Become a Creator today!Start creating today - Share your story with the world!
Start for free
00:00:00
00:00:01
2024 End-Year Middle Market Indicator
191 Plays8 days ago
Join us to hear from NCMM Managing Director, Doug Farren, as he discusses key insights from the 2024 End-Year Middle Market Indicator.
Listen to the full webinar presentation, see the slideshow, and explore more from the most recent MMI here: https://www.middlemarketcenter.org/performance-data-on-the-middle-market.
Recommended
Transcript
Introduction to Middle Market Trends
00:00:05
Speaker
Welcome to The Market That Moves America, a podcast from the National Center for the Middle Market. The center is the leading source of knowledge, leadership and innovative research on the middle market economy. Throughout our podcast, we will feature middle market leaders and stakeholders to hear their real world perspectives on trends and emerging issues.
2024 Middle Market Indicator Update
00:00:24
Speaker
Hello and welcome to the middle market indicator update for year end 2024 from the National Center for the Middle Market.
00:00:33
Speaker
My name is Doug Farron. I'm the managing director here at the center located at the Ohio State University Fisher College of Business. So we're pleased to walk through the latest data and insights from our semi-annual survey.
Challenges: Costs and Workforce Issues
00:00:50
Speaker
Challenges. So we kind of bucketed these. Now that we ask respondents, this is an open-ended question. We asked them to list their top three challenges.
00:01:01
Speaker
And then we can bucket those into themes. You know, on the left are the kind of the two most significant challenges. Those are around the economy and costs. So interest rates still high, inflation starting to come under control for some areas, but just concerns overall about the escalating costs associated with their but their labor, ah with raw materials,
00:01:29
Speaker
with the energy used to fuel their plants and and other operations, a significant challenge. Workforce and staffing, I've already mentioned this a few times, but turnover rates, finding people, developing people and retaining those people in order to develop succession plans for a lot of the turnover that we're expected to see, particularly at the leadership ranks and the ownership ranks of middle market companies in the next couple of years.
00:01:58
Speaker
is a big concern.
AI Exploration and Implementation Uncertainty
00:02:00
Speaker
Technology, ah adaptation, I talked about this a little earlier. So, yes, AI is here. Yes, um many companies are kind of toying with it and looking at it and maybe learning about it, but how is it effectively implemented? And one of the questions we hear all the time is, these tools are great,
00:02:23
Speaker
I don't know where I need to start. I don't know what makes sense for my business. So there are going to be variations across different industries, but that is a concern.
Regulatory and Competition Pressure
00:02:32
Speaker
And then finally, some of the regulatory pressures that remain to be seen as different policies start to change ah with the new administration.
00:02:43
Speaker
ah So, yeah yeah, this is kind of just a, you know, it's kind of a similar way of looking maybe a little bit more in depth at a few of these challenges. I've already talked about some of these supply chain disruption, although I'll show you here in a moment that has improved significantly over the last couple of years. ah Competition costs, all these things are issues.
Skills Gap and Workforce Strategies
00:03:05
Speaker
So risks, you know, one of the things that are emerging as top risks right now, as we just ended 2024, inflation, cybersecurity, employees and supply chain, the top four,
00:03:20
Speaker
Those have remained relatively unchanged over the last couple of surveys, but that's where these companies are are thinking. And then as it relates specifically to skills,
00:03:33
Speaker
almost every company, right, the circled data point there, 95% of middle market companies have some degree of challenge with finding the right skilled employees. For almost 40% of them, it is a significant challenge.
00:03:48
Speaker
So again, this hasn't changed a lot over the years. So it's it's not something that appears to be easily addressed. Tight labor market, lots of competition with big companies and small companies. So no silver bullet here, but still top of mind. I just wanted to make that note.
00:04:07
Speaker
And then digital skills certainly remain a significant gap as well. So 46% of the companies tell us they feel that their company has a digital skills gap. 56% say that it's significant or substantial. And again,
00:04:28
Speaker
A little bit of a decrease over time here as we start to see more you know adoption and pickup of different technology. So companies are slowly starting to build up that skill set, but it still remains for over half the companies. Wages, again, we've been tracking this as a tool to help with some of that talent retention. ah You can see here the average wage growth has been a little over 5% in the last 12 months.
00:04:57
Speaker
And 75 percent of or companies have said they've been increasing wages, not only to to just you know provide a living wage for their employees, but in order to remain competitive for that key talent. And then I thought this was interesting. We don't always show this one, but I thought it was interesting to see because we've been tracking kind of the work environment for middle market companies. And it's interesting in to see that you we read a lot about big companies that have been in the news lately um really kind of doing a forced return to office policy. Again we are agnostic when it comes to you know what's right or what's wrong. Personally my opinion is that it depends on industry and what works for each company and the middle market is no different. So almost 60 percent of the companies now are primarily in person in terms of their employees. But
00:05:56
Speaker
40% are doing some type of a mixed hybrid approach, giving their employees a little bit more flexibility as needed. Again, big differences here by industry, if you're in you know manufacturing and healthcare, might be more difficult to provide those options.
00:06:14
Speaker
than it would say in a technology company or even a B2B services company where we can do more things from different locations. So just interesting, I thought I would share that data point because it's been in the news so much.
Climate Concerns and Digital Transformation
00:06:30
Speaker
Climate change. So lots of companies concerned about this. We we started asking this question in the mid-year and then followed it up again. Close to half the companies are extremely or very concerned about climate change and what it does to their businesses. No surprise. The biggest concerns are around extreme weather how it affects supply chain and then the disruption to infrastructure. I mean just off the top of my head with several of the large hurricanes that happened in the fall and then more recently the the wildfires out West. um Clearly this is an issue that more and more middle market companies are starting to pay attention to.
00:07:13
Speaker
when it comes to a possible disruption to their business. About a little over 20 percent say that they were impacted by natural disasters during the last year. Most of the impact were either around operations or maybe something to their brand reputation or or other harm to their company. And then of course financial disruption would be the other area that we are asking them about. ah But clearly you know As these weather events and climate issues happen, there is a ah risk that it can operate you know either the so flow of materials through the supply chain or the actual operations of the company themselves. And on a related note, supply chain disruptions, which were a significant issue as recently as the second quarter of 2022, continue to gradually improve
00:08:11
Speaker
We are at a high of 55% of the companies telling us they had experienced a significant supply chain disruption in the prior six months. We're now down to about a quarter of the companies. So I had said this over the last few presentations, no silver bullet here as well, something that can only be improved over time rather than a quick fix. And that appears to be a case as more companies start to diversify their supplier base,
00:08:40
Speaker
ah We're not hearing as many things about increasing you know safety inventory, buying more inventory, things like that, but there are tactics that are certainly being implemented to help address this. And finally, we get to digitization and AI. Certainly more of these businesses, particularly as you look at the last two years versus earlier this decade,
00:09:06
Speaker
More companies are starting to tell us that they are thinking through more of an integrative collaborative digital roadmap, which allows them to make decisions and investments that are a little bit more cohesive to their strategy rather than reactive to a certain trend or you know just things that they're hearing from either peers or competitors. So 52 percent have a technology roadmap. Not surprisingly,
00:09:32
Speaker
The goals remain relatively the same, although we're seeing now more emphasis on productivity and cost savings at over 60% of the company citing those as their main goals of trying to digitize and upgrade their operations, time savings, customer experience, some other things on this list. But given all the pressures that we're seeing from a macroeconomic standpoint as well as a workforce standpoint, not surprising that productivity and costs are the two drivers. Of course there are barriers and these remain largely unchanged as well. We know that middle market companies are constrained in terms of resources both from a financial standpoint from a people standpoint. And in fact 40 percent of the companies say that ah lack of a budget to be able to buy some of these platforms is the number one deterrent followed by having the resources to implement it effectively. So
00:10:32
Speaker
That's where you know trusted advisors and service providers can can help bridge that gap and play a role as these companies need that help. The adoption journey, some interesting things to note here. So really, the as you look at these pie charts, the you know the yellow section of that are companies that are telling us that they're already embedding AI into their business and that they're using it. Currently, that number has been very slow to change.
00:11:02
Speaker
So there's been a slow adoption across the marketplace. The biggest change has been in the active testing. We're now close to 30% of the companies are telling us they are actively testing out different AI uses within their business. You know, trying to understand what are those repeatable processes and where it makes sense to use this technology to help create some efficiencies for them.
00:11:26
Speaker
And then, you know, not surprisingly, a lot of that's happening in the core to upper middle market where we've got 35% roughly of the 50 to $100 million dollar companies telling us they're testing and almost 20% of the upper middle market, 100 million and above saying that they're using AI in their business today. So ah just a little bit of points there.
00:11:50
Speaker
The definitions remain largely unchanged, and then this was a new question that we asked, because it's always interesting for us here at the center, given the lack of some potential you know internal expertise and resources, where these companies go for their help as it relates to AI. 46% tell us they look to technology companies, so those could you know that's what they're reading, you maybe news sources,
00:12:19
Speaker
ah where they're getting their business information, 45 percent are just going online, doing some of their own research, and then about 40 percent rely on service providers or vendors. You can see consultants, even their current employees are bringing some of this information ah you know into into the workplace. But its it is a large mix right now as they try to sort through, again, what is the best tool for me and where is the best place that I can put it to work in my company?
00:12:50
Speaker
and These are some of the challenges they remain from prior ways, mainly around privacy, security, ethical considerations, how does it impact my workforce, and then eventually, whether down the road, there's going to be some regulatory and risk management issues that are going to have to be paid more attention as it relates to AI implementation.
00:13:16
Speaker
so With all of that, again, it's Yeah I keep saying it over and over but we are seeing steady growth in the middle market.
Future Outlook and Expansion Plans
00:13:26
Speaker
The message for 2025 is all indicators point toward positioning for a very strong year ahead from the confidence to the investment planning to some stabilization and some of the uncertainty that's been affecting these businesses for the last few years. And that expansion is primarily going to happen within
00:13:49
Speaker
the introduction of new products and services and will happen within the United States. The challenges remain around, um, other macroeconomic uncertainties, whether it could, you know, inflation, still high interest rates, maybe not as much of a concern about a recession anymore, but it always is lingering out there workforce challenges and the implementation of things like AI. And then,
00:14:16
Speaker
While more businesses are ramping up and actively testing AI, they'll be looking to trusted resources to help with that, while also taking into considerations the risks and concerns that start to bubble up as a result of making those decisions. So again, we are bullish on on the middle market.
00:14:41
Speaker
ah these businesses you are vital to to what we're doing here in the US economy. um We recently you may have seen released some work that we did on the Canadian middle market. So we're looking to do that ahead ah in the coming year, doing a ah volume two of that work. So we're starting to see the similarities and differences as well as the interaction between Canadian middle market companies.
00:15:09
Speaker
And just excited here from the center standpoint about the year ahead, continuing to monitor some of these issues, particularly around AI, around climate and you know severe weather disruptions and some of the other issues that we've stayed pretty close to over
Resources and Further Research
00:15:26
Speaker
the years. So visit our website for the full MMI report. We've got a lot of resources out there in terms of the raw data, some industry data, some commentary.
00:15:39
Speaker
ah from us around some of these issues. And then, of course, you know we'll be we'll be adding to our research library over the year as we take on more projects with our partners and additional outside collaborators as well. So with that, we are wrapped up for this presentation. Hope you were able to take some some great insights from it. And if we haven't been able to answer your questions,
00:16:09
Speaker
please feel free to reach out to us and we will try to get back to you as soon as possible with answers or a direction to get your answers. I appreciate your time and support of the National Center for the Middle Market. I'm Doug Farron and we'll talk to you again soon. Bye. Thank you for listening to The Market That Moves America. Never miss a new episode by subscribing anywhere podcasts can be found. You can also subscribe to our email newsletter at middlemarketcenter dot.org.