Matt Cowley: Inflation is here to stay, here’s what businesses can do

Matt Cowley says he is preparing for inflation to stay, but hopes it doesn't.

COMMENT:

I’m preparing for inflation to stick around for a while. Hopefully it doesn’t... but it’s likely.

When economists have different forecasts about how long inflation will remain high, this can suggest different industries may experience higher cost inflation than others.

Many businesses’ profit margins are being squeezed as revenue cools and costs increase. Employees, facing their own financial squeeze, understandably expect pay increases to match their rising costs.

Whether they get it or not likely depends on what other higher-paying job offers are available to them. If the overheated competition for skilled labour cools, then inflation should start to ease.

Right now, local businesses appear to be shifting towards more defensive strategies to protect their key profit areas.

Even though there are still a lot of job vacancies, I am starting to hear a growing trend of employers talking about “rightsizing” their business.

This does not necessarily mean downsizing or redundancies, but it could include a reshuffling of roles to reflect the changing environment.

Tauranga Business Chamber chief executive Matt Cowley. Photo / Mead Norton

Experts in lean process engineering and productivity have suggested to me most Kiwi businesses operate at about 30 percent efficiency.

They say improving your business’ operational efficiency involves the nitty-gritty work of analysing every task to optimise its sequencing, and the rightsizing of tasks and tools to increase output for the same amounts of inputs.

In simpler words, this means leaders need to document all the knowledge they store in their heads, create procedures, and optimise and refine those steps with their team. Most importantly, it means delegating authority to team members so the organisation doesn’t slow down waiting for you to make decisions.

This is tough work and is often neglected - but it needs to be done.

When inflation is pushing up prices everywhere, consumers are looking for affordable substitutes or alternative ways to meet their needs. They are more price-sensitive and value-conscious.

Businesses can differentiate themselves by offering quality products or experiences in new ways that will fit customers’ budgets.

Additionally, businesses can explore alternative pricing strategies, such as bundling or subscription-based models, to offer value to customers while maintaining profitability.

People also still want to come together, especially when times are tough, which can develop new market niches too.

In a cooling economy, small businesses can have the upper hand. They can be nimble to the changing customer needs when larger companies are tied back with bureaucratic processes and shareholders to please.

These businesses who can see opportunities, and adapt to customer needs, should do okay.

Of course, there is the ultimate silver bullet to easing inflation, which doesn’t involve the Reserve Bank keeping the official cash rate at unsustainable levels.

History has shown us the main way to combat inflation is to adopt technology and innovation. We’ve seen it during the industrial age, and we’re seeing it in the digital age.

Embracing digital tools, like artificial intelligence (AI) such as Chat GPT, will empower businesses and improve their productivity.

Many people are scared of the unknown, and AI certainly provides a lot of unknown. There is fear of job losses, particularly in managerial and scheduling tasks.

However, embracing AI can dramatically help your business - and your career - over time as it improves efficiency and productivity.

I’m excited about AI and its possibilities to make lives easier for small business owners.

Matt Cowley is the chief executive of the Tauranga Business Chamber.