Will your business model still be viable in ten years’ time?

Veronique Roos-Emonds Partner, Raad van Bestuur, PwC Netherlands 16/01/23

Despite the current hectic situation, it’s important to keep thinking about transformation

Although inflation fell again in the final months of 2022, the forecasts for 2023 are anything but rosy with economists anticipating a cooling down of the Dutch economy. That’s reason enough for many companies to continue the approach initiated last year, namely to reduce costs and take short-term actions to improve results. Meanwhile, however, it’s important to keep considering the long term too. The energy transition is underway and, along with technological developments, will force most companies to embark on a major transformation over the next ten years.

PwC's marketing department sent me a list of the most frequently searched terms on our website during the first week of this year. You won't be surprised to hear that the number one currently is ‘inflation’, with visitors entering ‘energy transition’ far less frequently.

This list accurately reflects the results of PwC's 26th CEO Survey. The challenging economic conditions seem to be prompting many CEOs to adopt a more short-term view. To ‘survive’ rising interest rates, high commodity & energy prices and labour market scarcity, they're aiming mainly for short-term savings. The first reports of cutbacks have already appeared in the media.

Investment for the longer term

Fortunately, this doesn't mean that every company is only focused on the here and now. In actual practice, many companies are also looking at how to reduce costs quickly so as to make long-term investment possible. Our global survey revealed that almost half the CEO respondents are aware that their current business model will no longer be viable in ten years' time.

These CEOs realise the need for transformation. The question, though, is whether they’ll start doing so in time and not get too distracted by issues such as new regulations and compliance requirements that also require attention and sometimes investment.

Energy transition pressure set to increase

After all, the clock is ticking and pressure to implement the energy transition is set to increase, whichever way you look at it. The EU’s Corporate Social Responsibility Directive (CSRD) means that soon some 50,000 EU companies will need to comply with detailed sustainability reporting standards. For listed companies, this will apply from the 2024 reporting period, and for others from the 2025 reporting period. That means they also need to think about an ESG strategy, yet many have yet to engage with a genuine, intrinsic transformation.

Radical transformation

Given the pressure on current results and the complexity of the energy transition, it's perhaps understandable that companies are putting any radical transformation on the backburner for the time being. But my advice would be to not postpone for long as the process of transforming takes a lot of time. Regardless of how challenging the circumstances are right now, I recommend that directors bear in mind the following points:

The time for a holistic approach is now
We are facing a combination of economic problems, investment challenges and long-term trends, not a single crisis in isolation. Holistic action is needed with a sound understanding of all the changing conditions and requirements for your organisation. Examine your entire portfolio, assess the expectations and see where the most value can be created.
Your business model in ten years’ time
Consider now what your business model will look like in a decade, taking into account technological developments and ESG requirements. Nobody has a crystal ball but it's essential to think about your business in five to ten years’ time. What will your market look like and what will your customers expect from you in 2033?
The path to your new business model
Once you’ve mapped out your future business model, it's important to lay out the path towards achieving it. What will be needed? Implementation takes time and solid investment so consider where you can make an immediate start. What can you no longer postpone?

These may be relatively simple steps but there’s a risk they can get relegated to the background in the current hectic environment. Remember, however, that ten years will fly by. Take the time to think about your list of priorities now and implement the steps that will increase the viability of your business.

CEOs investing in future-proofing

Many CEOs are raising prices and cutting operating costs to mitigate the effects of inflation and the cooling down of the economy. At the same time, however, PwC's 26th CEO Survey shows that a large proportion of the respondents are investing in future-proofing. That’s consistent with the urgency felt by many of them to transform their organisation into one that can remain viable.