CEOs prioritise new business building for strategic growth, finds McKinsey study

New research from McKinsey has revealed that 50% of CEOs are backing the creation of new revenue streams through new products, services, or businesses as a clear strategic growth priority. Establishing new businesses that require developing new capabilities is increasingly viewed as a critical strategy for growth.

According to the report, McKinsey analysed the types of businesses that current technology, media, and telecoms (TMT) organisations anticipate launching over the next five years. It was found that 55% of TMT companies envisage generating data, analytics, and AI platforms in the next half-decade, down slightly from 62% last year.

TMT companies' belief that they will create physical products in the next five years increased significantly from last year (18%) and currently stands at 35%. Around 52% of these companies believe they will establish 'everything as a service' businesses, while 40% plan to introduce connected products businesses associated with the Internet of Things (compared to 36% last year).

The study sought insight from 1,000 senior business figures, including 150 CEOs and 150 investors and analysts in North America, Europe, and Asia. The findings reveal four emerging trends in new business creation impacting sectors globally.

Moreover, under worsening stagflation conditions, the study found that investment in building new businesses has grown. 60% of leaders today value backing a new venture more than they did two years ago.

CEOs also tend to venture into unexplored territory when the business climate deteriorates. They attempt to de-risk their companies and drive resilient growth by entering new areas such as AI platforms, everything-as-a-service models, digital retail offerings, unique ecosystems, and online marketplaces.

Leaders are also seizing the revenue opportunity provided by new initiatives, acknowledging that not all ventures will succeed. Businesses that introduced 15 or more new companies over the past five years experienced a 28% growth in new revenues. For every underperforming company, they launched 2.8 successful ones.

The research also indicates that one in two CEOs prioritises new-business building as a strategic growth initiative. They are finding support from both within and outside their organisations. Among CFOs, 55% perceive new business building as the most likely proactive measure their companies will implement in the coming year.

Ari Libarikian, Senior Partner of McKinsey, says: What's noteworthy about this survey to me is that even as companies navigate a period of macroeconomic uncertainty, they are focusing on both near- and medium- to long-term strategies."

"That hasn't always been the case in times of turbulence when most businesses focus more on near-term action and reaction. This helps explain why business building continues to grow as a business priority."

"More importantly, executives understand the need to develop a business-building capability to launch multiple businesses. This portfolio approach helps diversify risk and increase the probability of success and growth; the more they do it, the better they get at it."