Middle market businesses taking a balanced approach to cost cutting and growth

AI-powered business tools are transforming how middle market business leaders assess the labour market, with new data revealing that labour costs have slipped down the list of concerns dampening business confidence.  

Pitcher Partners’ latest Business Radar survey of middle market business founders and decision makers paints a picture of more resilient businesses taking a balanced approach to cost cutting and growth. 

The survey demonstrates that business strategies are reducing vulnerability to any single headwind, including talent scarcity, and that supply chains are now more resilient against weaknesses exposed during the COVID-19 pandemic. 

Among the key findings:  

• Increased demand for products or services (40% of respondents); Consumer/customer preferences (35%) and technology advancements (31%) were the top three positive factors influencing business confidence. 
• Supply chain change was the big mover since the last survey as a positive driver of confidence, cited by 22% of respondents, up from 12% in the previous survey. 
• Inflation (38%) and increased operating costs (36%) were the biggest negative factors impacting confidence, while 22% of respondents believe changes to government regulations were unhelpful, up from 11% in the last survey.  

Chris Hanna, Partner at Pitcher Partners Adelaide, said the drop in respondents reporting labour costs as a negative factor was a sign of both a resettled labour market and the change that technology was delivering.  

“There’s been a shift in the conversations we’re having around AI,” he said.  

“Business leaders have now had time to better understand and appreciate the suite of AI-powered business tools available, and they are starting to see them as viable alternatives to adding more FTEs to the payroll. 

“What we’re seeing isn’t simply businesses replacing people with AI, more that leaders are assessing where people are critically important to the success of the business, and in the same vein where AI adds more value. 

“This allows leaders to make strategically important decisions about reskilling and other factors that ultimately add to the resilience of their business and adapt to the shifting operational landscape.”  

Gavin Debono, Partner at Pitcher Partners Melbourne, said that at the time of the survey, there were few signs coming from the Federal Government that their actions would reduce or streamline red tape. 

“My observation is that middle market business leaders are feeling that the government are ignoring the concerns and wishes of the business community, with repeated missed opportunities to demonstrate support,” he said.  

“The Federal Budget offered no vision for addressing the critical economic challenges, no support for businesses navigating a turbulent and complex marketplace, and no actions to stimulate investment. 

“However, the Treasurer is now starting to talk about genuine tax reform and taking productivity seriously, and this sentiment may turn if he delivers the changes that the business community has been seeking.” 

Despite the stagnant political environment and unwelcome distractions such as tariff wars, most respondents are seeing no or only moderate changes in uncertainty levels.  

Just 17% say they are facing high or extreme change, even in the face of tariffs, increasing global uncertainty, legislative change and disruptive technology.   

When asked to describe general business posture, 87% said they were staying the course or proactively investing in growth. This was reflected business leaders’ risk profile for risk, with 78% reporting an appetite for high or moderate risk.   

At least 69% of respondents say they are actively looking to cut costs, however nearly as many are pursuing growth initiatives, with 67% expanding into new markets and 65% introducing new products and services.  

Kylie Lamprecht, Partner at Pitcher Partners Brisbane, said that forward-thinking businesses were creating multiple safety nets to make their business more resilient.  

“The data reveals a new playbook emerging among middle market leaders,” she said.  

“Rather than choosing between caution and ambition, they’re executing both, optimising operations and cost structures to preserve margins, and investing to create long-term value. 

“Protecting against threats is certainly important but good business leaders are also being proactive, growing their customer base and revenue streams, creating new possibilities for growth. 

“This balanced approach builds businesses that can not only weather economic storms but accelerate through them while competitors retreat.”