
Oil & Gas: Solutions to Lower Prices Lie in Specialization
- The tepid price outlook for oil and gas exposes the weaknesses of the highly integrated, diversified business models that have characterized the industry for decades. This business model, built for an era of rising prices, is too inefficient to produce returns that cover the cost of capital when prices retreat.
- The solution for many companies will involve specialization: emphasizing one group of distinctive capabilities and pulling back in other areas .
Retail Banking: Focus on Profit, Integration of Performance, and Identification of New Growth Opportunities
- Leaders need to focus on a well-defined winning formula and the investments needed to implement it.
- Retail banks have an opportunity to build in capabilities with external partners and benefit from digitization and lean methodologies.
- Leaders need to motivate the talent base and shape a corporate culture that reinforces the institution’s strategic and operating imperatives .
Telecommunications: A Year of Restructuring
- Many traditional operators are suffering from an accelerating shift in value away from them and toward device makers and newer, Internet-based “over the top” players that use others’ networks and the Internet to stream content directly to devices.
- Traditional operators must restructure their strategies and operations to monetize the flow of traffic over their networks and capture considerably more of the revenue now going to Internet players .
Utilities: Obama Reelection and Natural Disasters Becoming a Catalyst for Tech Development
- As the industry bolsters readiness for natural disasters, it must also prepare for another four years of an Obama administration. The federal emphasis on renewable fuels and decreased carbon emissions runs counter to an increasing focus on cost reduction and greater reliability on the part of state utility regulators.
Wealth Management: Digitization and Pricing
- Digitization—in all its varied forms—is rapidly changing the client–advisor relationship and the nature of advice. Better price realization will allow firms to price their offerings in the market more accurately, with a better alignment between the value of their brands and what clients are actually paying for their services.
- Implemented correctly, better price realization can become a new source of profits, since price increases drop to the bottom line, except for advisor compensation, and therefore can help fund renewed investments .
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