Business model change can have a positive effect on profit margin. The key to amplifying that effect may be developing new products and services.
Want to maximise your reinvention dividend? Innovate
What does successful business model reinvention look like? More specifically, how can business leaders reap the greatest performance dividend from their reinvention efforts? Fresh analysis of data from PwC’s 27th Annual Global CEO Survey suggests that the answer may lie in innovation. The chart above shows a distinct association between the extent of reinvention—as indicated by an index that aggregates moves driving business model change—and the probability that a company derives a significant share of its annual sales from new products and services. Given that business model change has been shown to have a positive effect on profit margin (a connection established by a separate analysis of the CEO Survey data), innovation emerges as a reinvention-driver of outsize importance. Indeed, additional analysis reveals that around 35% of the effect of reinvention on profit margin can be attributed to introducing new products and services.
In light of these findings, management teams should redouble their focus on enabling company-wide innovation—and removing barriers to it. That starts with four key moves:
- Let employees speak up and take risks. Innovative workplaces depend on people who feel empowered to share their knowledge, to experiment and to fail. But the results of PwC’s 2023 Hopes and Fears Global Workforce Survey showed that only around a third of workers think their employer tolerates small-scale failures and encourages dissent and debate. And yet, 56% of executives polled in that year’s CEO Survey said they encourage dissent and debate, and 46% said they tolerate small-scale failures. That’s a big perception gap. Closing it is key to fostering a culture centred around creativity and problem-solving.
Invest in citizen-led change. Digital collaboration platforms, AI sandboxes, crowdsourcing programs—initiatives like these can boost worker autonomy and lead to actionable ideas arising from the day-to-day experience of those closest to operations and to customers.
Meet workers where they are. Company-wide innovation rarely starts in training rooms or with the viewing of mandatory videos. Innovation labs and upskilling programs should be opt-in whenever possible, and they should allow workers to participate at a pace and level of engagement that fits into their workday. Incentives help, too: digital badges for accruing extra time off, for example, or eligibility for bonuses and public recognition.
Reduce the sludge. Respondents to the 2024 CEO Survey reported that 40% of the time they spend on emails, meetings and administrative processes is inefficient. That organisational ‘sludge’—a term coined by Harvard Law School professor Cass Sunstein—exerts a drag on innovation, in the form of both lost time and sapped morale. The targeted deployment of application programming interfaces (APIs), cloud solutions and generative AI can reduce inefficiencies; so can encouraging employee feedback, which is one more reason to empower your people to speak up.
Data analysis by Shir Dekel
Explore the findings of PwC’s 28th Annual Global CEO Survey.
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