This is a guest article from Jeff Gibson of Economics Designed, an expert on Business Strategy
When was the last time you did a broad-based strategy review for your company? Not an annual planning event, but rather an in-depth review of all aspects of the business? Perhaps you’ve seen headlines warning of a rough business environment ahead. Now is the time to get behind the headlines and understand the implications for your business.
Why is a fundamental business strategy review important now?
We expect to see major shifts in the business environment in the 2030s, including the rapid expansion of AI and the retirement of baby boomers. This will likely change business as we have known it our entire careers. Leaders should understand the drivers and develop key strategic actions in advance to prepare. This article explores drivers, the impact on businesses, and the areas to focus on.
What are the foundational drivers that we haven’t experienced before?
It is important to get behind the headlines to understand that in 2030, three major dynamics are likely to converge to create disruption: Monetary Economics, Demographics, and Geopolitics. While each has its own impact on the business world, the collision of the three could drive major changes. The future of your company may depend on taking the time to understand now, allowing you time to prepare.
Monetary Economics
Government debt has been growing drastically for decades and is coming due. The U.S. debt in 2030 is projected to be over $40 trillion, and annual interest payments would exceed $1.3 trillion. Inevitably, a debt deleveraging will likely occur through high inflation and a devaluation of the US dollar. The resulting wet blanket on the economy would take years to work through, resulting in:
- Extended high inflation
- Elevated interest rates and difficult access to business capital
- Slowed economic performance for multiple years
Demographics
An aging population will put strain on both labor availability and the economy. The Baby Boomer generation is projected to finish retiring by the early 2030s. Over the next 5 years, an estimated 240,000 people per month will retire, totaling 14 million, well above any historical norm. Most directly impactful for companies will be labor shortages and competition for talent. At the macroeconomic level, the impact is initially positive, as retirees consume more early in retirement, but it quickly becomes a drain as they draw on their accrued wealth to cover living expenses, resulting in:
- Critical roles will be difficult to fill
- Finding the next generation of leaders
- People costs increasing 25-30% over the next 4 years
Geopolitics
U.S. energy independence is allowing for some disengagement from the rest of the world. However, dependence on complex global supply chains will demand continued engagement for the foreseeable future. Additionally, as other countries face aging demographics, debt burdens, and energy constraints, we may see (especially from China and Russia):
- Supply chain disruptions
- Accelerated shifts in sourcing footprints
- Breakdowns in international relationships and addressable markets
Where should business leaders focus?
Four areas of focus should be considered in a review of a company’s fundamentals:
- People Plan – Leadership Funnel, Critical Roles, and Frontline Workers
- Inputs – Cost management, Supply Chain stability, Real Estate costs, Energy, Labor costs
- Go to Market – Customer portfolio, Ability to increase prices, Market agility, Sales excellence, Customer experience, Product plan, Differentiation
- Structural Factors – Economics of business map, Cash/capital/credit access, Technology roadmap, Equipment/fixtures upgrades, Long-term commitments
The specifics are so unique to each organization that there isn’t a playbook to look to for answers. Hard work and introspection are required to uncover the strategy gaps.
Most importantly, develop action plans
Establishing a few clear areas of focus with deliverables and action plans is critical. Identifying internal teams to implement the actions with concise expectations of outcomes, while not overprescribing the journey. Strategic actions are very difficult to implement and need ongoing support from the leadership team.
Why is an external advisor a good idea?
Business leaders are running their businesses every day. Taking the time to get behind the headlines, understand the future implications, and determine the impact on the business is difficult and time-consuming. An external perspective and strategy development resource can provide a guiding hand to put change in motion. Leveraging a resource during the implementation phases of strategic activities maintains attention and momentum.
Call to Action
The 2030s may be a challenging period for businesses; now is the time to step back and strengthen your business fundamentals. As with any disruption, there are opportunities for leaders to capitalize on, with the right strategy in place. Make sure your leadership team is making the required adjustments now.