When is the right time to reinvent your business?
A set of indicators could provide advance notice of impending periods of business model change in sectors and industries.
The case for business model reinvention seems intuitive, but where’s the proof that it pays off? In PwC’s 28th Annual Global CEO Survey, we asked chief executives at roughly 4,700 companies about their business model reinvention efforts across five broad categories: developing innovative products and services, implementing new pricing models, collaborating with other organisations, and targeting new customer segments and establishing new routes to market. We then looked at how those efforts correlate to other business metrics.
The data shows a clear correlation with profitability: companies that took more reinvention actions also reported higher profit margins, after adjusting for industry, geography, company size and other factors. This confounds the idea that business model reinvention is primarily for companies in trouble. Far from it. The companies most actively pursuing reinvention are more profitable than their peers.
There’s also a clear link between reinvention and the degree to which CEOs sense danger in the year ahead. When asked about the extent of their reinvention actions, CEOs who reported large or very large reinvention efforts (comprising roughly 12% of the total sample) were significantly more likely to say that their companies were exposed to near-term threats from inflation, cyber risk, technology disruption and macroeconomic volatility. In other words, companies pursuing reinvention are not only profitable but also strategically paranoid, in the positive sense coined by Andy Grove, former Intel CEO and author of Only the Paranoid Survive.
Lastly, reinvention correlates with sound decision-making processes. CEOs taking more reinvention actions report that their companies use a range of best practices to ensure that strategic decisions are well informed, disciplined and unbiased. These practices include making decision criteria transparent, encouraging contradictory points of view, assigning probabilities to potential decision outcomes and assessing decisions on the quality of the process, rather than outcomes.
Worth noting—the causality of these linkages isn’t clear. Does taking more reinvention actions lead to higher profitability, or do profitable companies have more resources to invest in reinvention? The survey data alone doesn’t tell us. But it does point to the existence of a subset of highly profitable companies led by CEOs who are very aware of potential threats, are paying close attention to decision quality, and are actively moving to reinvent their business model for the future.
Explore the full findings of PwC’s 28th Annual Global CEO Survey
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