Rising costs top risk for big businesses in 2023

Three-quarters of senior decision-makers (76%) in large businesses identified rising costs as the biggest risk to their business in 2023, according to the brand new ‘Drivers of Change’ research from Proteus. Despite this, most businesses will increase corporate spending next year.

Delving into the details, a massive 56% said rising energy costs are a big risk to their business next year. A further 37% flagged rising staff costs (e.g., wages & salaries), while 30% are worried about rising infrastructure costs (e.g., premises & tech).

Beyond costs, wider economic volatility is perceived as a threat in the year ahead. 45% of business leaders are concerned about the risks posed by the weak pound, and 38% by volatile markets.

And closer to home, 29% of leaders are concerned that there will be difficulties with staff retention and recruitment next year. In their market, 25% noted a risk of increased competition, and 13% a risk of foreign direct investment/ hostile takeover.

But despite this range of risks, most leaders are set to increase spending across key corporate priorities in the year ahead. Across thirteen categories of spending, a majority of leaders expect their outgoings to increase in every area except staff bonuses, acquisitions, and charitable spending.

More than half (55%) are increasing spending on employee benefits, and 48% on staff bonuses. 59% are spending more to try to bolster recruitment, while 63% are investing in staff training; this is especially encouraging given that staff costs, recruitment, and retention were identified as core business risks for 2023 and indicates a wider recognition of the importance in investment in staff to help mitigate the risks.

Notably, 15% of businesses plan to spend less on staff bonuses next year, while just 8% will cut leadership salaries/ remuneration.

The biggest increase in spending is set to be on software such as enhanced IT systems, confirming a trend of investment in digital transformation as essential to business survival, whether that’s investing in operational efficiencies or the customer experience. 70% of businesses foresee a spending increase in this area in 2023, and 58% feel the same about infrastructure (e.g., machinery and laptops).

In especially positive news, despite a looming recession, 69% of leaders are set to increase their spending on sustainability initiatives, and a mere 4% will cut their spending.

Areas at the highest risk of corporate cuts are advertising (15%) and staff bonuses (15%), as well as expansion (domestically or abroad – 14%).

Craig Mackay, CEO of Proteus, commented: “There is a thin, but visible, silver lining to the current economic crisis; the resilience and determination of British business.

“Despite rising costs, unprecedented unpredictability in the global economy, and, stagnating consumer confidence, business leaders continue to think long-term about growth, competition, and their teams. It would be all too easy to tighten the corporate belt and cut spending in the face of recession, but the vast majority of leaders are determined to increase their investment next year.

“The road ahead will not be without hurdles. The pace, volume, and complexity of change is increasing exponentially, and businesses can’t afford to wait and see – firms that are too slow to adapt risk becoming irrelevant. Leaders must follow through with their intentions to increase spending on staff training, innovation, and transformation, to ensure they have the technology and expertise to keep up.

“Making sure investments are set up for success or fail fast, requires new approaches to investment initiatives and more effective ways of assuring their progress toward the best possible outcome.

“But an economic downturn can be an opportunity as well as a threat. Those businesses which have the finances available would do well to consider their options for growth and change, in order to come out of the hard times stronger.

“For any business, organisational clarity is essential from the outset. Those with a shared vision of the objectives and outcomes the organisation is trying to achieve, and how it will need to adapt or restructure to achieve the desired outcomes are more likely to reap rewards.”