DANIEL SUSSKIND: Growth doesn’t come from the material world of things that we can see and touch, but it comes from the intangible, invisible world of ideas.
MATTHEW DUFFEY: Nobody can predict what’s going to happen in the next decade, but I think the one thing that we can all agree on is doing what you’ve done for the past ten years is not going to work.
DANIEL: If you’re wanting serious sustained increases in living standards, in per capita GDP, you’ve got to focus on how our economies produce and share new ideas about the world.
FEMI OKE: From PwC’s management publication strategy and business, this is Take on Tomorrow, the podcast that brings together experts from around the globe to figure out what business could and should be doing to tackle some of the biggest issues facing the world.
I’m Femi Oke, a broadcaster and journalist…
LIZZIE O’LEARY: …and I’m Lizzie O’Leary, a podcaster and journalist. Today, it’s time to completely reinvent your business.
LIZZIE: Think back to 2003. Pirates of the Caribbean was the film of the summer, The Da Vinci Code was first published, we were still buying music on CDs, and I was a baby journalist just graduating journalism school.
FEMI: And I was starting out at a US network that has three letters, and I won’t say any more. It was based in Atlanta. That’s a massive clue.
LIZZIE: That’s a big tell.
FEMI: Yes. So much has changed since then, Lizzie, and not just culturally either. The business landscape looks so different. Did you know that over half of the companies listed on the Fortune 500 that year have since gone bankrupt, been acquired, or otherwise ceased to exist?
LIZZIE: Wow! And it will probably be unrecognizable in another 20 years. Forty-five percent of those surveyed in PwC’s most recent Global CEO Survey said their company won’t be viable in ten years if they stick to the current plan. What could the world look like in 2044?
FEMI: With climate change, fast-moving technology like AI, fragmented geopolitics— who knows? How do the business leaders of today reinvent? All with the aim of keeping their companies successful well into the future?
LIZZIE: To help us work it out, we’ll be talking to economist and author Daniel Susskind about the role new ideas play in economic growth.
FEMI: But first, to help us really understand the business implications of an ever-shifting marketplace, we’re joined by Matthew Duffey, PwC’s Global Business Model Reinvention Leader. Hi there, Matthew.
MATTHEW: Hey, Femi, great to be with you.
FEMI: It’s good to have you. So, you talk with business leaders all of the time. What is on the top of their mind for them regarding a world that is constantly changing? What are they always worried about?
MATTHEW: Yeah, I think they’re always worried about some of those things you just referenced, the megatrends, you know: climate change, societal fracturing, technology disruption, regulatory changes, cybersecurity threats. But I think what’s really driving them now is that the fact that those trends are coming at them a lot faster. And I think it leads to that sentiment that Lizzie shared earlier, which was, you know, that four in ten CEOs think that their business model’s not going to be valid in the next ten years.
LIZZIE: So, thinking about future-proofing your business, how can leaders start to do that when they don’t really know what tomorrow looks like? I mean, let alone the next ten years?
MATTHEW: It’s about making the choices, but then also having the conviction to stick with those choices and make those bets long enough to see the payback. So, nobody can predict what’s going to happen in the next decade. But I think the one thing that we can all agree on is doing what you’ve done for the past ten years is not going to work going forward. And so for us, it’s all about truly embracing business model reinvention. Like, do we have all the right answers? Do we know exactly how things are going to play out in the next ten years? No, but you’ve got to start doing something or I think you do risk being one of those companies that you referenced at the beginning, Femi, being, you know, half the Fortune 500 has been disrupted in the past 24 years.
FEMI: Oh, you’re giving us so much to chew over already, Matt, and we are going to hear about how business leaders could reinvent to create new value when we come back to you. But before we do that, let’s focus on new ideas. They’re an integral part of change, and could they be the key to ultimate growth for the next 20 years?
LIZZIE: Which is a very tough question to answer. And that’s why I spoke to Daniel Susskind. He’s a professor at King’s College London and Senior Research Associate at Oxford University and the author of Growth, A Reckoning. And I began by asking him about where the idea of economic growth came from in the first place.
DANIEL: Before the 1950s, almost no policymakers, politicians, economists, anyone really, was talking about the idea of economic growth. Even if the thought had occurred to people before the 1950s, that they wanted to pursue economic growth, it would have been almost, kind of, practically impossible to do so. So the first reliable measure of how big the economy actually is, is only invented in the early 1940s—what’s known as gross national product in the 1940s and then becomes known as gross domestic product as late as the 1990s. I think it’s quite important just to keep in mind it’s a very modern, very recent phenomena.
LIZZIE: Can you talk about where growth has been important to society, where we have, we, the very royal “we,” have benefited from it.
DANIEL: Growth is associated with almost every measure of human flourishing, whether it’s people having a higher standard of living, whether it’s societies living for longer and healthier than ever before, whether it’s funding things like cracking the genetic code and, you know, starting to explore the stars—you can see growth’s promise almost anywhere you look.
LIZZIE: Let’s talk about the price of that growth.
DANIEL: Yes. When you look at many of the great challenges that we face today, whether it’s climate change, whether it’s growing inequalities in society, whether it’s the sort of health and function of our local places and communities, you can see growth’s fingerprints everywhere you look. What we face around the world is what I call the growth dilemma. This tension between the promise of growth and the price of growth. This feeling that we desperately want more growth, and yet a kind of feeling that we feel with equal intensity that we really want less of it as well.
LIZZIE: This is where I think you think about growth differently than someone just looking at GDP numbers; the idea that growth could come in the form of ideas. Can you explain that a bit and talk about how kind of generating them is the thing?
DANIEL: So I think, despite the fact that growth is so extraordinarily important for the reasons we’ve just described, we know surprisingly little about its causes. But having said that, I think there is one thing that we do know about growth, and this is, growth doesn’t come from the material world of things that we can see and touch and drop on our feet, but it comes from the intangible, invisible world of ideas. In other words, growth doesn’t come from using more and more finite resources, more land, more machines, building more factories and so on. That’s not where growth, as I understand it, growth in GDP per capita, that’s not where sustained growth in that comes from. It comes instead, not from using more and more finite resources, but discovering new ideas for making use of the finite resources that we have. In other words, it comes from technological progress. If you’re wanting serious sustained increases in living standards, in per capita GDP, you’ve got to instead focus on how our economies produce and share new ideas about the world.
LIZZIE: So, if you are running a company, how do you free up the kind of time and potential, maybe of people who aren’t even thinking about this, how do you do that?
DANIEL: I spent a large chunk of my career thinking about the impact of technology and particularly artificial intelligence on work and society, and thinking about how you can use AI in organizations. And I think, you know, one of the big challenges is exactly what you’re hinting at, which is how do you change the wheels on a moving vehicle? The answer is that you don’t try and do that, that what you do is you try and develop alongside your existing organization, smaller, more nimble, more experimental setups that can run alongside your existing operations. And then when the time comes, you can move more and more over to the new setup, new operations. I think the tendency in thinking about technology is to ask, How can I use the technologies that exist today just to make my life a bit easier, a bit more efficient, and a bit more effective? But there’s then a very different way of thinking about technology, which is, How do I use technology to solve the problem that I solve in a perhaps completely different way? One of the things I find particularly useful in that kind of conceptual stage is blank sheet thinking, you know, quite literally to start with a blank sheet of paper, forget the particular institution that you’re part of, forget the particular role that you have, and instead ask, you know, given the sorts of technological possibilities that are available, How might I do things in very different ways if I were unconstrained by the inherited practice? And so on.
LIZZIE: I’m just thinking about some of those inherited practices—particularly if you run a public company that has shareholders and investors who want to see a very predictable return and structure, that’s a challenge.
DANIEL: One of the big lessons, I think, of the last 70 years or so is that what you decide to count becomes what counts. And that is, in a way, what happened with GDP, and in my view, why we find ourselves in the situation we find ourselves today, where there is this kind of, this feeling that we have pursued growth to enormous success and enormous kind of flourishing in lots of directions, but have neglected these other dimensions that aren’t captured by the sort of narrow GDP measure: the state of our environment, the level of inequality in society, you know, the functioning of our politics, the health of our labor markets. And so, you know, all these different dimensions. And I think there is an analogy there for business leaders too, thinking about what they choose to count and, in turn, what they choose to think counts.
LIZZIE: Let me ask you a policy-wide question and then a very specific company kind of question. The levers that policymakers traditionally have to pull—tax policy, government spending, regulation, to some degree monetary policy—do those feel appropriate to driving growth in the way you imagine it?
DANIEL: What you describe are, in my view, absolutely critical. We cannot simply charge on and pursue more growth, that would be to ignore the immense price of growth. What we have to also do is change the direction, change the type of growth that we enjoy in society as well. I think, when many people— business leaders, politicians, policymakers—talk about growth, the sort of metaphor they have in mind is that it’s almost like they’re a train driver sitting in the cabin and, you know, they can pull back on the throttle and slow down or push forward on the throttle and, you know, try and go faster. But essentially their direction of travel is kind of fixed by the rails that are set down for them to trundle along. And I think that’s a mistake. I think a far better metaphor is a nautical one. These people are not train drivers, but they’re sailors on a boat, and they can raise the sails and go faster, or put them down and go slower. But they’ve also got an immense amount of discretion in terms of the direction that they travel in as well. We need to try and change the type of economic growth that we enjoy in society. And the way in which we do that is by changing the incentives that business leaders, that individuals face in society by changing, say, taxes and subsidies, laws and regulations, social norms and customs, to encourage people to develop technologies that create more prosperity, but also don’t damage those other things that we care about. A really good example of this in practice is what has happened with respect to the trade-off between growth and the climate over the last few decades. So, back in 2007, the British government published the Stern Review, which was the first report of its kind.[S(1] It was written by Sir Nicholas Stern into the economics of climate change. A central prediction in that report was that if we wanted to meet our temperature goals, in order to reduce emissions by 80%, it would cost us 1% of GDP per year. The next year, 2008, Nicholas Stern comes forward and says, “No, no, I got it wrong. It’s even worse than I thought. It’s actually going to cost us 2% of GDP a year.” Fast forward, though, to the year 2020, if you look at the report of the Climate Change Committee, which was tasked with advising the British government on the challenge of climate change, one of the central conclusions in that report was that the cost of reducing emissions entirely, so, eliminating emissions, not simply reducing them by 80%, but eliminating them would be half a percent of GDP per year. In other words, the trade-off between growth and the climate had weakened substantially. And the question is, why is that? And the answer is that essentially three decades or so of changes in taxes and subsidies, rules and regulations, social norms and customs just transform the incentives that people face in societies.
LIZZIE: Before I let you go, let’s go back to that C-suite executive or mid-level executive who’s listening. And what do you want them to walk away with in terms of how they can actively encourage the kind of growth that you’re describing?
DANIEL: One is, I think this lesson about what you count ends up being what counts is very important. I think there’s a really interesting opportunity for greater participation and greater deliberation among, in the case of the national economy, citizens, and in the case of large organizations, employees, in determining what it is that the company is going to set out as what it chooses to measure. I think another big theme that I’d want to say is this point about, that contrast between the two metaphors, the metaphor of the train driver and the metaphor of the sailor. They have a lot more control, a lot more choice than they might commonly suppose. The decision they are making is not simply more or less technological progress, but it’s also what kinds of technological progress. And I think that’s very important too. Sometimes these trade-offs between growth and these other things that we might value and care about cannot be weakened or softened or avoided, and I think our unwillingness to recognize that there are hard trade-offs have led us into some pretty difficult situations in recent years.
LIZZIE: Daniel Susskind, it has been a pleasure talking with you.
DANIEL: Such a pleasure. Thank you so much for having me. Really enjoyed our conversation.
LIZZIE: Matthew, there is so much to think about there. Daniel talked about, really, the importance of new ideas being central to delivering growth in economies. And I wonder if that resonates with you. Do the businesses that last, that are future-proofed, have the new ideas?
MATTHEW: I really liked Daniel’s metaphor: companies are either kind of running the train down the tracks, or they’re a ship that’s navigating turbulent waters to get to an end point. And I really put business model reinvention and what we’re advising companies on to really be more of that ship navigator. We really think companies need to be thinking about, what else is out there? Where else should they be steering their companies? It gets back to coming up with those ideas and really testing the ideas in the market, and then having the conviction to stand behind those ideas and scale them up and go out and fundamentally change your business to align to those new ideas that you think are going to win.
FEMI: There are some ideas that are going to be huge, that really reinvent the business model, and there are going to be some that are part of a business’s natural evolution. How do you tell the difference?
MATTHEW: So I think of what we would call business transformation. That is, taking what you do today and doing it in a more efficient manner. The underlying business model has not changed. But at some point, there’s only so much efficiency you are going to be able to accomplish before somebody else is able to offer that same offering to a customer in a better manner, right? And the customer will shift to them. Right? And there’s a lot of untapped potential there. I don’t want to say, like, every company, you know, shouldn’t be doing those types of things. But this is an end-strategy, which is to go do that type of work extremely well. Run the railroad as you will, as efficiently as possible, but at the same time, get out in the market, understand what your customer really wants, understand if there’s an unmet customer need. And that’s where you get into the concept of a true business model reinvention. Because if you’re going to go and meet a customer in a different manner and provide them a new service or a new offering, the current business model that you run, your current operating model, your inherent processes, even the culture of your company, it’s not fit for that. And so that’s why it becomes such a massive undertaking. But you have to do that if you’re going to provide that unmet customer need in the manner in which that customer has indicated that they would like to be served.
LIZZIE: OK, but brass tacks. There are a lot of different directions that a company could go in. How do they pick the right direction? That feels like a scary process.
MATTHEW: It is. And in terms of making that decision, I go back to, it’s truly understanding your customer, having as much data as possible, making the decision to start going down that path and then sticking with it when a quarter goes by, two quarters go by, maybe it hasn’t gotten the traction, but knowing that for the long haul, this will pay off. I think the real challenge comes back to capital allocation. Tactically, what we recommend to see is that they run their business as efficiently as possible. They take some of that efficiency gains, and I’m going to redeploy this into this new business. I’m going to seed fund it for a period of 18 months. Let’s see if that gets the returns that we’re looking for, and start there. And then once it does, then you begin to really scale that up.
FEMI: Matthew, if you could give us an example of one of the best ways a company has taken an idea and basically just reinvented either the way they make money or the way they do business.
MATTHEW: Yeah. There’s a bank in the UK that we actually started working with. They were a bank that came out that said, we want to be [a] digital-first bank, which was something that had never been done before. Now, they are still a digital bank. But what they created was an asset that they are now licensing to other banks in the form of software. And so, while, yes, they are a traditional digital bank, they are actually making significant part of the revenue off the software that they sell. So they are now a software company.
FEMI: Matthew, let’s talk about executive commitment from the very, very, very top, from the CEO level. If they are not intending to stay for a decade or more, what is their motivation for actually coming up with new business models, new ideas, fresh ways to do business?
MATTHEW: You know, let’s be honest. If a CEO is not going to be around in… ten years is a long time. Let’s call it even six to eight years. Why deal with it? Right? Like I can be successful. I can drive my current business model to what my stakeholders want me to deliver, and, you know, everybody wins. I think what we’re seeing though, the megatrends and the disruptions that are coming in the market are coming so fast that the potential for these business models to be disrupted, it has the potential to happen more in a four- to five-year span than a ten-year span. And I think that ends up creating a little bit more of a burning platform for current C-suite executives to realize that the pace and speed of this disruption that’s coming at them is going to be something that they can’t leave for their successor, or it’s going to have a material impact on the company. And so that’s what we’re seeing now is the true motivator for CEOs to have to act now.
LIZZIE: Matthew Duffy, thank you so much for spending the time with us and sharing your insights.
MATTHEW: Yeah, thanks for having me.
FEMI: Lizzie, our conversations from Matthew and Daniel, my takeaway is that this is a really exciting time if you’ve got a sense of being able to take a risk as a business. It’s new ideas, perhaps a new business model. You have to go for it in order to thrive, right?
LIZZIE: Yeah, I think it’s both exciting and scary, which is sort of what you’re getting at. The idea that you have to take some risks. And keeping your shareholders happy, and multitasking, essentially. That’s incredibly tricky, but also as we see by the survey, incredibly necessary if you want your firm to stick around.
FEMI: Well, that brings us to the end of this episode. Tap follow or subscribe in your podcast app to get every episode as soon as it launches. And if you’ve enjoyed this episode, please leave us a review—that will help others to find Take on Tomorrow.
LIZZIE: In the next episode of Take on Tomorrow, we’re heading to Peru for a live episode recorded on the ground at APEC.
FEMI: 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.