Words not only describe but define how we think about the world, and corporate jargon is no exception.
These short, sometimes opaque, sometimes quippy sentiments reveal a lot about macroeconomic challenges, the competitive dynamics of an industry, and a company’s distinct values. From terms like the relatively new “friendshoring,” to the ancient yet topical “first principles,” this business short-hand sheds light on both our anxieties and our ambitions.
Based on recent research from the strategy experts at EY-Parthenon, here are the eight terms that capture what’s driving the business climate of 2023.
More than 2,000 years ago the Greek philosopher Aristotle defined first principles as the basis of all other truths, but the concept is as relevant now as ever.
Today, businesses apply first principles-style problem-solving to break down complex challenges — including one of the thorniest ones, inflation — into their most basic components.
The approach posits that everything can be reduced to a small set of fundamental truths and that starting from these can help organizations derive more cost-saving, efficient solutions. The science sector, IT teams, and even personal development can benefit from this method to cut through the fog of uncertainty and make better decisions.
Smart companies take a systematic approach to improve the value of their goods and services, oftentimes through deep and consistent use of data and AI. This data collection helps calculate the total cost to serve, analyze how products or processes deliver customer value, and reveal ways to finesse operations to optimize that value while keeping costs in check. As an example, value engineering is used in the construction industry to improve the efficiency of buildings, but it can also apply to manufacturing, financial services, DTC models, and software development.
Value engineering has proven especially helpful in the last three years as companies respond to shifts in supply chains, employee expectations, and sustainability goals, and it will only grow more relevant in 2023.
No company wants to be caught unprepared, so it’s critical they create and analyze hypothetical situations that anticipate potential outcomes and prepare for them. Scenario planning is a way to picture the long-term horizon in a structured and thorough way.
Scenario planning then helps organizations identify risks and opportunities, develop worst- and best-case contingency plans, and make decisions faster and more efficiently when the fictional comes fact. It’s especially critical today amid the combined reverberations of global economic volatility, energy cost fluctuations, and climate change impacts to agriculture and infrastructure.
As the geopolitics of the world’s superpowers have become increasingly fraught in recent years, underpinned by US-China tensions and increasing China-Russia partnership, middle powers such as Canada, Australia, and South Korea are using their diplomatic and economic influence more assertively to shape affairs beyond their borders, driving a shift from a unipolar to a multipolar world.
In aggregate, the era of liberalized global trade amid ever-increasing globalization has ended, at least for now, according to EY’s January 2023 CEO Outlook report. In its place is a global operating environment in which geopolitical dynamics play an ever-important role in corporate strategies — the greatest impact in a generation.
Leading executives are responding by managing political risk more systematically and embedding geopolitical analysis into a company’s DNA. This response surfaces through new governance structures and processes and the proactive inclusion of political risk analysis in mergers and acquisition, market entry and exit, supply chain and international footprint decisions.
A variant of offshoring, friendshoring refers to adjusting supply chains to favor countries offering greater political or economic stability in order to manage potential business disruption and economic shocks. For example, some companies reconsidered their relationships with suppliers and customers in Russia following its invasion of Ukraine in 2022, while others are increasing their investments in more localized manufacturing to reduce their reliance on foreign factories and government policies.
Affecting the supply of everything from wheat to microchips, energy to rare earths, the concept is so urgent US Treasury Secretary Janet Yellen invoked it in April 2022, and it was one of the buzzwords at May’s World Economic Forum. Additionally, Quartz published a four-part critique of the emerging economic framework in June.
In January EY-Parthenon also found that M&A in 2023 will be a friendly affair. Its CEO Outlook revealed that fewer than 1 in 10 CEOs will now consider acquiring in a market where their home country does not have a strong geopolitical and economic relationship. On the other end of the scale, almost four-fifths (78%) will look to conduct M&A in countries geopolitically and economically aligned with their home country.
In total, there is still a strong appetite for cross-border investments, but the whitepaper showed that CEOs will be more selective in who they do deals with in 2023 and will pursue transactions within friendly pockets rather than applying a truly global approach.
Short for producer price index, PPI measures the change in prices of goods and services purchased by businesses and other producers over time, whereas the CPI tracks changes in goods and services purchased by individual consumers. In other words, PPI refers to industrial rather than household inflation.
What makes the PPI particularly relevant today is the challenge caused by the decoupling of industrial and household inflation. The mismatch makes forecasting and planning especially challenging for organizations, and experts expect the problem to worsen in 2023.
For example, EY-Parthenon analysts predict CPI to fall to as low as 1% in 2023, even as PPI stays in double-digit territory at 10% or more. EY also predicts that between 2020 and 2023 PPI inflation will increase by close to 50%, meaning that by the end of this year, it will on average be 50% more expensive to produce in the UK than pre-pandemic.
Though CPI inflation makes the headlines, PPI metrics provide better insight into businesses cost exposures because it takes into account consumer demand, energy prices, wages, commodities like cement, metals, cotton, and corn, and geopolitical shocks.
This complexity often requires the expertise of a consultant like EY-Parthenon to help companies diagnose their own PPI, hedge their commodity exposure, finesse their portfolio, leverage technologies from AI to automation, and deliver an employer value proposition that manages wages and retains the talent necessary to thrive.
Getting its start from a 2009 Twitter thread and growing viral during the malaise of the covid pandemic, goblin mode was named as 2022’s word of the year by the venerable publisher of the Oxford English Dictionary. The professional wordsmiths define it as “a type of behavior which is unapologetically self-indulgent, lazy, slovenly, or greedy, typically in a way that rejects social norms or expectations.”
At first read, the negative business implications are many, but economic pundits, workplace experts, and healthcare providers have embraced it as “refreshingly authentic and deeply cathartic” and “shedding a version of ourselves in a way that feels freeing.”
“During COVID, we learned how to cope in different ways, and we’ve learned how to rest, recharge, and recover,” says Dr. Amy Sullivan, a clinical health psychologist at the prestigious Cleveland Clinic. “Goblin mode is truly about taking care of ourselves in nontraditional ways.”
Seen in this light, executives that understand the goblin modes of their teams can create more affirming, people-centric work environments through more intentional one-on-ones, company-provided mental health services, space and time for collegial fun, and PTO perks. This burnout awareness is critical to success in a climate of rising labour costs and increased competition for workers.
Merriam-Webster defines a trilemma as a scenario “in which it is difficult to determine which one of three courses to pursue.”
Leaders know first-hand that business in 2023 is not a yes/no, left/right, now/later situation, and EY-Parthenon has identified that the challenges leaders are accustomed to and prepared to navigate have expanded into a trifecta of urgent, overlapping priorities. For many executives, they’ve never experienced the number and range of these challenges at any time in their careers, including:
- Money, with rising inflation, higher interest rates, and tightening liquidity demanding attention
- Energy via the need to reduce carbon emissions, access affordable, reliable energy amid rising costs and volatility, and withstand system shocks
- Supply challenges due to increased cost of materials, labour, and transport, regulatory and consumer demand for ESG-compatible supply chains, and accelerating geopolitical, trade, and logistics disruptions
But solutions are available. The experts at EY-Parthenon see nine distinct levers in the face of these trilemmas, from enhancing revenue through consumer pricing strategies to improving productivity by simplifying internal operations, prioritising capex investments to optimizing policy through government support.
Ignoring these eight terms is not an option because they are embedded with both ramifications and solutions across every aspect of a company’s functions: commercial, financial, legal, and regulatory. As Alan Hudson, UK&I EY-Parthenon Leader, puts it: “In this complex environment, businesses need trusted advisors to rapidly understand specific situations and devise a way forward that will create and sustain shareholder and stakeholder value.”
Learn more about the concepts shaping our world today and how EY-Parthenon can help your company navigate them.
This content was produced on behalf of EY-Parthenon by Quartz Creative and not by the Quartz editorial staff. Sources are provided for informational and reference purposes only. They are not an endorsement of EY-Parthenon or EY-Parthenon’s products or services. This publication contains information in summary form and is therefore intended for general guidance only. It is not intended to be a substitute for detailed research or the exercise of professional judgment. EY-Parthenon is a brand under which a number of EY member firms across the globe provide strategy consulting services. Member firms of the global EY organization cannot accept responsibility for loss to any person relying on this article.