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Rethinking the business model: a continuous must for CEOs

Rethinking the business model: a continuous must for CEOs

A glance at the top 10 list of the companies with the largest market capitalisation today might not reveal how insightful this list is about the business outlook for the third decade of the 21st century. 

Firstly, 9 out of 10 companies simply did not exist before 1990, and secondly, except this one - Saudi Aramco - they are all technology companies. The huge shift represented by this list is not simply a change in consumer preferences - new company structures operating principles and practices have emerged from the depths.

This year, PwC, one of the world's leading professional services firms and one of the Big Four published the results of its 27th annual global survey of CEOs. This article presents the results in a non-exhaustive manner.

The findings point in one direction: CEOs need to rethink the day-to-day operations of their companies if they are to lead thriving organisations in what promises to be a turbulent next few years. Put simply - they may need a new business model.

Survey methodology

PwC surveyed 4,702 CEOs in 105 countries between 2 October and 10 November 2023. The CEOs were asked for their views based on a representative sample in each major region.

Interestingly, 3% of the respondents are at the helm of organisations with revenues of USD 25 billion or more, while the largest demographic is CEOs of companies with revenues between USD 100 million and USD 1 billion.

Lesson one: the imperative to innovate is enduring

Technological innovation and climate change are megatrends to which CEOs must constantly adapt. In PwC's 27th Global CEO Survey, 97% of CEOs said they had changed their business model in the past five years. This is the most common response, reflecting a growing concern, as 45% of CEOs still doubt their company will survive another decade if they do not change.

There is also a lot of criticism of processes within the company. In particular, the email system or internal meetings, which are also crying out for change, were also rated as ineffective by many.

Respondents are more optimistic about global economic growth than a year ago, but several CEOs expect the world economy to shrink. It can be said, therefore, that although changes have been made, global CEOs still see a need for reassessment of their companies.

Lesson two: megatrend changes

In its report on five megatrends at the end of 2022, PwC highlighted these areas: climate change, technological disruption, demographic change, a fragmenting world, and social instability. These are particularly worth paying attention to, says PwC, because they are interlinked.

CEOs expect even more impactful changes over the next three years, particularly in the areas of technology, customer preferences, and government regulation (but they also mentioned three of the megatrends in the first week). They believe inflation and geopolitical threats will remain region-specific drivers. 

In this environment, the winning, thriving companies are constantly improving not only their business models but also their operating and technology models.

Lesson three: careful green technology investment?

Climate change is one of the most significant megatrends driving companies and their managers to constantly innovate. For example, according to figures published by PwC, 55% of the annual global GDP of around $58 trillion depends on natural, and environmental factors. It is therefore no coincidence that two-thirds of the CEOs who responded have launched initiatives to save energy and one-third have launched initiatives to develop innovative, climate-friendly products. Is the following data too much or too little? Only less than half of CEOs have integrated climate risks into their financial planning, and investment in climate-friendly solutions is still low – although Western Europe is better off compared to other regions.

Lesson four: AI, with consequences

Of all the technology disruptions, generative AI is playing a prominent role in transforming the way businesses operate. Before ChatGPT was published on 30 November 2022, few people thought there was a huge gap in the market. Today, 60% of CEOs believe that generative AI will improve the quality of products or services and increase competition. CEOs expect generative AI to improve employee performance in the short term and to deliver significant competitive advantages later.

At the same time, CEOs highlight cybersecurity risks, the spread of disinformation, and bias as the main risks associated with generative AI, which is why they see ensuring the responsible use of AI as a social responsibility. Trends show that no business is likely to be immune from the impact of GenAI.

Lesson five: Business Interest amid change

For directors, understanding and adopting a strategy of continuous renewal is key. Leaders must create visions of future ecosystems and business models to balance success and sustainability. According to the survey, CEOs are striving to combine technological evolution with business models. In doing so, they create sustainable value and respond appropriately to societal expectations and the economic environment.

This cannot be done overnight: within the company, differences of opinion between managers and employees need to be identified and managers need to develop a culture of trust to support change.

Lesson six: change boldly

The data suggests that high-impact actions to create value or change the supply chain have a 3-5 percentage points higher return on investment than those with limited impact. In addition, the level of annual resource reallocation and the involvement of strategic partners play an important role in successful renewal.

High-impact business model changes such as technology upgrades, the introduction of new pricing models, and the development of strategic partnerships are positively correlated with higher profit margins, the survey found. It also outlines the wider opportunities for managers and the importance of innovation.

Lesson seven: a little paranoia never hurts

In his book ‘Only the Paranoid Survive’ Andy Grove, former CEO of Intel, stressed the importance of sensing change for survival. According to PwC, this is also the inconvenient truth: CEOs who doubt the viability of their companies are more aware of threats. Indeed, CEOs who are less confident are more likely to form new strategic partnerships, switch to regional supply chain models, or introduce innovative pricing models.

The verdict is clear: to preserve the changing business fundamentals, all leaders must abandon conventional wisdom and may well need a new plan - which, of course, may vary by industry. CEOs are aware that they are facing critical strategic turning points and therefore need to act with urgency.

The extra lesson: the help of interim management

Interim Ltd. has long been aware that the changing business-socio-technological environment requires new approaches and - at least at the management level - a different business model. That is why it always starts by first diagnosing the company to unravel the existing problem and provide a specific solution. In many cases, this takes the form of a dedicated, experienced, senior professional who carries out a specific task for the client company.

Whether the goal is corporate crisis management or achieving the OKR framework developed by Andy Grove, interim management is an innovative and effective way of managing the workforce across a wide range of industries and sectors.

Read the full PwC report on which this article is based here: https://www.pwc.com/gx/en/ceo-survey/2024/download/27th-ceo-survey.pdf

 

 

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