Technology can help many businesses offset the damage caused by this unpredictable inflation. With inflation visible around the world and likely to persist until 2023, many mid-sized companies are facing unprecedented challenges. Input costs are rising, consumers are reducing their spending, margins are under pressure, and companies are finding it increasingly difficult to protect their profits and make effective investment decisions.

Grant Thornton research shows that companies that achieved higher profits took the following steps:

• investments in the digital/IT sector
• focus on reducing operating costs and improving efficiency
• an increase in digital consumption as a direct result of inflation, with around 70% of them agreeing that "inflation accelerates investments in digital/IT activities within the business".

Digital transformation is the key to increasing productivity

Efficiency has become a priority and the key to it is digital innovation. Companies must upgrade their systems and processes to develop smaller business models that can thrive in times of slower growth. At the same time, digital transformation is becoming key to consumer engagement and increasing productivity – a trend accelerated by the pandemic. Also, the research revealed that 60% of companies plan to increase digital investments in the next 12 months – the highest level on record. Still, there are worrying signs that some companies are struggling to get the most out of their digital spend or misdirection.

Successful mid-sized companies have invested heavily in technology over the last decade, and especially in the last two or three years. Many companies have a "good chunk of cash" on their balance sheets after a long period of expansion, which protects them somewhat. However, no one believes anymore that high inflation will be temporary and that companies must adapt to the new reality in the medium and long term.

Reduction of production costs and labor allocation

Businesses need to leverage digital to build smarter, more cost-effective businesses that can withstand the impact of inflation and find new growth paths. But for many, deciding how to allocate their digital budgets can be a challenge. Technology is developing rapidly and in some cases, there is a fear of the unknown or the unproven. Some companies also struggle with cumbersome legacy systems that hinder innovation. The key is to update these systems and move to the Cloud – or scrap them altogether and start over. Which path to choose depends on the company's current and future business requirements, but long-term infrastructure projects are believed to be in decline.

New systems usually require organization-wide change, to ensure that staff are properly trained and that management processes are adapted. Rapid engagement with key decision makers and clear, well-documented plans, agreed between all parties, are vital to ensure the successful implementation of the transformation program.

Clearly, priorities are different for every company, but for most, automation, robotics and machine learning will be key. These technologies improve productivity while reducing production costs and enabling companies to deploy their workforce more efficiently. According to research, 30% of mid-sized companies globally are investing in operational automation to drive growth.

Elimination of threats through the digitization process

As pressures on margins increase, companies face tough decisions about cutting costs, raising prices, changing product mix or suppliers. With a deeper insight into their activities, those choices become easier.

Inflation poses serious risks to today's businesses around the world. They must take measures to eliminate threats. The choices they make today will determine their future performance, but many still seem to be misdirecting their IT spending, potentially letting it go to waste. Companies must therefore act now, using digital innovation to ensure growth, despite growing economic uncertainty.

Some of the activities that will help you fight inflation are:

• examining data to understand your primary challenge
• using automation to reduce office costs
• stakeholder involvement in digital investments
• simplification and standardization of internal processes
• upgrading legacy systems to encourage innovation

For more information on how your business could benefit from targeted digital investment, speak to your local Grant Thornton member firm or contact one of our experts.

Data source: Grant Thornton Global