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The following is a guest post from Alok Ajmera, president and CEO at Prophix. Opinions are the author’s own.
A new year always brings new challenges, opportunities and prospects for growth. As we enter 2025, business and finance leaders find themselves at the helm of this transformative journey, navigating through a changing market landscape. Several trends will be critical to both corporate and financial stakeholders this year. While variable market conditions will dictate a lot of decision-making in 2025, there’s plenty for C-suite leaders to prepare for today.
Businesses stay on the defensive – for now
Last year, the corporate buzzword for 2024 was business optimization — a term that continues to take on multiple forms when put into practice. Many approached business optimization intending to find the ideal balance of sustainability and profitability. Companies invariably put effort into streamlining around the fringes — addressing areas like supply chain, vendor relationships or employment costs — to eke out incremental EBITDA, profit, and cash flow.
This streamlining is likely to continue into 2025, as economic and geopolitical uncertainty make growth considerably harder to anticipate. As growth slows down, companies orient around optimization. If your growth is coming down, most businesses aren’t leaning in and spending — they’re getting a little more defensive and protecting margin. The tech space, as the clearest example, went from frothy growth, to concern around growth, to now more of a defensive posture.
Alok Ajmera, president and CEO at Prophix
Permission granted by Alok Ajmera
Outside of tech, you can see a trend across industries — businesses that choose to either be in high growth mode, in which case they can plan for and manage lower profitability, or they want lower growth and higher profitability. The struggle is that when growth is hard to come by, you’re open to that mushy middle of low growth and low profitability. Organizations that have historically leaned heavily into growth are either going to have to be more creative to figure out how to sustain it, or they’re going to have to dig much deeper into optimization.
On the plus side, with interest rates beginning to drop, cash is becoming slightly more fluid entering 2025. This should lead to businesses bringing on some additional debt to fuel growth and should free up the M&A market. Again, if growth is getting harder to come by, then organizations need to optimize. If cash is a little cheaper to get from a debt perspective, that can fund creativity on how to spark inorganic growth, ultimately driving M&A.
Planning moves past the P&L
As organizations have tightened up in recent years, particularly from a financial perspective, planning technology has seen more widespread adoption. The pandemic and its aftermath only heightened the need for more advanced financial planning capabilities and the trend will likely continue into 2025. But to truly get the most out of planning technology organizations are more likely than ever to break down every line in their profit and loss (P&L) and start to focus on the operational drivers that are influencing financial output.
As you start seeing organizations trying to draw a fraction of percentage points of optimization, data and data modeling become incredibly important, and not just at a P&L or a balance sheet level, but at a very granular operational level. Part of the benefit is that it connects the broader organization so there’s clear alignment within the organization around the key drivers and how it translates into financial performance. The goal should be to understand where costs are, what’s driving the margin, what’s potentially putting downward pressure on the margin and where more thoughtful, corrective action can be taken.
In addition to both financial and operational planning challenges, senior leaders should be prepared for a more complicated, and sometimes chaotic, business environment for the near future. Economic tailwinds have helped steer many organizations towards profitability, often in spite of themselves and their markets. It’s likely businesses will have a more difficult time sustaining that success in the next five to 10 years and that corporate leaders will quickly reach a pivotal point: those that have done well because the conditions have made it nearly impossible to fail, and those that have put in the work to structure their businesses for long-term success.
Creating value across the organization
What can business leaders do to ensure they aren’t left behind? Here are four tips to consider as we move ahead into the new year.
1. Embrace higher-quality data. Even today, it’s shocking to me that the quality of data within organizations still tends to be poor. That leads to poor instrumentation, a lack of understanding of the actual mechanical drivers of a business and an inability to make really crisp, sharp, timely decisions. As conditions get tougher, those pieces of quality data are going to be difference-makers.
2. Treat AI for what it is — an opportunity and a threat. Clearly, we’ve lived through an entire hype cycle and back when it comes to artificial intelligence. Sentiment has evolved from ‘this will change everything, and no one is going to have a job anymore’ to ‘it’s not that big of a deal.’ That’s a real risk for business leaders who are potentially shrugging off AI in the immediate.
Looking at 25 years and beyond, AI will be fundamentally disruptive to every single person in the world. Every business leader should be digging in and doubling down to understand how every individual in the organization can think about AI and start utilizing it from a productivity perspective. And then most importantly, they need to consider how it’s going to impact the end customer and whether the business is disruption-proofed against what your end customer will do with AI.
3. Think critically about organizational talent and communication. Again, with a more difficult road ahead for businesses, take a more careful look at the people and skill sets within the leadership suite to ensure alignment. Employees need to be in harmony with the data in the organization, enabling it to use more advanced tools to extract insight, drive decision-making and help the business grow.
4. Unplug for your sake and everyone else’s. Everyone from business leaders to casual news consumers are being bombarded with content on an almost constant basis — often consuming information from the moment we wake up to the moment we go to bed. Finding the opportunity to unplug and think is critical. Part of my resolution for 2025 is to ensure that I carve out time to think about my business, my family, my health and to make connections — to understand and digest things that I’m consuming instead of just inhaling them.
As we enter the new year, the possibilities are limitless. Continued optimization, advanced planning, creating more value for the organization and building connections will help finance teams and their businesses see what’s possible.
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