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Generative AI set to fuel an increase in corporate ventures: McKinsey report

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A new study published by McKinsey & Company, CEO’s choice for growth: Building new businesses, has found that capital tightening and investor confidence has given established businesses a relative advantage over start-ups to launch new products, services, and businesses. The advantage has spurred six in ten leaders to place a higher priority on this generative growth opportunity than in the previous two years.

The study, which is the fourth edition in the series, identified that one in two CEOs now rank business building as a top three priority – the highest percentage since the pandemic. These organizations are entering into unchartered territories – such as building AI-platforms and everything-as-a-service models or creating new digital retail offerings, eco-systems, and online marketplaces.

The report explores the timely advantage incumbents have in 2024. It reveals seven clear trends:

1. Unicorn moment opens for established businesses as economic headwinds persuade incumbents to diversify and reinvent from within.
Six in ten (58%) leaders within established businesses are placing a higher priority on creating new products, services, or businesses than in the previous two years. This rises to seven in ten (74%) leaders in the top quartile for creating new revenue from new-business building, who see it as more of a priority than in 2022. And 56% of all business leaders see their balance sheets as a relative advantage over start-ups. Investors are also backing their approach, viewing the investments as less risky than other potential investments, including investing in start-ups. This combination of headwinds tips the likelihood of unicorn creation into the hands of incumbents.

2. CEOs and CFOs concur that venture building is a top growth priority, with 55% of CFOs expecting to take this strategic move in the next twelve months.
One in two CEOs now rank business building (creating new products, services, or businesses from within) as a top three priority – the highest percentage since the pandemic. 28% of CEOs in Europe rank it as their highest strategic priority, compared to 23% of CEOs in Asia and 22% of CEOs in North America. CFOs concur, with 55% regarding business building as the most likely offensive move companies will make in the next year, according to a parallel McKinsey survey. Overall sentiment amongst business leaders is that, within the current climate, prioritizing these efforts is the best approach to achieving resilient growth.

3. ‘Incumbent-preneurs’ are launching 2.8 successful businesses for every under-performing business, compared to a 1.6 ratio of their less-experienced peers
A top performing cohort of disruptive ‘incumbent-preneurs’ are pulling ahead of the competition by launching three or more new businesses per year, compared to the 1.4 average. This cohort is efficient, more likely to shut down underperforming businesses and has a higher success rate. The cohort establishes on average at least four formal mechanisms to support the launch of each new venture, such as adopting established frameworks or entering a new alliance or partnership. The returns are compelling: ‘incumbent-preneurs’ see higher success rates; launching 2.8 successful businesses for every under-performing business, compared to the 1.6 ratio of their less-experienced peers. The revenue returns are rewarding too. Organizations that launched 15 or more ventures over the last five years added 28% of new revenues.

4. Investors see new-business investments within incumbents as less risky than other options, expecting one in three to become viable large-scale ventures.
Two-thirds (65%) of public-equity investors say it would be advantageous for organizations to increase their investment in new-business building over the next year. They expect such ventures to generate higher valuations than if launched as an entirely standalone start-up or other entity. They also see the approach as an effective method for organizations to increase their overall valuations, and as a lower risk investment than startups. They are patient too, expecting a near four-year period before a new-business venture turns a profit.

5. Everything-as-a-service business builds are on par with data, analytics, and AI-based based businesses, as the most popular investments.
Everything-as-a-service businesses (35%) – such as subscription or remote healthcare – are almost on par with data, analytics and AI based new businesses (36%), as the most popular type of new businesses leaders expect to build in the next five years. The third most popular build is new physical products (including hardware). Dropping back slightly in priority this year are digital retail businesses (30% down from 34% in 2022), perhaps due to COVID-19 initiating a previous surge in builds. While the number of environmental-sustainability-based businesses (such as those with a focus on carbon emission reduction and green manufacturing) shifted up slightly from 29% in 2022 to 31% in 2023. Regional and industry trends were also recorded in the study.

6. Generative AI set to fuel an increase in corporate ventures, as 75% of investors expect it to increase business-building.
75% of investors expect generative AI to increase business-building investments. While 45% of business leaders agree that the advancement in generative AI is likely to increase their investments in new-business building over the next five years. AI is also the most favored enabler: 56% of leaders believe that AI will be necessary to launch new ventures over the next five years – double the share for any other specific technology. Other technologies enabling new business building include Internet of Things (27%), blockchain (17%), and physical robots (17%).

7. Diverse leadership teams outperform peers on performance targets, with businesses 25% more likely to be successful.
New businesses led by women account for 21% of new ventures, up from 14% in 2021. 73% of the businesses lead by women or leaders from diverse groups met or exceeded expectations, compared to 58% of businesses led by others. The data indicates that new businesses built by leaders from diverse backgrounds were 25% more likely to be successful. This strong correlation in higher success rates adds to the growing business case that diversity, equity, and inclusion (DE&I) adds real business value.

The study published by Leap by McKinsey garnered responses from more than 1,000 senior business leaders (84% are VP/GM/BU-lead or above, and 32% are C-Suite, including 15% CEOs) in 68 countries across 28 industries of which 36 respondents were from India. And nearly 150 public equity investors and analysts across North America, Europe, and Asia.

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