• Digital transformation, new technologies, are top challenges for 2025 and the future
  • Controlling costs a focus, but leaders looking further ahead at new growth markets 
  • Cyber still a key challenge, talent slips down list
  • Housing availability/affordability seen as key societal issue
  • Potential rate cuts not likely to lead to significant increase in business investment 

Digital transformation, and use of emerging technologies like AI are the key issues Australian business leaders will focus on during 2025 and beyond, KPMG’s annual Keeping Us Up At Night survey finds.

Concerns over the slowing economy, and cost of living are also prominent, the survey of 320 businesses found, but talent – recruiting and retaining staff – has dropped down the list of top priorities.

Key challenges for 2025 compared with last year’s survey

 

Top 5 challenges in 2025 survey Top 5 Challenges in 2024 survey
53% – Digital transformation and optimisation and extracting organisational value from it. 43% – Protecting and dealing with cyber risks.
42% – Protecting and dealing with cyber risks. 42% – Talent acquisition, retention and upskilling to meet a digitised future.
39% – Cost controls in an inflationary environment 41% – dealing with evolving regulatory processes, reporting changes and impacts.
39% – New technologies, including AI, and the use cases and ethics that arise when implementing. 38% – Digital transformation and optimisation and extracting organisational value from it.
38% – Dealing with evolving regulatory processes, reporting changes and impacts. 38% – Cost controls in an inflationary environment.

 

Andrew Yates, KPMG Australia CEO said: “We were not surprised that controlling costs in an inflationary environment still ranks in the top 3 issues. The high core inflation is also making any immediate interest rate cuts less likely which will be a frustration for many business leaders. Having said that, survey respondents did not indicate rate cuts would see a significant increase in their business investment in 2025.” 

The study, the 7th in the KPMG series, found that digital transformation and optimisation has moved up from 4th in 2024 to top the list of biggest issues facing businesses over the year. Similarly, it rose from 4th to first in their priorities over the next 3-5 years, with 53% of respondents nominating it.

Cyber issues were second top challenge for the next 12 months, while controlling costs in an inflationary environment was joint third, up from 5th last year.  

Joint third priority for 2025 was dealing with new technologies, including AI, up from 6th last year. This was also a strong second (48%) in the list of top challenges over the next 3-5 years, while identifying future market segments for growth was third biggest priority, looking ahead (46%). This issue saw a notable rise from 5th last year.

Overall, the top three issues for the next 3-5 years – digital, new technologies, and future growth sectors – were significantly ahead of any other challenges nominated. The 4th biggest was 10% behind.    

Top challenges in next 3 to 5 years ahead
53% – Digital transformation and optimisation and extracting organisational value from it.
48% – New technologies, including AI, and the use cases and ethics that arise when implementing.
46% – Identifying and growing future market segments and/or innovation opportunities for growth.
Top societal issues impacting business
48% – Meeting the challenges of housing availability and affordability.
48% – Preparing for a future skills gap: technology, data scientists, health workforce shortfall.
47% – Geopolitical disruptions and shifting levels of regional/global tension and cooperation.

Third in the wider societal concerns list, was geopolitics, which can be attributed to the escalation of international trade tensions and the rising issue of tariffs, which has added to the general sense of unease in the global and domestic economy.

Brendan Rynne, KPMG Chief Economist, said: “The policies proposed by President-elect Trump are inflationary in nature – however, what is actually implemented, and when, remains unresolved at the moment.  To the extent a range of economic policies do get implemented that result in price levels for traded goods increasing globally then this will make the pathway for interest rate cuts in Australia more challenging.”

Technology and digital

Andrew Yates said: “Technology, AI and Cyber were the issues of most relevance to our business leaders, who are increasingly joining these together as a single critical and interconnected issue. Leaders are also concerned about meeting associated demands into the future, with preparing for a future skills gap in areas such as technology and data science also joint-top of the wider societal challenges impacting business.”

 “The rise of AI in the survey is notable. We see its potential as transformative for businesses, and like many of our clients, KPMG is significantly investing in this area. It is encouraging that separate research we have carried out indicates that returns on AI investment are either meeting, or in many cases exceeding companies’ expectations. Given the difficult state of the economy and the public finances, increasing productivity is essential for Australia to generate sustainable growth. We firmly believe AI can play a key part in that, as businesses are starting to report.”

Brendan Rynne said: “More generally, technology is crucial to business success – research we have carried out has shown that industries which invest more in capital technology have had superior productivity outcomes – and higher wage growth – than other sectors. When productivity rises, often it can have relatively quick effects on the revenue side of the budget.”

Other issues

Another issue which has risen in importance is dealing with stakeholder expectations, including regulators. This challenge, new to this year’s survey, came 6th in the list of priorities and reinforced other recent KPMG Australian and global research, which has identified this as a growing challenge both for executive management and board directors. 

Andrew Yates said: “We were not surprised to see dealing with stakeholder and regulator expectations as a key issue. The rise of ESG continues and the recent KPMG International CEO Outlook shows that a quarter of chief executives felt a failure to meet ESG expectations posed a serious threat to their continued tenure. We can only see this issue increasing in significance.”

Talent, perhaps surprisingly, fell to 8th place in the list – down from joint top last year and a clear first place in 2023. 

Andrew Yates said: “It is interesting to see recruitment and retention of talent sliding down the list, given that unemployment is still at historically low levels.  The large increase in migration during the last 2 years will have played a part in businesses feeling they can meet their staffing needs, and there may be some continuing hangover from the Covid era where many businesses took on additional staff and have kept them. But the lack of skills in key areas of technology is still a clear concern.”

Looking further ahead, 46% of respondents said they would be focused over the next 3-5 years on identifying new markets and opportunities for growth – a significant increase on last year’s 29%.  

Brendan Rynne said: “While the immediate focus for 2025 will be on controlling costs, our survey shows leaders also looking past the current gloomy economic conditions and starting to focus on new growth markets over the next few years, which is a notable change from last year’s survey. We do see things picking up slowly in the second half of the year and our respondents are clearly keen to make moves for growth when that happens.” 

Societal issues impacting business

The study also examined business leaders’ views on issues of wider social impact. Notably the challenges of housing availability and affordability were now joint top of the list, up from 5th last year. 

Brendan Rynne said: “Housing has moved up to top of the list of wider social concerns. Our respondents recognise that the current lack of supply – leading to an availability and affordability crisis – is different in nature from previous problems and needs a fundamental reassessment of the entire housing system. This will involve all levels of government, the development sector, the construction industry and the wider community and an understanding of the needs of all the stakeholders involved.”    

For further information

Marjorie Johnston
KPMG Communications
0407 329 430
mjohnston4@kpmg.com.au