Evolve or die, say 4,410 chief executives in our 2023 CEO Survey. But are they spending enough time on business reinvention? Many tell us no.
Forty percent of global CEOs think their organisation will no longer be economically viable in ten years’ time, if it continues on its current course. That stark data point underscores a dual imperative facing 4,410 CEOs from 105 countries and territories who responded to PwC’s 26th Annual Global CEO Survey. Most of those CEOs feel it’s critically important for them to reinvent their businesses for the future. They also face daunting near-term challenges, starting with the global economy, which nearly 75% believe will see declining growth during the year ahead. We’ve organised this year’s survey summary into nine tough questions—which naturally fall into three groups—about what it takes to operate in our dual-imperative world:
CEOs recognise the potential for disruption ahead. Nearly 40% of CEOs think their company will no longer be economically viable a decade from now, if it continues on its current path. The pattern is consistent across a range of economic sectors, including technology (41%), telecommunications (46%), healthcare (42%) and manufacturing (43%).
When asked about the forces most likely to impact their industry’s profitability over the next ten years, about half or more of surveyed CEOs cited changing customer preferences, regulatory change, skills shortages and technology disruption. Roughly 40% flagged the transition to new energy sources and supply chain disruption. And nearly one-third pointed to the potential for new entrants from adjacent industries.
Underlying these figures, we believe, is consciousness among today’s leaders that we are living through extraordinary times, with five broad megatrends—climate change, technological disruption, demographic shifts, a fracturing world and social instability—reshaping the business environment. Although none of these forces is new, their scope, impact and interdependence are growing, with varied magnitude across industries and geographies. CEOs in Japan (who have been buffeted by demographic headwinds for decades) and China (who are on the front lines of uncertainties about free-flowing global trade) were the most concerned about the long-term viability of their business models, while CEOs in the United States were the most optimistic.
CEOs’ race against time is especially urgent when it comes to climate change. A majority of global CEOs expect some degree of impact from climate change in the next 12 months—primarily in their cost profiles (where approximately 50% expect a moderate, large or very large impact) and their supply chains (42%). Fewer (24%) are worried about climate-related damage to their physical assets. CEOs in China feel particularly exposed, with 65% seeing the potential for impact in their cost profiles, 71% in supply chains and 56% in physical assets.
Deeper statistical analysis of the survey shows that the CEOs who feel most exposed to climate change are more likely to take action to address it. This kind of reactive approach is understandable—when your house is in the path of a forest fire, you reach for the hose—but it creates risks of its own. Combating climate change requires a coordinated, long-term plan. It won’t be solved if the only companies working on it are those that face immediate financial impact. We also don’t know how much the actions that are being undertaken most frequently—decarbonisation initiatives, along with efforts to innovate climate-friendly products and services—will move the needle, particularly in the near-term, which, in light of emissions already in the atmosphere, promises continued warming under virtually every scenario.
Moving with the right pace and priority to mitigate climate risks, generate opportunities and decarbonise are enormous strategic challenges. Many companies appear to be strategising today without the information provided by an internal pricing mechanism for carbon. More than half of all CEOs in the survey (including 38% of those at the biggest companies and 70% of those at US companies) say that their company has no plans to apply an internal carbon price to decision-making, even though doing so could help them account for considerations like taxes and incentives, and clarify strategic trade-offs. Measuring and communicating progress to critical stakeholders is another big challenge. In a separate recent PwC survey, 87% of global investors said they think corporate reporting contains unsubstantiated sustainability claims, often referred to as “greenwashing.”
Climate change exemplifies a time-horizon challenge that comes into clearer focus when we look at a broader set of external threats to the global economy. Over the next 12 months, CEOs feel most exposed financially to inflation, economic volatility and geopolitical risk. All three are immediate, headline-grabbing issues that can reinforce and compound one another, as, for example, the war in Ukraine pushes up prices, encouraging central banks worldwide to intervene through growth-dampening interest rate hikes. The picture changes for CEOs’ medium-term (five-year) outlook. Over that time frame, cyber risks and climate change join inflation, macroeconomic volatility and geopolitical conflict in the top tier of risk exposure.
The disconnect across time horizons begs the question of whether CEOs run the risk of being blindsided in the near term as they focus on here-and-now threats. In the case of cybersecurity, it’s easy for important business technology investments—launching a new consumer-facing app, developing a business line built around AI, expanding into a new market—to inadvertently create cyber vulnerabilities.
The biggest near-term challenge facing CEOs, of course, is the state of the global economy. Not surprisingly, nearly three-quarters of CEOs responding to this year’s survey project that global economic growth will decline over the next 12 months. Those expectations, which held across all major economies, represented a stark reversal from last year, when a similar proportion (77%) anticipated improvement in global growth. Last year’s optimism, reflecting hope that economic conditions would continue improving as the global pandemic eased, was dashed in 2022 by shocks such as Europe’s largest land war since World War II, knock-on effects like surging energy and commodity prices, and accelerating general wage and price inflation.
We can dimensionalise CEOs’ pessimism by comparing their confidence in their own company’s growth prospects (as opposed to the overall economy’s) over the next 12 months. This is a question we have been asking CEOs since 2007. The drop-off in CEO confidence levels for their own organisation’s prospects between last year and this year (about 25%) was significantly smaller than the plunge in 2009 (when it fell more than 50%), but larger than in any other of the past 15 years. There were exceptions: CEOs in Africa, Brazil, China, Japan and the Middle East are about as confident in their growth prospects as they were last year—and, in general, CEOs are more confident about their three-year revenue growth prospects compared to the shorter term, which we also asked them about. Still, the near-term revenue outlook is weak, particularly for CEOs in the real estate and private equity industries, who are feeling the effects of rising capital costs and tightening liquidity conditions.
The dramatic, year-on-year shift in CEO sentiment begs a natural question: has inordinate optimism a year ago been replaced by excessive pessimism? After all, CEOs are people, too, and just as susceptible as the rest of us to recency effects and other cognitive biases that a vast body of behavioural economics research has shown to be pervasive in individuals.
In response to near-term economic challenges, CEOs say they are taking actions to spur revenue growth and cut costs, without delaying strategic M&A initiatives. Interestingly, although 52% of CEOs say they have already begun cutting costs, just 19% are implementing hiring freezes, and 16% are reducing the size of their workforce. This stands in stark contrast to what we heard from CEOs back in October and November of 2008, when about twice as many told us they anticipated near-term headcount reductions.
The survey data suggests CEOs aren’t laying people off, in part, because of their recent experience with employee attrition, which surged over the past year or so in many markets, a phenomenon that’s been referred to as the “great resignation.” For the most part, survey respondents appear to believe that those elevated churn rates will continue, with more CEOs saying they will rise than predicting they will fall. CEOs in the United States were an exception; more than half of US CEOs expect decreased attrition over the next 12 months.
World events have elevated the importance of geopolitics, and have made themselves felt in myriad ways, including in influencing leaders’ perspectives on the global economy itself. CEOs in Brazil, Canada, China, India, Japan and the United States are more optimistic about the short-term growth prospects of their own countries than those of the world as a whole. The growing emphasis on national interests over global ones represents an acceleration of trends that have been underway for some time, as the post–Cold War consensus of open markets and frictionless global trade has broken down. An exception is major economies where the second-order effects of geopolitics are hitting home hardest. As CEOs in France, Germany and the UK prepared for a potentially dark, cold winter, they anticipated growth in their home markets would lag the global economy.
CEOs who say they are exposed to geopolitical risk are taking action, with nearly half increasing their investments in cybersecurity or data privacy, adapting supply chains or adjusting their geographic footprint. Cybersecurity is a particular area of emphasis for larger companies exposed to geopolitical conflict, while smaller ones are focused more on diversifying their product and service offerings.
To navigate the dual imperative defined by our first six questions, CEOs must perform a balancing act that starts with their own calendars. We asked CEOs how they split their time between a range of priorities, including driving current operating performance; adapting the business for the future; spending time with customers; engaging with employees; and interacting with investors, the board and other external stakeholders. Driving current operating performance consumed the biggest share of CEOs’ time. If they could redesign their schedules, CEOs told us, they would spend more time evolving the business and its strategy to meet future demands.
The balancing act extends from the CEO’s calendar to the allocation of corporate resources. Technology investments are a top priority: around three-quarters of companies are focused on automation, upskilling, and deploying advanced technologies such as AI. Drilling down into the underlying rationale for those investments, roughly 60% in each category is focused on reinventing the business for the future, and 40% is concentrating on preserving the current business. That 60/40 ratio was remarkably consistent across the full spectrum of investments—another reflection of the balancing act CEOs are striving to strike.
To reinvent their business while navigating near-term operating challenges, CEOs need the help of their people—C-suite leaders, middle managers and frontline employees alike. Engaged, empowered organisations move faster, innovate more readily and collaborate more effectively to get things done. For CEOs hoping to enjoy such benefits, this year’s survey suggests some warning signs, and areas of opportunity. Forty-three percent of global CEOs said that leaders in their organisation don’t often encourage debate and dissent. Fifty-three percent said their leaders don’t often tolerate small-scale failures. And 76% said their leaders don’t often make independent strategic decisions for their function or division.
Numbers like these suggest that in many organisations, the conditions aren’t in place for managers and employees to run on their own towards major new opportunities or to independently spot and respond to disruptive threats. Business reinvention will be a full-contact sport for CEOs and their top teams during the years ahead, and the data suggests that a special kind of leadership will be required because deep change is possible only when individuals at all levels adapt and grow. CEOs need to double down on setting a shared vision, empowering people to make decisions, and being visible champions for change.
The diversity and complexity of today’s business challenges are placing a premium on the ability to collaborate across the boundaries of the corporation. To get a window on these dynamics, we asked CEOs how they forge partnerships—with whom and to what objective. The results show that companies work with a wide network of collaborators, and that those relationships are most often struck to create new sources of value. Addressing societal issues such as climate change was more often a goal of collaboration with non-business entities such as NGOs and government agencies.
Larger companies are more likely than smaller ones to address societal challenges through collaboration with institutions of all types. Business–government collaboration towards societal ends is especially prevalent in Africa, Asia and the Middle East, and in the energy and power and utilities sectors.
Trust helps institutions and individuals “go far together”—and win today’s race while running tomorrow’s. Advanced analysis of data from last year’s CEO Survey uncovered a statistically significant relationship between customer trust and financial performance. Survey data also suggested that trusted companies had a long-term orientation; they were more likely to have made net-zero commitments and to have their compensation tied to non-financial outcomes, such as employee engagement and gender, race, and ethnicity representation.
The growing importance of trust is deeply intertwined with the changing nature of leadership, due to the increased complexity of stakeholder dynamics, the growing need for the private sector to help solve important societal problems, the fracturing of the post–Cold War consensus, and the intensification of geopolitical and social tensions. CEOs have had front-row seats for, and often been participants in, these shifts, to a greater degree than many of their direct reports. Explicit dialogue with top management teams about the leadership implications of these forces may help CEOs strengthen and unleash the power of the C-suite, allowing CEOs time to focus on the future, which our survey data indicates CEOs want. We hope the nine questions posed by this year’s CEO Survey enrich that conversation, so it empowers leaders and their organisations to push past the status quo, envision progress and reinvent themselves for the world they are helping to shape.
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