In a world marked by shifting geopolitical equations, rapid AI adoption, and capital reallocation, business leaders are navigating a future that’s both uncertain and full of opportunity. The questions being asked today are not just about growth but where it will come from, how it will be unlocked, and who will shape it. Not surprising that the criticality for leaders to learn and unlearn is far more severe today than it was decades ago. In an exclusive conversation with Fortune India, Asutosh Padhi, senior partner and global leader, firm strategy, McKinsey & Company, shares his insights on why and how business leaders need to embrace change to stay relevant in the new era. Edited excerpts: 

In today’s environment, how are CEOs recalibrating their strategies in light of a fundamentally different geopolitical landscape than it was in the past?

Geopolitics is among the top three priorities, and likely among the top two for many companies. Second, in my conversations, what we're seeing is that the focus is very much around the value creation potential—whether it's upside or downside—from geopolitics. So, for example, when I talk to the CEO of a semiconductor company, and we have the conversation on how much of the enterprise value is linked to geopolitics, the answer is, in many cases, as much as 50-60% of the value could be linked to it. The question then becomes: What do you practically start to do about it? And this is where you come back and say: First and foremost, if you developed your strategy more than six months ago, it's actually worthwhile to go back and pressure-test it again. Second, think about your customer footprint and ask: What are the places where you want to emphasise? What does that look like? Third, about supply chain footprint, we need to rethink that and ask: What are the opportunities in there, both from an upside and from a downside protection standpoint? And lastly, how do you start to think about those different aspects of the operating model, especially back office, IT, etc. So practically, what we're seeing is companies starting to reevaluate and ask: What really matters here? And it's all from the lens of value creation—both upside and downside. The specifics, of course, vary by company, and even within the same industry, two companies can have dramatically different starting positions and, hence, dramatically different outcomes.

Can companies really think about being innovative and disruptive when supply chains are getting fragmented? Or is it now just about getting the factory in order? How do you see that trade-off?

I would say that now, like at no other point, the opportunity to innovate couldn’t be higher than it is today. You know, earlier I mentioned geopolitics as the No.1 priority. But right now, there's also this intersection of geopolitics and AI, which I think is one of the biggest generational disruptions of our lifetime. And it’s the combination of these two forces that is creating the biggest opportunities.

For most companies, this is the time to start thinking seriously about how to use AI. We’re still at the very early stages of adoption. In fact, in today's world, I’d say only about 10% of companies are seeing real business value from AI, even though about 90% have tried to deploy AI in some form or fashion. The tangible impact is still limited to a small number.

Let’s take industrials, for example. How do you use AI to dramatically improve time-to-market? We're not talking about 5-10% gains, but we’re seeing the potential for 30-40% improvement, and that’s significant. So, while supply chain issues are real, I’d say the innovation imperative is just as strong. And right now, what we’re seeing is quite exciting.

AI is clearly improving go-to-market efficiencies and compressing time cycles, but are we overestimating its role as the engine of innovation? Are companies treating it as a Holy Grail because of the inability to comprehend what lies ahead, and in doing so, are mistaking the catalyst to be the future itself?

I would say that AI will do two things. Before we even start looking at all the different applications of AI, there are two key levers. One is: you can dramatically improve the efficiency and effectiveness of what you're already doing today. The second is that it gives you a chance to fundamentally rethink many aspects of what you’ve historically done.

So, for example, let’s say you’re a company that has equipment out in the field — for example, an HVAC company. Historically, you might look at the business in terms of how many commercial service contracts you could sell alongside the product.

Now, AI enables two things there: First, you can use predictive analytics to improve how you sell—that is, better predict which customers are more likely to buy which type of contract. Second, what you sell also starts to change. It’s no longer just about selling a service contract; it’s about moving toward guaranteeing uptime.

That idea, outcome-based contracts, has always been around, but now AI gives you the ability to deliver on that promise consistently, predictably, and at scale.

If we look at past disruptions, for instance, post the global credit crisis, we saw the rise of Apple. The digital boom gave rise to SaaS giants such as Salesforce. Each wave created standout product-centric companies that redefined their category. With AI, where do you think the next big, breakout product company might emerge?

Today, when the discussion about AI happens, right? I think often the conversation is a lot about what the US is doing or what China is doing.

One of the things that, personally, I would hope is that, as we go forward over the next two or three years, some of the most interesting companies actually start to emerge from places such as India.

And I think all the conditions for innovation and experimentation are in place. It doesn’t necessarily have to be just in large language models or whatever the next generation of this may be. But I think the ability to start using AI in many, many different forms, whether it's the application of AI or even foundational model work, is definitely there.

We’re still at the very, very early stages of where this technology will go. And I think you can certainly start to make the case for why a place such as India should be thinking about a real leapfrog opportunity and how to make significant advancements in AI relative to where the country is today.

But while India has always had a strong IT services talent advantage, we never quite cracked the product game. Now, in the AI era, we seem to be at a similar crossroads. The global giants, OpenAI, Anthropic, Gemini and the like, are building for the world. India, meanwhile, is taking a more sovereign, inward-looking approach, building LLMs tailored for Indian languages and contexts. Are we again at risk of missing the chance to build globally competitive, world-beating AI products?

There are many ways in which India can compete in the AI space. It doesn’t have to be only about building large language models. It could very much be about the application of AI in innovative ways.

If you take a step back, India has been one of the fastest-growing geographies globally, in terms of GDP growth and overall economic momentum. The real question is: as we start to feel the tangible impact of AI, what does that mean not just for the domestic market, but for India’s global position?

India is on track to become the world’s fourth-largest economy. So yes, the domestic opportunity is massive, but that doesn’t mean the opportunity is only inward-looking. There’s also a real opportunity for Indian companies to expand globally, to build AI-led businesses that can compete on the world stage.

If you slice the last three decades, global growth has clearly decelerated, from around 4% between 2000 and 2010, to 3.5% in the following decade, and now trending toward 3% or lower. Of course, we’ll still have pockets of high-growth economies, but net-net, global growth is shrinking. In such a world, where growth becomes scarce and competition intensifies, is consolidation not just opportunistic anymore, but existential?

There are always varying views on what aggregate global growth will look like, and the specifics of the outlook can differ quite a bit. But what we consistently see is that the attractiveness of different sectors varies dramatically.

For instance, the McKinsey Global Institute has done research identifying the 20 biggest growth industries globally, and in many of those sectors, we’re seeing not just single-digit, but consistent double-digit growth projected over the next 10 to 15 years.

If you’re a CEO, the real question you should be asking is: What role can my company play in capturing value from those high-growth sectors?

Now, in more mature industries, where growth is naturally slowing, companies do have to look at other mechanisms, and that often includes acquisitions and consolidation. A slowing growth rate is certainly one of the factors that drives industry consolidation, though, of course, there’s a broader set of drivers at play as well.

Traditionally, private equity firms were seen as financial engineers — flipping businesses, optimising costs, and exiting within a few years. But in recent years, we’ve seen the emergence of what you might call consolidation capital by PE players who are not just writing cheques, but also running companies, consolidating fragmented sectors, and showing operational depth. So, are we entering a phase where old business houses and conglomerates may actually choose to sell out to PE, rather than lead acquisitions themselves? In other words, is private equity becoming the new industrialist?

Globally, we’re seeing that private equity activity is going to continue to grow in importance and expect it to remain very, very important over the next decade or so.

In the near term, though, private equity activity will be heavily influenced by macroeconomic factors, particularly the interest rate outlook across geographies. And those answers will vary. The level of deal activity, for instance, will depend a lot on where interest rates land — and that’s driven by inflation and other local economic conditions, which differ from market to market.

But if the question is whether PE deals will continue to be a major driver across many geographies, the answer is absolutely yes. Will PE be the only driver of consolidation? The answer is “No”. But will it continue to rise in significance, and remain a very key force in shaping industries? The answer is "Yes".

The question is especially relevant in a market such as India, where we have a unique mix of old, legacy businesses and high-growth new-age companies. We’re seeing increasing consolidation activity driven by private equity, even pension funds, not just as financial sponsors, but as long-term operators. So, are we entering a phase in India where PE and pension capital will play a much more dominant role in reshaping industry structure? And will this trend look meaningfully different in an emerging market such as India compared to how it's playing out in developed markets?

How India chooses to progress on private equity is still at a very, very early stage. If you look at private capital in India compared to other geographies, the country is very much in the early phases right now. There are a number of ways in which the private equity market in India could evolve. I think you're outlining one of those possible paths, and it’s a plausible one. But at this point, I’d say it’s still hard to predict the exact nature and direction of how this will unfold. It doesn’t necessarily have to follow the same model we've seen in other countries.

With the structural shift in the cost of capital, we’re seeing a clear change in how businesses are funded and valued. India, which was a major beneficiary of global private capital flows, is already feeling the heat. Unicorn creation has slowed, and investors are far more selective about whom they back. So, how do you see this playing out in India? Is this a temporary adjustment or a long-term re-rating of private markets? 

So, let me put it this way. I think there are two parts to this: there’s a demand side and a supply side.

On the demand side, I still believe the opportunities for innovation are only going to go up, not down. As companies start to use AI more meaningfully, I think we’ll see a lot of exciting possibilities open up. One of the remarkable things about India is that 30 years ago, we hardly had any unicorns. Then the number of unicorns shot up. And now, with the use of AI, the break-even point for investment needed to build scalable businesses actually goes down dramatically. So that’s one part of it.

On the supply side, and I think you’re right to point this out, if we are in a world with persistently high inflation, then interest rates are likely to remain high. That does impact the volume of deal activity we can expect to see. Now, none of us has a perfect crystal ball, but yes this does represent a structural shift. If you consider that we’ve had 25+ years of relatively low interest rates, this change is significant. At McKinsey, we refer to this as entering a "new era" and in this "new era", everything we do: from capital allocation to business building will start to look and feel very, very different.

What are you advising your clients in terms of how to navigate through this storm?

If you go back and look at history, you’ll see that the periods of major disruption are often the most consequential periods for companies. The actions leaders take during these times can create the maximum upside, or conversely, lead to maximum downside.

In the conversations I’m having, the two themes that come up repeatedly are geopolitics and AI. The combination of those two forces is where we see both opportunity and disruption.

Take AI, for example. The mindset we’re seeing now is: while we can’t predict the future, what is the set of actions we can take right now to experiment and start learning?” It's less about certainty and more about organisational learning, but more about trying different approaches to understand what AI practically means for their business.

From a geopolitical standpoint, the thinking is similar. Instead of trying to solve for every possible scenario, we’re asking: What are the clear opportunities we can act on now?

For example, India–Japan is likely to be a promising trade corridor, regardless of what happens in other parts of the world. So, the conversation becomes: If you’re an Indian or Japanese company, are you fully tapping into that opportunity?

That’s how we’re framing it with clients by breaking it down into practical, near-term actions that companies can take to navigate uncertainty while staying focussed on long-term value creation.

Today, what would you say are the traits of an exceptional CEO? If you look a few years ahead, what kind of mindset or energy does a CEO need to bring to the role? Have the fundamentals of leadership changed, or is it still the same leadership playbook?

The definition of leadership in many ways remains the same. But if I had to call out one trait that’s becoming much more important today, it’s the ability to learn quickly. Now, learning has always been important — there’s never been a time when it wasn’t. But what’s different now is that we’ve entered a period where lifelong learning isn't just a concept, it's a necessity. In the past, learning cycles, the time between when you needed to re-skill or rethink your approach might have been 10 or 15 years. Today, those cycles are getting dramatically shorter.

For example, at McKinsey, we’ve introduced a model called Lilli, which is now being used by 95% of our consultants. It’s changing the very nature of how consulting is done. In addition, we now have around 12,000 agents working side-by-side with us, helping us improve what we do. All of this has happened within just the last 12 months. None of this was in place two years ago. So, the speed of change, and, therefore, the need to learn, adapt, and reinvent constantly, has become much more intense.

Hence, the need for a learning mindset is critical now than it has ever been before.

In the traditional IT or digital era, the CIO or CTO largely owned technology decisions, and the CEO didn’t necessarily need to know the details. But AI is different; it’s capable of disrupting business models, go-to-market strategies, and even how companies compete. So today, if CEOs do not understand how AI could disrupt their industry, it’s they who will take the fall. Do you believe CEOs are truly aware of the scale of this risk?

So, when I talk to CEOs and ask them, 'What are you actually doing within the institution?', I generally see two categories of responses.

Category one is where the CEO says, 'AI is fully embedded into what we do and it’s the responsibility of the business leadership, not just the tech function, to drive it.' These are the companies where we’re seeing the most success.

Category two is where the CEO says something like, 'Let me check with my CIO or head of digital.' And in those cases, it’s already clear that they themselves haven’t fully embraced or internalised what AI can do. And that is not a model for success.

What percentage of companies are still in that “Category Two” space? In that sense, are we headed towards an era where you will have two buckets of leaders: one group that’s learning fast and engaging deeply with AI, and another that still hasn’t fully grasped its implications?

If we go back, even before the rise of AI, what we saw was a clear difference in productivity across companies in the same sector. There’s always been a small group of companies we call “productivity superstars,” which consistently pull further and further ahead of the rest. Now, with AI, I believe that gap will only widen. It’s going to become even more stark. And that has significant implications for how industries evolve and how value is distributed. As of today, the view is that only about 10% of companies have started to see real business value from AI, and the remainder 90% are struggling because they are still in the experimentation or early adoption phase. If we were to have this conversation a few months down the line, I would hope those numbers look quite different.

So, in that sense, does the capital allocation decision that a CEO makes today, particularly toward technology or AI-led investments, need to be significantly higher than traditional IT spending? Does it require a fundamental rewiring of how capital allocation decisions are made?

In terms of rethinking how companies are run and how CEOs prioritise their time, effort, and investment, the answer is yes. What we’ve seen is that many companies have already made significant investments in IT but haven’t seen corresponding business value from it. So, the challenge isn’t just about increasing the dollar amount but about spending it differently, in a way that is different than how you would have historically spent it.

The point you made earlier is precisely what we’re seeing in BFSI companies in India. If you look at their annual reports, tech spend has gone up significantly, yet their service architecture has largely remained the same. In fact, some are even facing regulatory censure due to recurring IT snags. Many of these CEOs are seasoned bankers who understand the legacy pipes well but are reluctant to truly let go of them. What we’re seeing is a patchwork of APIs layered on top of outdated infrastructure, which isn’t really innovation. At least in Indian BFSI, that seems to be the norm. How do you see that?

I don’t know the specifics of the cases you’re referring to, but I do recognise the pattern you're describing. But there are three things that are relevant today. One, AI and digital transformation must be CEO-level priorities; second, they have to be led by business leaders, not just IT or digital functions; and third, you must tie everything back to business outcomes. These are not 3-to-5-year investment cycles anymore. With AI, you need to start seeing tangible results within 12 months. The economics of AI have changed, the deployment cycles are much faster, and companies need to rethink everything — from architecture to operating models — in that context. There are real opportunities to rethink all of that.

On a broader note, if we’re also entering a new global trade order with shifting trade corridors, will smaller, regional trading blocs replace the older global architecture?

What we’re seeing is that between now and 2035, as much as 30% of global trade could shift across different corridors. We’ve tried to map that out by identifying high-potential trade corridors where new opportunities could emerge. Of course, we can’t predict the future with certainty, so we’ve laid out different scenarios. But in every scenario, there is a significant amount of disruption compared to the status quo.

So, what does this mean for an Indian company today? Traditionally, the U.S. has been viewed as the most attractive export market. But given the shifting trade dynamics and geopolitical realignments, should Indian companies now be looking at exports and international markets differently than before?

I would say that Indian companies today are facing a big, big opportunity. Yes, given the geopolitics, there will be both headwinds and tailwinds. But for many companies, this could actually be one of the most significant strategic opportunities, especially as global players start to rethink their supply chains and are looking at building credible alternatives beyond China. And it’s not just about the U.S.–China dynamic. As I mentioned earlier, corridors such as India–Japan could become major new routes for trade and cooperation.

So yes, this is a consequential period, but to truly capitalise on it, there’s one more thing I’d add: competitiveness. You’ve got to build world-class companies with global benchmarks in capital efficiency, technology deployment, labour practices, and so forth. That part is crucial.

How do you see India playing the ‘China Plus One’ strategy? Do you think India genuinely has a shot at scaling up manufacturing, especially given that sectors beyond electronics haven’t fully delivered on expectations?

I believe this is a tremendous opportunity for India. Now, of course, the specifics will vary by sector and company, even as China will remain a part of the equation. But I think the focus should really be on what this moment can unlock for India; part of it is about exports. But I would underscore two things that will determine whether India can truly capture this opportunity: competitiveness and innovation. The combination of those two things is what it will take to be able to capture the full opportunity. And I believe this is the kind of moment where that transformation can happen, as the economics are quite favourable right now

The whole narrative around ESG has fetched companies both attention and dividends over the past few years. But today, with shifting leadership attitudes towards climate change, especially in the U.S., will ESG lose its relevance? Are we moving toward a real “net-net-zero” in impact?

If you look at the energy transition, for example, which is one of the biggest themes within ESG, the underlying logic for it will continue. But the nature of that logic is shifting. It’s moving away from being regulation-induced to becoming more economics-led. In other words, companies will still make those investments, but increasingly the justification will be economic. That’s the change we’re going to start seeing more of. Now, when it comes to the values- or ethos-based aspects of ESG, the parts that are deeply embedded in a company’s identity, I think those will remain intact. But for the more significant, capital-intensive investments, the economic logic will continue to evolve.