Acting in an era of disruption and uncertainty

Geopolitical events, tightening capital conditions, and external macro forces understandably have added complexity to business operations and caused every business to pause for thought, but this should not extend to a state of paralysis.

Decision-making today is challenging. There is a state of inertia in many key business areas, including capital investments, acquisitions, and people, to name just a few. Take the bigger capital projects, many of which are planned in advance and take years to develop. They are under scrutiny by management teams and boards, who are asking: Are these still the right decisions in the current environment?

Such hesitance hints at the domino effect that has yet to play through the economy and won’t likely be fully apparent for some time. Slowing company investments, reduced government spending, and the residual impacts on workforces connected to impacted industries could increase unemployment and negatively impact consumer confidence in a period of whipsawing tariff developments.

This state of paralysis provides opportunities for those companies that can think strategically and act while others are unwilling or unable to do so.

In employment, cost savings related to headcount reductions must be considered against the cost to secure the right talent, even if the immediate outlook may be muted. Our survey found that 40% of respondents believe workforce costs will increase in the coming year and managing this investment will be a key priority. We see success among leaders who take a more fundamental view of performance, simplifying organizational structures, eliminating low-value activities, and aligning resources to drive the biggest impact to the bottom line.

Technology has a critical role to play. AI has the potential to add significant value and change the way companies operate. However, it will not be a panacea to cure every ill. Its true value will be realized when aligned with clear business goals. While AI will likely change many jobs and increase worker productivity, history has shown us that new technologies will be a tool to improve and modify employee roles, rather than replace humans altogether.

Strategically, the most successful management teams will move from a position of simply securing survival to one where the current macroeconomic conditions reveal opportunities for strategic improvements to gain a competitive advantage. A strong balance sheet will provide the luxury of longer-term thinking, which may perhaps be the most valuable commodity when economic uncertainty reigns.

This uncertainty has put additional pressures on companies with leveraged balance sheets. Some have been able to gain more time and/or incremental liquidity via various liability management transactions. When additional runway is gained through these transactions, it becomes imperative to use that time effectively.

The ability of companies to improve performance and increase cash flow usually determines the fate of the liability management transaction. Unsuccessful efforts, however, will often lead to more complex and expensive restructurings, as more stakeholders enter the capital structure, and the likelihood of litigation or aggrieved parties increases.