As CEOs reshape business models, GenAI provides the path to growth

The past few years show that CEOs and their leadership teams can lead, inspire and perform in an uncertain world. Despite geopolitical and technological upheaval, they remain confident in their company’s ability to respond to the unexpected, build trust and make decisions and investments in support of their values and goals.

With an external landscape that’s likely to remain fluid this year, CEOs are shifting their energy and attention and trying to control what they can control. 2024 is shaping up as the year of business model reinvention. Many businesses are radically transforming how they create, deliver and capture value to remain relevant in a constantly changing world. Whether they’re converting a traditional product to be software-enabled, looking at customer channels and removing intermediaries, or expanding the value chain into other segments, most companies are recognizing the need to transform and innovate.

Business model reinvention isn’t solely about the bottom line. The climate, corporate values, trust and the continued evolution of stakeholder needs and expectations are all interconnected and integral parts of a reinvented business model. Balancing that interlocking CEO agenda is a difficult mandate without easy answers. Yet we know that CEOs and their teams are eager to take on the challenge as they aspire to create value for their customers, employees and society.

The US CEO responses in our 27th annual Global CEO Survey confirm that executives are turning to generative AI (GenAI) as a critical tool to reinvent their businesses. That innovation, which took the world by storm in 2023, shows no signs of slowing down. And for good reason. It can provide the engine for nearly every growth lever that CEOs want to pull, from optimizing costs to creating new revenue streams to improving the customer experience. And a responsible approach to AI can do that while also helping mitigate risks. US CEOs are already reaping early rewards from GenAI and that’s fueling expectations that in a few short years there will be deeper, fundamental change across all industries.

GenAI, though, is only one force that’s converging on chief executives. This moment is an existential inflection point for many companies as new regulations, climate change and the economic environment drive the need for agility and reinforce the reinvention imperative. Still, US CEOs in our survey remain confident that their companies are on a solid footing to compete in the years to come.

US CEOs are growing more enthusiastic about deploying generative AI as part of their strategic plans to accelerate business model reinvention, according to PwC’s 27th Annual Global CEO Survey.

Most US chief executives say this will be the year that they reap returns on their investments in GenAI, with 61% expecting it to improve the quality of their products and services. With that relatively quick ROI in hand, CEOs say they expect even bigger business-changing effects to come. Within three years, similar percentages agree that GenAI will significantly alter how their company creates, delivers and captures value. And if they’re experiencing that kind of internal change, it makes sense for them to expect that GenAI will make competition more intense. Amid such a fundamental shift in how the wheels of business turn, CEOs anticipate that employees should bring an improved set of skills to work, thereby helping to increase their value contribution to the organization.

Takeaways

• We expect GenAI to transform transformation (see PwC’s 2024 AI Business Predictions). Its ability to make sense of unstructured data, when combined with cloud, can accelerate nearly any data-related transformation initiative. It can also take transformation where it has not gone before and help you leapfrog several stages.
• Companies laying the foundation on which they can build their GenAI factories, use cases and acceleration centers want to make sure they’re building a solid base to accelerate growth. In our experience, CEOs who focus on how they use technology — how they’re going to scale it across use cases and what financial outcomes they want to achieve from the project — are well positioned to better realize their return on investment.
• Being outcomes obsessed about technology means executives view it as a tool that serves the business’s growth goals, rather than a silver bullet.

CEOs and their CFOs are responding to a wide array of external issues that threaten to crimp profits (e.g., global conflict, fluctuating interest rates, fraying trade relations, souring consumer sentiment). Investors are also increasingly demanding executives pursue profitable growth, prompting many CEOs to turn not only to cost containment strategies but to GenAI as well.

What's alluring about GenAI is its dual ability to produce efficiency gains that hold down current expenses while simultaneously enabling company reinvention. This may mean that, when the macroeconomic headwinds abate, the stage is set for a potentially faster rate of growth on a lower cost basis. Two-thirds of the US chief executives in our survey (68% versus 64% globally) say that the next 12 months will see Gen AI increasing the amount of work that employees can accomplish. Half (50% versus 59% globally) see it helping them become more productive in their own work. Will those efficiency gains fall to the bottom line? These CEOs are hopeful, with 44% saying they see GenAI providing a net increase in profits in the next 12 months versus just 3% projecting a net decrease.

Efficiency gains, however, aren’t the highest use of GenAI to power enterprise transformation. The bigger prize lies in making people more valuable. Employees who know how to use AI likely will outcompete those who don’t. But CEOs can’t rely mainly on hiring GenAI-savvy people. There are too few of them at the moment. Instead, CEOs should unlock their current staff’s capabilities, and that requires skills training, guardrails and encouragement to automate and augment routine tasks, freeing up more time for higher-value, revenue-boosting work. To unlock more value, businesses should prioritize a responsible approach to AI and incorporate trust by design in everything they do.

Indeed, giving employees the tools and the encouragement to work smarter and pursue sales opportunities dovetails with the top strategic priority on the CEO agenda: 52% say their No. 1 goal over the next three years is generating new revenue streams.

Unsurprisingly, CEOs expect technology to be at the center of bringing those new revenue streams into existence. Fifty-seven percent of US CEOs expect changes in technology to drive future value creation for their organizations by either a large or very large extent, outpacing changing consumer preferences (45%) and government regulation (39%).

Takeaways

• CEOs need integrated strategies to expand their growth portfolio. The use of agile processes to create products and services fueled by AI can differentiate them and help create the new revenue streams that they say are short-term strategic priorities.
• GenAI’s societal effects remain uncertain. Some US CEOs anticipate adding workers as they implement the technology, others are considering reductions. The clashing views create a new leadership challenge: empower employees to accelerate AI transformation thereby boosting their value to the enterprise. Being transparent, purpose-driven and trusted regarding AI-related plans and decisions can help bring along those employees who are wary of AI so they feel more comfortable experimenting — and innovating — with it. CEOs should embrace this issue as a new facet of their role by understanding, explaining and managing the inevitable tensions emanating from AI.

The trust that businesses build with their stakeholders can boost profitability. PwC research found 91% of business executives agree that their ability to earn and maintain trust improves the bottom line. Conversely, a lack of trust can erode brand value, hurt financial performance and limit a company’s ability to attract and retain talent.

Trust is a key ingredient in using technology to transform and grow a business — and trust in the security and accuracy of data as well as the inputs and outputs of AI systems are on the minds of US CEOs. Overwhelmingly, as they think about the range of potential risks from GenAI, CEOs agree a cybersecurity breach is the primary pitfall (77% “slightly,” “moderately” or “strongly agree” GenAI is likely to increase this risk), followed by the spread of misinformation in their company (63%) and legal or reputational damage (55%). Given those findings, CEOs have a societal responsibility to oversee responsible AI use within their organization.

Takeaways

• Focus on outcomes. Earning trust can be an opportunity to differentiate your company. Embed it in how you measure success of the business, using appropriate quantitative data and qualitative measures. Trust can also be a valuable intangible asset during a business model or operational transformation.
• Trusted AI is more than just compliant, safeguarded systems. It means deploying the right solutions for the right situation and using the right data, policies and oversight to achieve relevant, reliable results. Achieving that requires an enterprise-wide approach and a set of trusted practices.

As business leaders set their agendas for the new year, US CEOs, their management teams and directors are largely aligned on their decarbonization commitments. In fact, only 4% of US CEOs cite a lack of buy-in from their board or management team as a large or very large barrier to pursuing a decarbonization agenda at their company.

Many CEOs (29%) are pressing ahead with climate-friendly investments despite potentially lower returns, indicating they’re trying to find the proper balance between mitigating climate risk and sustaining shareholder returns. And with the recent agreement at the COP 28 summit to increase the use of renewables and transition away from fossil fuel dependence, CEOs will remain under pressure to create achievable plans that accelerate the climate transition.

The most notable climate action US CEOs are taking is making their companies more energy efficient, with 86% saying it’s either planned, in progress or completed. There may be more they can do. Reducing the energy intensity of economic activity – energy used per unit of gross domestic product – could reduce energy consumption by up to 32%, potentially saving up to $2 trillion annually, according to a World Economic Forum report. Innovating new, climate-friendly products, services and technology (67%) and selling products, services or technologies that support climate resilience (65%) also top their list of priorities.

However, US CEOs lag in their climate plans compared with their global counterparts, and many CEOs report having no plans for a range of other key actions. For example, just 59% of US respondents say incorporating climate risk into financial planning is either planned, in progress or completed, below the 66% of global respondents — and more than one-third (38%) of US CEOs have no plans to factor climate risk into planning.

Takeaways

• The findings indicate CEOs will likely need to develop deeper stakeholder relationships to make the business case for climate-friendly processes, products and investments.
• CEOs should treat environmental sustainability less as a disruption in need of mitigation and more as a growth opportunity for the business and their investors.
• Learn more about the five topics shaping the chief executive agenda in 2024.

Ask an executive what’s getting in the way of reinventing the way their company creates, delivers, and captures value and many will point to government regulations (31% say it inhibits their company’s business model reinvention “to a large extent” or “very large extent”). While that may not be a surprising response from growth-minded executives, there are many new rules their firms need to adapt to — including rules covering cybersecurity, bank capital, AI, trade and climate. The new regulations, CEOs tell us, can be more of a hinderance than internal hurdles that they have more control over, such as competing operational priorities or internal bureaucratic processes.

While regulations may be an external force that CEOs have less control over, integrating competitive advantages from regulatory changes is one aspect that lies within executives’ power. CEOs need to recognize that they don’t have to have all the answers. The way forward is to enlist the help of leaders and employees in realizing value. To build trust with them, CEOs can start with transparency and invite employees to play an active role in their organization’s strategic response to new rules.

One silver lining for American chief executives: The regulatory environment plays a smaller role in inhibiting their ability to reinvent their business models compared to their global peers.

Takeaways

• Regulations are not merely a cost or an impediment. Adept executives often strategize on how to use the changing regulatory landscape to reorient their organizations to differentiate themselves from competitors and disrupt legacy companies. That’s particularly true in commoditized markets where small advantages can produce outsized market-share gains.

Turning to the economy, many CEOs are likely hopeful that their reinvention and growth plans may get a boost from a reduction in interest rates. Lower rates could help usher in the next economic growth cycle, lower the cost of borrowing to finance operations and ease some pressure on profits. Indeed, the Federal Reserve is now indicating it may reduce rates later this year, but that depends on whether inflation continues to cool and the labor market rebalances. The plans CEOs have for pricing and hiring may complicate the central bank's interest rate discussions.

By a margin of over 8-to-1, US CEOs are planning a significant increase in prices versus charging less. Fifty-one percent say they plan a price hike of at least 5% this year compared with just 6% of CEOs who plan to lower prices by that amount. CEOs are also leaning toward maintaining or adding employees, posing a challenge to CHROs who already face stiff competition for top talent. Three out of four (76%) respondents are planning to maintain or grow their workforce, including 38% who anticipate increasing headcount by a minimum of 5%.

Multinational companies may find that higher prices and tighter labor markets aren’t limited to the United States. CEOs in each of the other six geographical regions in our survey are equally as lopsided towards charging more and adding headcount in the next 12 months — globally, 54% of CEOs anticipate price hikes of 5% or more while 39% anticipate a 5% or greater increase in headcount.

Takeaways

• CEOs who approve price hikes should confirm that commensurate value is being created for customers through better products and/or experiences to avoid being undercut by competitors who don't need to raise prices to operate profitably.
• Fine-tuning your business model to deliver stronger financial performance can help support profits amid today’s uncertain macroeconomic conditions. Focused investment can help drive business growth strategies in turbulent times.
• Learn more about the five topics shaping the chief executive agenda in 2024.