Reinvention on the edge of tomorrow

CEOs report early productivity gains from Generative AI and rising payoffs from investments in sustainability. The challenge is to increase scope and speed.

The future is already here—it's just not evenly distributed,' said speculative fiction author William Gibson. This sentiment echoes through the results of PwC's 28th Annual Global CEO Survey, based on responses from 4,701 chief executives representing every region of the world economy.

Some CEOs are moving rapidly to capture the growth and value-creation potential inherent in the defining forces of our era. They're investing in generative AI, addressing the opportunities and threats posed by climate change, and reinventing their operations and business models to create value in new ways. Yet many others are moving slowly, constrained by leadership mindsets and processes that lead to inertia.

This latter group has two options: either accelerate their reinvention efforts or bet on hope—hope that, with just a few tweaks, today's operating and business models will continue to deliver results even as AI and the transition to a low-carbon economy set value in motion across the economy.

Among the key findings:

Expectations for GenAI remain high. One-third of CEOs say GenAI has increased revenue and profitability over the past year, and half expect their investments in the technology to increase profits in the year ahead. Yet trust remains a hurdle to adoption.

Investment in climate actions and sustainability is paying off. One in three CEOs report that climate-friendly investments made over the last five years have resulted in increased revenue. In addition, two-thirds say these investments have either reduced costs or had no significant cost impact.

Sector boundaries are blurring. Almost 40% of CEOs say their companies started to compete in new sectors in the last five years. Consistent with last year's survey, four in ten CEOs believe their company will no longer be viable in ten years if it continues on its current path.

The pace of reinvention is slow. On average, only 7% of revenue over the last five years has come from distinct new businesses added by organisations in this period. Barriers to reinvention include weak decision-making processes, low levels of resource reallocation from year to year, and a mismatch between the short expected tenure of many CEOs and powerful long-term forces, or megatrends, at work.

Underlining the tension across time horizons, CEOs are optimistic about the near-term outlook even as they worry about their company's long-term viability. Almost 60% expected global economic growth to increase over the next 12 months, up from 38% in last year's survey and only 18% two years ago. By a ratio of more than two to one, CEOs expect to increase rather than decrease (42% vs. 17%) headcount in the year ahead.

 The future is already here—it's just not evenly distributed,' said speculative fiction author William Gibson. This sentiment echoes through the results of PwC's 28th Annual Global CEO Survey, based on responses from 4,701 chief executives representing every region of the world economy.

Some CEOs are moving rapidly to capture the growth and value-creation potential inherent in the defining forces of our era. They're investing in generative AI, addressing the opportunities and threats posed by climate change, and reinventing their operations and business models to create value in new ways. Yet many others are moving slowly, constrained by leadership mindsets and processes that lead to inertia.

This latter group has two options: either accelerate their reinvention efforts or bet on hope—hope that, with just a few tweaks, today's operating and business models will continue to deliver results even as AI and the transition to a low-carbon economy set value in motion across the economy.

Among the key findings:

• Expectations for GenAI remain high. One-third of CEOs say GenAI has increased revenue and profitability over the past year, and half expect their investments in the technology to increase profits in the year ahead. Yet trust remains a hurdle to adoption.

• Investment in climate actions and sustainability is paying off. One in three CEOs report that climate-friendly investments made over the last five years have resulted in increased revenue. In addition, two-thirds say these investments have either reduced costs or had no significant cost impact.

• Sector boundaries are blurring. Almost 40% of CEOs say their companies started to compete in new sectors in the last five years. Consistent with last year's survey, four in ten CEOs believe their company will no longer be viable in ten years if it continues on its current path.

• The pace of reinvention is slow. On average, only 7% of revenue over the last five years has come from distinct new businesses added by organisations in this period. Barriers to reinvention include weak decision-making processes, low levels of resource reallocation from year to year, and a mismatch between the short expected tenure of many CEOs and powerful long-term forces, or megatrends, at work.

• Underlining the tension across time horizons, CEOs are optimistic about the near-term outlook even as they worry about their company's long-term viability. Almost 60% expected global economic growth to increase over the next 12 months, up from 38% in last year's survey and only 18% two years ago. By a ratio of more than two to one, CEOs expect to increase rather than decrease (42% vs. 17%) headcount in the year ahead.

• Although it is early days, there's nothing in our data to suggest a widespread reduction in employment opportunities across the global economy. Some CEOs (13%) say they have reduced headcount in the last 12 months due to GenAI; companies in insurance, retail, pharmaceuticals and life sciences were most likely to have made such cuts (16%). Yet a slightly higher percentage (17%) tell us that headcount has increased as a result of GenAI investments.

  Looking forward, almost half of CEOs say that their biggest priorities over the next three years are integrating AI (including GenAI) into technology platforms as well as business processes and workflows. Fewer are planning to use AI to develop new products and services or reshape core business strategy. For most companies, this order of priorities makes sense. More surprising is that only a third of CEOs are planning to integrate AI into workforce and skills strategy. This could be a misstep. Realising the potential of GenAI will depend on employees knowing when and how to use AI tools in their work—and understanding the potential pitfalls.

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  Upside from climate action

  When we asked CEOs to take stock of the financial impact of their climate-friendly investments over the last five years, we found that these moves were six times as likely to have increased revenue as to have decreased it. In addition, around two-thirds of CEOs report that climate-friendly investments have either reduced costs or had no significant impact.

  These gains and costs are not distributed equally, and the variances are driven in part by the mix of incentives and regulations in different countries. For example, around half of CEOs in Germany and France report that making climate-friendly investments over the last five years has resulted in increased costs, against only one-fifth of their US counterparts. On the flip side, CEOs in the Chinese Mainland are much more likely to report additional revenues arising from these investments (60%), as well as additional government incentives received (46%), than their counterparts in other regions of the world.
  

  After adjusting for geography and other factors, however, we find that making climate-friendly investments is associated with higher profit margins. This finding is consistent with analysis of last year's CEO Survey data, which showed a link between a wide variety of climate actions and stronger financial performance. Also relevant is recent Harvard Business School researchOpens in a new window (published in PwC's strategy+business), which found faster revenue growth among firms that are transitioning their product portfolio towards climate solutions.

  Crucially, most investors are persuaded by such evidence. In the recent PwC Global Investor Survey 2024, almost 70% agreed that companies should make expenditures to address sustainability/ESG issues relevant to the business, even if it reduces near-term profitability. In addition, more than half of all CEOs globally (56%) say their personal incentive compensation is linked to sustainability metrics. The higher the percentage of CEO compensation at stake, the more revenue that's likely to be coming from climate-friendly investments.

FDT CONSULTING JOURNAL SOURCE PWC.COM