The Changing Priorities of Today’s Middle Market

The Changing Priorities of Today’s Middle Market
December 28, 2023 7 mins

The Changing Priorities of Today’s Middle Market

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To stay competitive, middle-market companies need to navigate the current economic volatility and invest in their technology and talent.

Key Takeaways
  1. Inflation, high interest rates and rapidly evolving technology have forced U.S. middle-market companies to change their strategies for managing business risk.
  2. Talent is a crucial investment, and hiring employees with technology skills will allow companies to stay competitive in the long term.
  3. Middle-market companies have learned from the examples of both their peers and larger organizations to become more future-focused.

Overview

In a post-COVID-19 business landscape, companies of all sizes have had to adapt to and contend with inflation and talent shortages.

Yet the U.S. economy has not been an easy one to navigate, and midsize businesses may be more affected by changes in technology, consumer sentiment and the economy than their larger competitors. This is important because middle-market companies are a crucial part of the U.S. economy, making up one-third of the U.S. economy and accounting for one-third of employment.

On top of that, in today’s business environment, companies need to put greater emphasis on risk management — an important step that is sometimes overlooked by businesses in the middle market.

To stay competitive in an increasingly difficult business environment, middle-market companies should consider how the most pertinent issues affect them and strategize accordingly for longevity or growth.

In Depth

At the start of 2023, predictions for the greatest risk factors for companies in the U.S. included an impending recession, supply chain issues, rising interest rates and labor shortages. However, as the year ends, business challenges in the U.S. and around the world have changed. Supply chains, for example, have recovered in some ways, particularly when it comes to costs, though they still suffer from material and labor deficits. Moreover, some larger companies are also contending with volatility related to geopolitical conflict.

Middle-market companies face additional challenges when it comes to staying competitive and winning over customers. For instance, as wage gaps increase, decades-old middle-market retailers have shuttered because of an inconsistent or shrinking customer base. Business bankruptcies have increased by 23 percent compared to 2022, posing a particular challenge to small and midsize businesses.

To stay competitive in the coming years, middle-market companies must be adept at managing the nuances of business risk — namely, changes in the economy and technology.

The Economy and Rising Costs

Around the world, rising inflation rates have affected how companies conduct their business. While the higher interest rates introduced to combat inflation may have hampered businesses in one way, they have also provided an option for companies to save money in the long term. Middle-market companies can use these conditions to gain an edge.

“Middle-market companies should consider how inflation impacts their business and how much of the cost they can pass on to their client base without bringing in additional competition,” explains Don Ortegel, executive vice president at Aon. “The current higher-interest-rates environment has put pressure on some companies’ ability to raise capital and associate costs of higher interest rates.”

Bigger yields from reserves thanks to higher interest rates, for example, could encourage midsize companies to make greater investments in areas that they may have previously considered out of reach, such as technology or research and development. At the same time, middle-market companies must be strategic in their investments to ensure their capital supports long-term success, especially in terms of talent recruitment and retention.

“It’s a competitive market for both customers and talent, so middle-market companies need to continue to get better at using the resources they have and executing on opportunities that will most benefit them,” says Ortegel. “From an insurance perspective, certain lines of insurance costs are increasing because of claims and inflationary pressures, so companies need to focus on strategies to reduce costs, wherever they can so they can reinvest in their talent.”

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It’s a competitive market for both customers and talent, so middle-market companies need to continue to get better at using the resources they have and executing on opportunities that will most benefit them.”

Don Ortegel
Executive Vice President, Aon

Technology — and the Talent to Support It

The U.S. continued to struggle with talent shortages in 2023, with vacancies varying by business type. According to Ortegel, middle-market companies are increasingly concerned with attracting and retaining the best talent in a highly competitive landscape — a challenge that becomes more imperative considering the increasing role and relevance of advanced technology.

“Before, competition for technology-savvy talent used to be between technology companies,” says Ortegel. “Now, all companies regardless of your industry are looking to attract and retain technology experts, so the competition for talent has broadened to every industry.”

The tech industry experienced dramatic layoffs in 2023, forcing thousands of tech-talented employees to search for new jobs. In this landscape, however, even non-tech companies could be seen as reasonable options for technology experts, especially if they have the promise of more stable work environments.

As artificial intelligence and analytics become widely used, smaller and midsize companies will need to employ people with skill sets that can build these capabilities and, importantly, maintain cyber resilience. “Everyone needs to advance the technology skills of their workforce,” advises Ortegel. As such, building a strategic approach to hiring and maintaining talent with in-demand skills will be important for middle-market businesses to stay competitive moving forward.

Middle-Market Companies Adapt to Business Risks

Fortunately, Ortegel has seen middle-market companies responding to the current business landscape in the U.S. by using more foresight. “Mid-market companies are open to learning from anyone and everyone that they can,” says Ortegel. “At the same time, they do a great job, from an industry perspective, of comparing notes with their peers and learning from one another.”

Moreover, middle-market companies have an advantage when it comes to learning from the successes and failures of competitors and larger businesses. For instance, these businesses can apply lessons from large online retailers to improve their e-commerce capabilities, or from luxury and budget retailers to optimize their pricing. They can also employ tech and talent strategies similar to those used by large companies by developing comprehensive digital adoption and skills-training plans or by maximizing resources through partnerships with other businesses.

“The past couple of years were a wake-up call to companies about how fierce the competition is,” says Ortegel. “Businesses are becoming much more proactive.”

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“The past couple of years were a wake-up call to companies about how fierce the competition is. Businesses are becoming much more proactive.”

Don Ortegel
Executive Vice President, Aon

General Disclaimer

The information contained herein and the statements expressed are of a general nature and are not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information and use sources we consider reliable, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

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