Sarah von Fischer: Hello, and welcome to Take on Tomorrow, the podcast from PwC’s management publication, strategy and business. I’m Sarah von Fischer. And today, in a special episode, we’re recording live from Davos, Switzerland, and the meeting of the World Economic Forum. Now, some of the key themes discussed at this annual gathering include cooperation and security, workforce, AI, and climate. And these are some of the headline topics also covered in PwC’s newly released 27th Annual Global CEO Survey. And today, we’re talking about what those findings could mean for business and wider society over the next year. Joining me now is PwC’s Global Chair, Bob Moritz. Bob, welcome.
Bob Moritz: Hi. Good to see you, Sarah.
Sarah: Well, thanks for joining us here and talking a little bit about some of the findings that really stood out. So, we saw CEOs feeling more positive about economic growth compared to last year, but 45% of leaders aren’t confident their company is even going to be around in the next decade if they continue on their current course, and that’s up from 39% last year. So what do you make of that?
Bob: Look, CEOs are dealing with a dichotomy of thinking, and this comes back to the short term versus the long term. In the short term, there’s a little bit more optimism—a lot less pessimism than we had a year ago. But this concern about the disruption factor: the need to reinvent yourself and the need to continually drive change in organization is front and center.
And this goes back to the stat that you quoted, which is 45% of those CEOs thinking, I’m not going to be viable unless I drive that change. Now, what’s interesting is the 55% that don’t think they need to change. And I’m going to argue they’re a little naive in terms of the pace of change and the impact it could have.
But the question becomes: how do you actually deal with that simultaneous equation? That’s on the minds of CEOs—and that’s what we’re trying to do, and help prioritize the actions that organizations need to take, short and long term.
Sarah: Now, of course, Bob, one area that we’ve heard a lot about here, and we talk about at PwC is, of course, GenAI. So what are we hearing from CEOs when it comes to how they’re viewing these changes in the short term and in the long term?
Bob: Over the long term, 70% of the CEOs actually say, it’s going to have a material effect on how I create and capture value. And that could be bottom-line improvements from an efficiency perspective, or it could be product offering in my revenue flow, in terms of what it looks like in the goods and services that I provide to those consumers. And that’s already starting to come through, because about a third know they’re using generative AI today to do something. Now, in some cases, it might be small, and we’re testing and piloting. In other cases, it might be large, in terms of what we may do in underwriting or leveraging AI for call center usage or whatever the case may be. The challenge now is, how quickly do I scale? How quickly do I embed it in all that we do? And what’s the issue in terms of the trade-off between technology and the cost, with the ROI, as well as the labor force challenges that we’re dealing with? Because we still are dealing with a relatively tight labor force. And if you go to the AI phenomenon, you got a couple of big issues. Number one, still expensive. Number two, you still need a lot of energy to actually do it, which impacts your Scope 3 if you’re making climate commitments. And last but not least is, how do you actually manage it with all the risks that come associated with it? And you do have some serious risks that the CEOs are focused on: cyber risk, misinformation, misuse, et cetera. And these are the things that you’re trying to pilot, learn from, fail fast, and actually adopt accordingly.
Sarah: So what can CEOs do to bring their employees on board and maybe to upskill them for the future?
Bob: Well, you use the right word there, which is upskilling. As organizations have come through the covid years, the one thing that was a positive—and it was a huge tragedy—was, the pace of change relevant to digitization got sped up. Why? Because the world had to react. Many of them would have said, I wanted to move faster. I couldn’t get there. But once covid did, I had to be forced into doing this. This is a continuation of that journey now, which is, how do you take the digital skills that people had and then turn them into AI skills? And, really, what’s going to be most important in this is, how do you upskill people for prompting, using, coding, and ultimately the deployment of the AI? So CEOs are very focused on that. But again, it’s a cost–benefit issue now in terms of are you doing it everywhere? Some organizations are baking it into everything they do. Others, we’re piloting here and here and here. Others, I’m going to allow for certain businesses to take it and run with it on a decentralized basis, but not bring it to the whole organization. So, everybody’s thinking about it slightly differently. There’s no one-size-fits-all. It all depends on how much other change you’re trying to drive and how good your change management programs are in the organization.
Sarah: Another big theme that we covered in the CEO Survey, that PwC covered, is climate, climate priorities. So, we saw some areas of progress, really, when it comes to decarbonization, but also areas where movement was slower, like adaptation. So, how should CEOs be thinking about, you know, their priorities in the coming year?
Bob: Well, a couple things here, right? So CEOs have made those commitments. They’re progressing. And as you said, a lot of them are taking some action. The real challenge now, particularly when you come out of the COP28 meetings, is, are we going to take the words into actions and the actions into results? And there’s a taking stock that’s definitely going to be more prevalent from the stakeholder community going forward. So that’s going to be really important, to demonstrate that progress, talk about it more proactively, and have truth in that reporting that you do. So that’s one piece. Second, many organizations are doing a lot of different things. And let’s take energy transformation and transition as a big example—75% of the CEOs say they’re doing something. Our studies would say in the energy transition space, actually, there’s probably 30% reduction that you can actually get improvements on in terms of efficiency and probably a couple of trillions of dollars of bottom-line savings if organizations did more. And what’s happening right now is you have singularity on buying energy. You don’t have singularity in terms of a point of contact for the consumption of energy. So, if you think about that energy transition, the better focus on that and the details, there’s a lot more upside potential in terms of reductions of emissions, and there’s a profitability play there. That’s really important. Let’s pivot on the other side, in terms of what they’re not doing. Many organizations, unfortunately, are not baking into the financial planning the implications of climate—cost and benefit. And again, a lot of CEOs are trying to finally see and realize and capture the benefits from product offerings that bring that kind of stuff. Second thing is physical risk. If you think about the world we live in today—lots of floods, lots of famine, in terms of droughts, et cetera, that comes from that all—how many have operations in those zones that are most prone to those extremes? And are they rethinking what they’re going to do? And this is where adaptation comes into play, not mitigation. Mitigation will mean I’m going to reduce my risk there, so I’m going to pack up and run. If you pack up and run, you leave society behind. And as a result, you’ll have more poverty. So how do organizations find those risks, adapt to them, and figure out, how do I actually manage going forward? Not many are doing that, either. So that’s where the opportunity is as we look ahead in the climate space.
Sarah: Now, another interesting finding, kind of under the climate umbrella, was that four in ten CEOs had accepted lower rates of return for climate-friendly investments than for other investments. I found that pretty surprising. So I guess, a kind of a two-part question here. So, what’s pulling them in that direction? And then, really, what does that mean for climate action across the board if business leaders have to accept that lower rate of return for those climate investments?
Bob: Yeah. This is where I think you actually have to deal with the inflection point that CEOs have to deal with. Right? So, for some of them, they’re actually taking on the challenge of I am willing to take less ROI—from having a product offering that will have a price premium, maybe a little bit more cost to it, so I’m cleaner and greener. This is a timing point, because their belief is not one that I’m always going to have a lesser ROI, when I look at the totality of what I do. If I actually do that, my consumers will be more loyal. My marketing expenditure over the long term will be less because I won’t have as much challenge to bring those consumers in, because they’ll see that over time. And more consumers will want that. So, I’m playing the short game versus the long game. So, I’m taking lesser returns in the short term with the idea of getting higher returns and a competitive advantage over the longer term. So, this is one of a journey flow. Let’s go with another example of that, just to bring it to life. If you’re doing more today, cleaner and greener, with your employees, who are another group of activists, they’ve got to actually say to themselves, if I’m actually doing these things today, I’ll have an easier chance of recruiting people in. If I can’t do these things today, I’m going to probably have to pay more money and do other things to attract that talent or otherwise, I don’t get the talent and I can’t remain competitive. So, we’re playing these trade-off games, as we think about the short term versus the long term in terms of what organizations are doing now in this space.
Sarah: So, CEOs have told us they expect more pressure from technological change, climate change, and other drivers of reinvention over the next three years than they’ve felt in the last five years. So, is this something that business should address alone? Or are there other ways to think about how to handle these different pressures?
Bob: Yeah, so, as you look at this reinvention, transformation challenge that all the CEOs have, first, the good news is many of them are doing something. It’s a question of are you doing enough to keep pace with the change? Because that enormity of change is coming fast, and it’s getting much more complicated and integrated than ever before. Second, the question becomes, do you have the right talent? This goes to, again, what help do you need. So first, CEOs need to understand what could they do better to be more educated around what’s the world of possibilities that’re out there? So they probably need to spend more time understanding what others are doing as well. And you’ve got to upskill your own people to be ready to understand what’s happening in the world that we live in, what are the forces of change that are coming your way, either today or tomorrow, and be better prepared for them with scenario-planning and the like—which, again, may mean bring in new resources or upscale your leadership teams as well. Third, some of these challenges you can’t actually solve by yourself. You actually have to work with government to think about new rules and regulations. You actually have to think about maybe some strategic partnerships. Some of the organizations are doing that. Some of them are actually doing M&A to bring in the IP, new intellectual property, to be better positioned, but also new leadership that’s coming in that may be better fit for the future, going forward. So, there’s a few different actions as you think about what the CEOs can and should be doing going forward. But it does come back to, what do they do personally? And here’s where you’ve got to make sure you have a vision of what you want to become over the next ten years. And where is that threat? And where’s that upside? And you’ve got to look at both. Second is make sure you’ve got alignment in the organization with your senior and middle management. And third, make sure you’ve got some milestones and you really are purposeful and definitive in terms of what you want to take on, in what sequence, and where is the accountability aligned with the right milestones.
Sarah: So, obviously, we can’t predict the future. A lot has happened in the past year. I’m sure a lot to come. So how can CEOs make sure that their companies are nimble and really can handle whatever comes their way?
Bob: Yeah. So what we see is probably three themes that should be priorities. One is, how do you get more speed and scale into the decisions and the actions that you actually are taking on? You can’t afford anymore not to move with speed. The ones that have speed in their organizations in terms of decision-making are going to be the ones that get a premium in terms of how they respond. Let’s use an example: commodity pricing. The worry about inflation, particularly over the last year was a big issue. It’s come down a little bit today based upon the CEO Survey, but it’s still there. If commodity prices are changing pretty radically in certain spaces, how long does it take for you to actually think about the implication to your price point for the goods and services you’re providing? If it’s six weeks before you think about supply chain, all the way through the organization and changing a price point, you’ve got a problem. If you’re talking six hours, you’ve got a competitive advantage. So speed and organization, really important. So, how do you get bureaucracy out of the place? And how do you make sure that all the stuff that gets in the way of fast decision-making is gone? And this is the ineffectiveness and inefficiencies. So that’s point one. Second, you can’t predict what’s going to happen in the world. And what we’ve seen is a lot of things that have come our way, be it covid or the various wars. So, how are you scenario planning? And linear budgeting is no longer going to be enough. You still need to do that. But you need to think about options theory and scenario planning and being able to move really quickly and have some 80% set plans if this happens or that happens. Our elections over the next year is a good example of that, because 2 billion people in the world are going to be part of an election process in one country or another. So, not only thinking about the end state, but what may happen leading up to that—super important. Last one is agility. As you think about organizations, where they manage their supply chain, what products and goods and services they provide, making sure you can actually be agile in the decisions you’re making, what businesses to be in, what not to be in, what countries to be in, not to be in. You’ve got to make sure there’s a degree of agility and flexibility in the organization to make sure you’re fit for purpose going forward.
Sarah: So, let’s flip this back to PwC. We talk about reinvention, being reinvention-ready. What does PwC need to do to make sure that they are also reinvention-ready?
Bob: Look, the big thing for us is making sure all of our people, that citizen-led effort, are sufficiently skilled to deal with what’s coming. So, when we think about trust, climate, and business model reinvention, our three priorities—making sure we have the right skills and capabilities in scale, in that space, are really important. And when things change, regulation or otherwise, that we are moving with speed.
Sarah: Bob, thank you so much for joining us here on Take on Tomorrow.
Bob: Great to be here, thanks. Good to see you.
Sarah: Well, that’s it for today’s episode of Take on Tomorrow, recorded live from Davos in Switzerland. Join us next time, as we look at the concept of sustainable cities and explore whether they can provide the amenities people need in a way that is just, equitable, and sustainable.
Guest: Cities generate something between 60 and 80% of global economic output. Cities are responsible for something around 60% of global waste output. They consume two-thirds to three-fourths of global energy. They also generate between 75 and 85% of global greenhouse gas emissions. And so, we have to think about how we can actually develop solutions that can achieve both goals of economic growth and productivity, and also environmental sustainability.
Sarah: Take on Tomorrow is brought to you by PwC’s strategy and business. PwC refers to the PwC network and/or one or more of its member firms, each of which is a separate legal entity.
