FRESH TAKES ON BIG IDEAS

For CEOs, this period of macroeconomic uncertainty is different. Unlike in previous downturns, such as the dot-com bust and the financial crisis, we’re seeing CEOs prioritize medium- and long-term growth and disruption rather than just buckling down for near-term resilience measures. The latest McKinsey Global Survey on new-business building bears this out: one out of every two CEOs said business building is a top three priority and their biggest lever for growth. 

Companies nowadays realize that they can’t just prioritize near-term resilience. They need to keep looking around the corner and building for the future. They’re asking questions like: Where is disruption coming from? Where will my business find new ways to drive revenue and innovate in new markets with products, services, and ways of serving customers? Then they’re building businesses around the answers to position their organizations for the future. Accelerating this wave is the emergence of generative AI, which makes companies think about how they can leverage large language models and all their data to speed up new-business building.

Why build a new business as opposed to adding features to an existing product or service? In many cases, the opportunity is in a fundamentally different space, and you can’t just piggyback; you need a different type of organization or a different product, or to serve different customers by using the strengths of the core business to scale into new areas. Also, building a successful new business typically requires an operating model that’s different from that of the core business. It’s more like a start-up, where you’re fast and agile, you’re testing and learning, and you’re building new technologies rather than leaning on legacy systems and processes. When you piggyback off existing businesses, as much as you try to speed it up, your maximum speed is limited by the constraints of the core business. 

These have long been truisms about business building, but gen AI makes this moment unique. Gen AI can create insights, synthesize information, and help people—both employees and customers—do things much more quickly, inexpensively, and efficiently. It lets businesses take all the data they have accumulated and analyze it to create insights that can then be turned into value-adds for customers. If the whole idea of business building is to move faster to deliver differentiated value or experience for customers, gen AI puts the process on steroids, allowing companies to move much faster. It’s a game changer. 

“The latest McKinsey Global Survey on new-business building found that one out of every two CEOs said business building is a top three priority and their biggest lever for growth.”

But scaling a start-up is very different from managing a large, mature business. It requires thinking about what will be disruptive over the next three, five, or ten years, not just over the next 24 months. Leaders need to think differently about talent and incentives. There’s also the challenge of running a multimodel organization, in which the core is moving at one speed and the new business is moving at another, with different sets of objectives, cultural traits, and ways of working. Managing these separate spheres at multiple speeds to get maximum value for the enterprise is becoming another core requirement for CEOs.

It takes openness to a different way of working and some patience. Companies are not going to see financial results in just three or six months. It’s going to take time. It also takes a willingness to work with different kinds of people, such as by hiring entrepreneurial and founder types rather than seasoned corporate executives. And leaders need to create organizational separation between the core business and the start-up, making sure they avoid any kind of political rancor between the two sides. At the end of the day, it takes a lot of intestinal fortitude. Many new ideas will fail. It’s not about batting a thousand. It’s about making the portfolio work and having a couple hits that can scale.

Interestingly, in our survey we found that CEOs put business building higher on their list of priorities than their direct reports do. That’s because direct reports typically have shorter-term objectives. They have goals they’re trying to meet and typically less incentive to look around the corner. The CEO’s challenge includes how to bring these people along on this journey. 

ABOUT THIS AUTHOR

Ari Libarikian is a senior partner in McKinsey’s New York office and the global leader of Leap, McKinsey’s business-building practice.