CEOs Speak: Priorities from Transformation Leaders for 2024 Planning

Capital efficiency, smart pricing, and maximum flexibility among the conditions for business transformation

As 2023 draws to a close, and with planning for the new financial year in full swing, corporate leaders are going into the holidays with a lot on their minds.

The leading indicators, driven by high interest rates, expensive capital, and a significantly reduced investment propensity in general, suggest that companies need to prepare for a very different year in 2024.

The outlook – for the global economy, geopolitics, inflation, interest rates, and employment – remains hard to read. “This year's results, for most organizations, have been pretty good,” says Tuukka Sepp?, global leader of BCG’s Transform practice. “But the leading indicators, driven by high interest rates, expensive capital, and a significantly reduced investment propensity in general, suggest that companies need to prepare for a very different year in 2024.”

BCG’s experts in business transformation see five priorities leading the agenda in 2024.

Increased Need for Robust Scenario Planning

“It’s all about a plan that you can move up and down, as you need to, with a lot more flexibility in it,” says Kristy Ellmer, BCG Transform’s leader in North America. Outlooks vary by sector, with consumer and industrial goods perhaps most uncertain, and by geography.

• In the US, executives in several sectors have told Ellmer that, while many hear predictions of a “soft landing” in the economy they “don't feel it”. “They say ‘when we start to de-average the business, we're seeing weakness in parts of the business that really concern us.”
• In Europe, says Sepp?, some big industrial companies are experiencing order declines unseen for many years. Banks, on the other hand, continue to benefit from higher interest rates.

Renewed Attention to Cost of Capital

In the era of easy money, capital efficiency wasn’t a priority for many; now, cash management, balance sheet optimization, and capital allocation are right back on the agenda.

At the same time, companies still want to invest in costly long-term transformations toward digitization and sustainability. “People are asking about that now,” says Sepp?. “They’ve seen inventory build up, receivables build up, and they've seen the cost of all that go up because interest rates are high.”

Nuanced Pricing Strategies

While many consumer and industrial goods companies grew margins by raising prices in 2023, some pushed too hard and suffered falls in volume. “Going into next year, it's about doing this more intelligently, to play it right between volume and price,” says Christian Gruss, BCG Transform’s leader in Europe, the Middle East, South America, and Africa.

Flexible Cost Structures

With a lot of variable cost taken out, and further job cutting predicted in Q1, companies are turning to fixed costs and future capital investment. ?“I've been in a lot of conversations about a future blueprint for the strategic operating model,” says Gruss. “When it comes to fixed cost versus variable, organizations want to be able to flex as much as possible.”

Continued Focus on Efficiency

This goes for both operations as well as support functions. “Next to continued cost discipline, we’re seeing benefits from AI and the first experiments into GenAI linked to the cost and efficiency journey that a lot of companies are looking for,” says Gruss.

“It's bigger, deeper questions to be confronted now,” advises Sepp?. “Companies should create a robust, refined plan: just recognize that some these things are significantly more important than they have been and therefore there needs to be substantial change.”

More insights from BCG on Business Transformation: here

For more details, please contact:

Tuukka Sepp?, BCG Transform Global Leader

Kristy Ellmer, BCG Transform Leader for North America

Christian Gruss, BCG Transform Leader for Europe, the Middle East, South America, and Africa.

Rahul Aggarwal, BCG Transform Leader for Asia-Pacific