2024 is set to be a very interesting year for business. As we exit the January blues I’m optimistic that with inflation falling and interest rates predicted to ease, the deep, long or shallow recession many predicted can be avoided. 2023 was unpredictable, and we’ve seen markets ride some pretty tough macro and micro economic events. There appeared to be some elasticity not seen before. The FTSE rallied to close up 4% in 2023, with other global markets seeing double digit increases.
Here are some business trends I’m expecting to see from our experiences in 2023, and live customer conversations.
1. Hot Industries
It’ll be interesting to see which sectors do well in 2024 after an unpredictable 2023. Expect Travel and Leisure to continue investing as customers prioritise experiences post pandemic and these firms catch up on a few years of under-investment. The Energy and Utilities sector is also set to continue the double digit growth it saw in 2023; as global demand continues to rise and the sector takes the opportunity to reshape itself for the future.
Interestingly many areas of Retail outperformed expectations last year as people returned to the offices and travel increased. M&S was the jewel in the crown of the FTSE index in 2024 after some shrewd business decisions. Those retailers that focus investment on efficiency and growth in the correct demographics and geographies will continue to prosper in 2024.
Health is another one to watch, with an ageing population and low confidence in the NHS people are turning to private providers in their droves. The highest number of people since 2008 are enrolling in private insurance, driven by the number of employers offering it as a benefit. The surge in demand is storing up potential problems for health insurers, who will need to evolve their operating models to deliver for these new customers. Patients going private are encountering stretched customer service and there is fierce competition for doctors and rising costs.
Although M&A was on a downward trend in 2023, a consolidation in commodity markets will continue in 2024 after some big announcements in the TMT and energy sectors recently (e.g. Three and Vodafone merger). It’ll be interesting to see how these unfold. We’ve seen some large mergers over 2022 and 2023 struggle to deliver on expectations as new entities battle with the integration of people, process and technology. The multiple and complex organisational challenges these mergers create can quickly demotivate employees and see the holy grail of customer experience start to falter, which is so important in these commodity markets.
Unfortunately, cost optimisation seemingly out-trumps employee experience and the need to bring two cultures together. The friction this culture clash creates affects morale, productivity, and overall integration efforts. It requires strong leadership, communication and an emergent, customer focused operating model approach to succeed in these multiyear integrations.
3. Artificial intelligence
AI will continue to dominate the board and transformation agenda. Yes it will automate tasks, but will also increase productivity, open up new markets and opportunities. Expect its adoption in enterprises to be slower as we overestimate speed initially, but perhaps underestimate it over time. Organisations will continue to search for the right use cases and be cautious not to give away their data. The holy grail will be when you can make modifications to the LLM that allow for greater customisation. Currently there are some techniques out there but none are advanced.
We expect to see the continued rise of ‘AI Hubs’ or ‘SWAT teams’ in the same way the ‘digital hub’ swept through enterprise 10-15 years ago. These siloed, expensive ‘sand boxes’ often failed to deliver on their business cases to drive sustained progress. Organisations need to view AI in the same way other strands of digital transformation have been embraced, with a human-centred and integrated approach. This will drive better operating model evolutions, and people outcomes. AI will also come into more acute focus for HR leaders, as pressure for ethical ways to implement emerge.
Stock markets enjoyed a very solid 2023 and an interesting year for IPOs with some high profile new listings. This resurgence is producing some optimism in markets, sparking expectations that the pace of new listings will continue momentum into 2024 following a protracted downturn (especially with a robust stock market rally in the concluding two months of 2023). Investor confidence surged, driven by the belief that interest rates had reached their peak, and inflation was on a trajectory back to national targets. Taking centre stage in 2023 was Arm, the largest listing of the year, which experienced an impressive uptick. Even Birkenstock, weathering one of the most challenging debuts for a large IPO, demonstrated resilience by rebounding after an initial drop in its first week of trading.
With the volatility of markets, investors are certainly demonstrating a distinct preference for companies that can show a clear path to profitability. This is a departure from the preceding decade when investors were often drawn to companies emphasising revenue growth at any cost. Watch out in 2024 for some further IPO action for the likes of retailer Shein and social media aggregator Reddit. Boots has also been rumoured to potentially have a run on the FTSE market.
5. Private Equity
Broadly, the private equity industry had a challenging 2023, dominated by weak deal activity and a general decline in exits and fundraising. The distance between top-performing private equity funds and the also-rans grew as firms avoided exiting investments in an unsettled market and held onto portfolio companies longer. These longer hold periods are testing private equity firms’ value-creation strategies, who are spending more time consulting with portfolio companies on themes like profitability. However, with interest rates holding and inflation starting to recede, a revival of deals in 2024 is predicted.
As the year begins, the sector finds itself with historic levels of unused investor funds and an accumulation of ageing deals that companies need to divest in the years ahead. With anxiety still present in the market, executives face a challenging year ahead, although pipeline deals imply activity will pick up. Unsurprisingly, one area deals grew most last year was in artificial intelligence and machine learning.
Expect a stickier second half of the year. Politics will dominate the agenda and associated caution can cause market inertia. Amazingly, over half the world will go to the polls in 2024, including India, Russia, USA, Mexico, and of course the UK. With the current rise in populism, and divisiveness in electorates from east to west, many are wary of the effects these elections will have on the global economy.
Historically, data reveals that elections don’t always have the market consequences predicted. But, with some of the world’s most influential nations at the ballot box and media talk of ‘threats to democracy’ (not least from AI driven influencing), politics will undoubtedly be on the mind of businesses and the world alike.
Post-pandemic a general transformation theme across many sectors has been ‘productivity’, and this is set to continue in 2024. With a backdrop of macroeconomic uncertainty, efficiency, optimisation, process improvement have all been in focus, with pressures to realise prior years investments in digital transformation. Executives and shareholders want to see value for their investments.
We are having a number of conversations with businesses who are being put under pressure to streamline their operations while customers demand greater experiences. These challenges require companies to stop thinking tactically about operational excellence, and seek more innovative methods. A holistic, cross department approach is often required to exploit technology advances, utilise modern implementation methods and importantly, empower their workforce. We are seeing many transformation efforts still not taking the required human-centred, people driven approach. Those that look to evolve their current operating models and engage workforces around a greater purpose will win in 2024.
S&S exists to inspire the future of work. We bring strategic clarity with human-centred transformation, enabled by technology, delivered in innovative ways. Please reach out if we can assist you on your journey in 2024.