Getting the strategy right for an upturn

The 2024 Director Sentiment Survey revealed boards are managing a balancing act between current short-term financial and economic pressures – with low demand perceived as the main risk – and being positioned to take advantage of an anticipated upturn. It can be tempting to focus on short-term cost control when times are tough, but directors should try to understand the trade-offs they may be making. 
 
I would encourage boards to make sure they are appropriately balancing the short term versus the long term. When there is a lot of financial pressure, we tend to focus on cutting back costs at the expense, potentially, of being able to maintain capacity or to ensure we are in a good place to leverage an upturn. 
 
The survey found 52.2 per cent of directors expect the economy to improve over the next 12 months, up from 28.3 per cent in 2023. This is the highest level of optimism since the survey began in 2014. 
 
While the mood is justified by lower inflation, and the Reserve Bank easing interest rates, it is unlikely we will see a rapid economic bounce. We are more likely to see a gradual uptick in consumer spending as interest rates continue to fall. 
 
Directors identified cost of living/inflation as the main risk to the economy (41.6 per cent). Households, which is where a lot of the pressure has been, are going to feel relief from higher mortgage rates to different degrees, and at different times. The gradual improvement will be dictated by people rolling off a relatively high 
fixed-rate mortgage onto a lower one and having more cash available to spend. And we will see a global environment that is generally getting better. Boards will need to anticipate where their organisation fits within this trend and develop a strategy accordingly. 
 
A potential dampener of household spending may be the unemployment rate, with the potential for further job losses in the short term likely to make households cautious. We still have businesses which are restructuring. 
 
While our population has been growing faster than we have created jobs, in part due to immigration, unemployment is likely to peak at around 5.5 per cent by the middle of next year. 
 
Domestically, directors’ concerns around political and policy uncertainty are likely to ease this year. Political and policy uncertainty was the second most-commonly cited risk facing organisations (14.5 per cent), just 0.2 percentage points behind the leading risk – low consumer demand (14.7 per cent). 
 
I expect we will see the policy direction in New Zealand become a little more settled. We have seen a lot of reversing direction from the previous government’s policies and quite a few announcements of change coming up, but we have not yet seen that change defined. We should see more clarity in 2025. 
 
Internationally, there are a few clouds of uncertainty hanging around, given the US election outcome. 
 
So, a successful business strategy for the next 12 months will have to balance financial challenges with the need for directors to lift their eyes to the future. Part of that is being focused on how we can use and leverage technology, and understanding more fully how it can shift the dial through greater efficiency and productivity.