Business trends to watch in 2023

What we know, what we don’t know and how to make sense of what’s coming down the line


What lies ahead? London Business School faculty consider the year to come.

Julian Birkinshaw, Vice-Dean; Professor of Strategy and Entrepreneurship; Academic Director, Institute of Entrepreneurship and Private Capital

2022 was the end of an era – in two important respects. First of all, it was the end of an almost 30-year era of free money, with investors piling into growth stocks, start-ups, and speculative technologies in pursuit of a decent return on their capital. With interest rates at 3-4% and set to rise further, we can expect to see a rebalancing of investment portfolios. Private equity investors will become more cautious. Start-ups will find it harder to raise funds. Property prices will soften. Bubbles will burst. The consequences of this shift in monetary policy will be profound – and indeed they are already starting to take shape.

2022 was also the end of an era of disruption, in which the radicals and insurgents held the upper hand over the establishment. In business, we celebrated the exponential growth of the big-tech firms with their “move fast and break things” mantra and we applauded Masa Son (Softbank), Jeff Bezos and Elon Musk for their audacious ideas. In politics, Trump and Johnson succeeded by defying conventional wisdom – by working against the establishment.

Over the last four months, this disruptive cycle seems – finally – to have come to an end. Celebrated tech firms, from Facebook to Shopify to Klarna, lost most of their value. Cryptocurrency exchange FTX went bankrupt. Elon Musk’s handling of his Twitter was savaged in the media. In politics, Liz Truss’ disastrous premiership exposed the risks of moving too fast and flying blind, while in the US most of Donald Trump’s election-denying acolytes failed to get elected in the mid-terms.

Are we returning in 2023 to a more pragmatic style of business and politics, where change is a bit more incremental, where innovators work with established players not against them, and where real expertise is acclaimed, not disparaged? Let’s hope so.

Anna Pavlova, Professor of Finance; Academic Director, AQR Asset Management Institute

Two of the key macroeconomic variables to watch are interest rates and inflation around the world. How high are central banks willing to raise rates in 2023 and beyond to get inflation under control? The speed of interest rate rises in 2022 has been unprecedented. Will it continue into 2023? Will inflation show signs of subsiding?

High interest rates lead to high borrowing costs for households and high financing costs for businesses. Many of them have got too used to ultra-cheap funding and in fact have not experienced high interest rates in their lifetimes. Navigating the new interest rate environment is going to prove a challenge for many.

Inflation is another worry. It affects the cost of living and reduces customer demand. At the same time, employees are asking for pay rises. Their wages do not keep up with prices, so it does make sense that they want to be paid more. Businesses cannot stand still. They will need to respond to these pressures.

The road ahead is full of challenges. In 2023, businesses will have to confront the economic headwinds. There will be casualties. But strong businesses will come out stronger. We would learn many valuable lessons for the future by watching companies that manage to successfully navigate the economic turbulence.

Freek Vermeulen, Professor of Strategy and Entrepreneurship

In terms of corporate strategy, some of the trends that we will see to start developing in the new year concern the reversal of some old trends. For example, over the past decades, large firms have engaged considerably in outsourcing and offshoring. However, the supply chain issues that many companies have been grappling with more recently also seem to have implied a loss of capabilities and control, thus making these companies vulnerable to problems with foreign suppliers.

I have met various top managers who expressed regret having outsourced so much. Similarly, I have met executives who regretted spinning off divisions and making their companies purely focused on their “core business”; another trend of the past two decades. One of them even said to me: “We have focused up to the point of irrelevance”.

Corporate diversification has largely grown out of fashion and, under pressure from analysts, boards and management consultants, many companies have become increasingly focused. But this has also deprived them of the capability to adapt and innovate, by redeploying and combining resources in different divisions – a capability sorely needed in these turbulent times; Covid lockdowns have also taught us that. So I expect diversification to make a comeback.

Lynda Gratton, Professor of Management Practice in Organisational Behaviour

As you look forward to the decisions you will make, you will be navigating both ‘knowns’ and ‘unknowns’. Demographic trends are ‘knowns’. As many people live longer and have fewer children, then predictably populations age. Older workers could be crucial to you. Look to their crystalline intelligence and wisdom to steer you through the recession and inflation currently on the horizon.

Technological trends, certainly in the coming year, are ‘knowns’. There has been a surge in digital capabilities as people learnt to work from home. There is still much to be learnt about how to manage in a virtual environment. Managers will need a whole new set of hybrid skills - making team agreements, managing virtual teams and showing empathy. And as technologies transform jobs, so workers have to both upskill and reskill to whole new set of (often digital) skills. So be prepared this year to support employees to make these skill transitions.

Social trends play out in a less predictable way – but there are clear signals of what to expect in the coming year. Since the 1970s, women have been joining the workforce and increasingly working, even as they become parents. Now in the majority of families, both adults work. That puts flexible working and childcare options at the top of the agenda.

What of the ‘unknowns’, often driven by unpredicted events? The battle for hybrid working has been playing out between bosses and workers these last few months and will continue. Expect a negotiated truce – with those shackled to the office demanding compensation (whilst looking for another job), and those working in a hybrid form becoming more attuned to the issues of efficiency and productivity. In my view, an inevitable consequence of the demographic and social trends I have described is the need for personal autonomy – through flexibility and choice. This is something that many people want, and will be prepared to act upon to get.

I believe that this is a year to bring the generations together to support each other; to invest in upskilling; to strive to create more flexible ways of working. It’s a year to build resilience – in healthy and engaged employees, and in organisational practices that support people to exercise the autonomy they need to make the most of this coming year.

Linda Yueh, Adjunct Professor of Economics

2023 will be characterised by economic uncertainty. Uncertainty has regularly been cited by firms as one of the most important factors, alongside finding people with the requisite skills, in determining business investment. Uncertainly encompasses not only the macroeconomy but also regulation and taxation. But, this year, uncertainty around the economy will loom large.

Although the inclination of firms in a recessionary environment, particularly with high inflation that itself is a source of uncertainty, is to cut back on capital spending, this is precisely the area that would boost a firm’s growth when the economy comes out of recession.

Having recently finished a book on The Great Crashes, one of the lessons from the 2000-2001 dotcom bubble is that firms which invested strategically while keeping a close eye on the bottom line did better than those that cut back. For instance, despite not having turned a profit until 2002, Amazon did just that and not only survived the crash but grew very well afterwards.

Therefore, the trend to watch in 2023 is uncertainty and the challenge for businesses is how they manage it during a recession. Those who do so successfully will be well-positioned to grow during the boom that will invariably follow the bust.

Linda Yueh’s The Great Crashes: Lessons from Global Crashes and How to Prevent Them is published by Penguin on 18 May 2023.

Discover fresh perspectives and research insights from LBS


Think at London Business School

Hard times ahead for the UK

Rampant inflation, supply-and-demand pressures, rising interest rates… LBS experts discuss how the cost-of-living crisis could pan out

By Andrew Scott, Linda Yueh, Paolo Surico, Lucrezia Reichlin, Seb Murray

Find out more