Reinvention on the edge of tomorrow

‘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. 

Early returns on GenAI

Only two years after GenAI appeared on the radar of most executives, companies around the world are adopting it at scale. What’s more, many CEOs are seeing promising results. More than half (56%) tell us that GenAI has resulted in efficiencies in how employees use their time, while around one-third report increased revenue (32%) and profitability (34%). 

These outcomes are slightly below the heady expectations CEOs shared with us a year ago, but this has not dampened their optimism. CEO expectations for GenAI impacts in the year ahead are, in fact, remarkably similar to those reported in last year’s survey. About half of CEOs (49%) expect GenAI to increase the profitability of their company over the next 12 months.  

These figures are broadly consistent with other PwC research among executives, employees and investors. In PwC’s Global Workforce Hopes & Fears Survey 2024, 62% of employees said they expected GenAI to increase their efficiency at work over the next 12 months. In our Global Investor Survey 2024, two-thirds of investors and analysts said they expect the companies in which they invest to achieve productivity gains from GenAI 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. 
 

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 research (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.

These figures represent a snapshot of sentiment in October to early November 2024, when our survey was in the field, and CEOs were by no means oblivious to the risks. Macroeconomic volatility was cited as the threat most likely to precipitate a substantial financial loss in the year ahead. 

Within the broadly optimistic picture, there are also stark differences between countries. Among the G20 countries, CEOs in Germany are gloomiest about the outlook for the domestic economy, reflecting an industrial base experiencing not only weak demand but also supply shortages in energy, components, skilled labour and other areas. At the opposite end of the spectrum, CEOs in India and Argentina are most optimistic. Nine out of ten CEOs in India (87%) expect domestic economic growth to accelerate in the year ahead. 

Ramping up reinvention

Many business leaders recognise the need to reinvent their business models. Consistent with our last two annual surveys, four in ten CEOs (42%) say their company will remain viable for less than ten years if it continues on its current path. 

Since we first asked this question two years ago, the industries in which CEOs feel most under pressure to reinvent have been largely consistent: media and entertainment, technology, telecom, and industrial manufacturing. These are all sectors in which digitisation, decarbonisation or both are changing the basis of competition. Yet there are now signs of rising anxiety elsewhere. In 2023, only 28% of pharmaceutical CEOs said their company wouldn’t be viable for more than ten years if it continued on its current path. Last year, this increased to 38%, and again this year to 45%. Among other factors, this likely reflects growing realisation that AI could revolutionise drug discovery and many aspects of patient care. 

Across all sectors, just under two-thirds of CEOs (63%) report having taken at least one significant action to change how their company creates, delivers and captures value. The most common reinvention actions are product and service innovation and moves to target new customer groups. Fewer companies have taken actions that typically come with higher degrees of difficulty—such as pioneering new routes to market, implementing new pricing models or collaborating with other organisations to create new ecosystems.

Will these moves be enough to power reinvention? For many CEOs, the honest answer will be no. Consider, for example, the percentage of revenue that companies get from new businesses, a measure of how fast they are growing beyond the core. Across our sample, on average, only 7% of revenue in the last five years has come from fundamentally distinct businesses that organisations added in this period. Companies in the Middle East and the Chinese Mainland are ahead, with 10% or more of revenue coming from new businesses. For Japanese companies, the average is only 3%.  

If CEOs need further encouragement to double down on reinvention, they should note that we see a strong association in the data between the number of reinvention actions companies have taken and the profit margins they achieve. Companies taking more actions also report bigger gains from GenAI over the last year.  

The great reconfiguration

More than three decades of digitisation have already started to erode boundaries between sectors. Our strong belief is that the interactions among climate change, AI and other megatrends will hasten the process of reconfiguration and create new domains of growth that cut across sectors. Consider, for example, recent boundary-breaking moves by tech giants into nuclear power generation, reflecting the complex interplay of AI and climate change. 

Nearly four in ten CEOs tell us that their companies have started to compete in at least one new sector in the last five years. Although many of these initiatives have been small, about one-third of CEOs making cross-sector moves said these represented 20% or more of company revenue over the period. There are companies of all sizes in this group, but those at the smaller end of our sample (with revenues below US$100 million) are represented more heavily. When it comes to venturing beyond sector boundaries, agility matters. 

Among the sectors CEOs say they are moving into are business services (with new competitors coming from technology, telecommunications and media), health services (with new competitors coming from insurance, tech and telecom), and consumer markets (with new competitors coming from pharmaceuticals, banking and media). These findings ring true. Consider, for example, moves by telecom companies to generate additional revenue by offering business customers a range of services beyond connectivity, or moves by health insurers into healthcare provision, or moves by banks to offer consumers additional fee-based services.
 

Pay attention to decision quality    

Leading a company during a period of great change requires decision-making that is well informed, disciplined and unbiased. Yet many CEOs tell us that their company’s strategic decision-making processes are inconsistent at best. For example, proven practices for countering confirmation bias include making decision criteria transparent in advance, deliberately canvassing alternative points of view and intentionally seeking out information that contradicts the investment hypothesis. Only about half of companies regularly employ the full suite of these techniques for strategic decisions.  

Similarly, almost six in ten CEOs told us that they usually judge strategic decisions by their outcomes, not by the quality of the process. At first glance, this makes perfect sense. CEOs are results-oriented and take pride in that trait. The snag is that outcomes are often determined by factors, including luck, that are beyond the control of the decision-makers. The only thing leaders can fully control is the quality of the decision-making process. 

Our survey results suggest that CEOs are leaving money on the table by not following the best practices of decision-making: companies with higher-quality processes for making strategic decisions report higher profit margins (as always, this is after controlling for industry, geography, company size and other factors that might skew the data).  

Reallocate to reinvent

Dynamic resource reallocation is a prerequisite for reinvention. For example, it is impossible to rapidly build a large new business without actively reallocating resources from lower-priority projects. Yet a large majority of companies lack agility when it comes to moving financial investments and people between projects and business units. About half of CEOs tell us that they reallocate 10% or less of financial and human resources from year to year. More than two-thirds say they reallocate less than 20%, a finding similar to that of last year’s survey. 

Digging into the data, we find that active reallocation of people, in particular, is associated with higher profitability. The difference in profit margin between low human resource reallocation (less than 10%) and high reallocation (30–40%) is more than 2 percentage points. There is also a strong link between higher levels of resource reallocation (both financial and human resources) and the amount of revenue coming from distinct new businesses—underlining that reinvention and dynamic resource reallocation go hand in hand.

Build trust for a new era

As noted above, about half of CEOs believe that GenAI will increase the profitability of their company in the year ahead. At the same time, only a third (33%) say they have a high degree of trust in having AI embedded into key processes. As you might expect, CEOs who trust AI reported higher gains from GenAI over the last 12 months and expect higher gains from the technology in the year ahead. They are also more likely to be moving forward with integration of GenAI into technology platforms, business processes and workflows. 

The wide distribution of CEO trust in AI mirrors that among the wider population. PwC’s Voice of the Consumer Survey 2024 of 20,000 consumers globally found a similar spread of opinion. A key difference is that CEO opinions can have bigger consequences. The question for CEOs at the low end of the trust spectrum is whether they are actively working to understand and address the issues—or simply allowing their scepticism to get in the way of the opportunity. At this early stage of GenAI’s development, ‘bounded optimism’ feels like an appropriate stance. Uninformed pessimism does not.
 

Beware the tenure trap

Business, society and the competitive landscape are being reshaped by powerful forces that will play out over the decade to come. Yet when we asked CEOs how long they expect to remain in their current role, most answered five years or less. In addition, we see intriguing differences between the survey responses of CEOs with shorter expected tenure and those who expect to be in the role longer.  

Those with long expected tenure are more likely to: 

• be taking multiple actions to reinvent their company’s business model (which is, in turn, associated with higher profit margins)  
• report profitability gains from investment in GenAI and have higher expectations for the technology in the year ahead 
• be using a range of techniques to ensure the quality of strategic decisions. 

These are statistical associations. We know many CEOs with a year or two of remaining tenure who are moving decisively to reinvent their company and capture the value-creation opportunities afforded by AI. Even so, the data highlights a corporate governance dilemma that, although hardly new, takes on additional weight at this decisive moment in business history. 

What will the global economy look like in 2035? Although many scenarios are possible, the answer will depend significantly on how governments, corporations and civil society respond to the threat posed by climate change and the historic opportunity presented by AI. By extension, the companies most likely to thrive in the future are those that move now both to understand how these forces will reshape their industry and also to reimagine their business models, their operations, and their uses of technology, energy and other scarce resources. 

Against this backdrop, a few key questions for CEOs strongly suggest themselves:  

• Are you moving fast enough and with discipline to build AI (especially GenAI) into technology platforms, workflows and processes, and workforce skills? And, are you prioritising Responsible AI practices to safeguard stakeholder trust?  
• What untapped opportunities exist to drive revenue growth and profitability by adding climate-friendly products and services to your portfolio?  
• Do you have a clear view of the potential for your industry’s structure and boundaries to shift—and of how your company’s operations, capabilities and business model need to change—as technology and climate change create new opportunities and constraints? 
• Are you investing enough in (and putting enough talent against) your biggest priorities?  
• What steps can you take to increase the quality of your company’s strategic decision-making in the face of interwoven geopolitical, economic, technological and competitive forces? 
• For CEOs who expect to be in the role for only a few more years: if your remaining tenure were a decade, what would you do differently?  

This year’s survey confirms that some CEOs have already asked these questions and, in partnership with their top team and board, have started to develop coherent answers. The challenge for this group is to maintain momentum while remaining acutely aware of the interplay between macroeconomic conditions, geopolitical reconfigurations and other threats that could yet derail progress.  

For CEOs who have barely begun to address these issues, it is not too late. But such CEOs are, without question, falling behind. Playing catchup starts with making a concerted effort to develop a systems-level view of how customer needs and the competitive environment are changing. Then comes execution: a clear set of reinvention priorities, powered by high-quality decisions and at-scale resource reallocation, sustained by bounded optimism about what tomorrow could bring.