Adapt Your Strategy to Higher Interest Rates

📆 3/1/2024 8:15 PM
📰 HarvardBiz

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While many executives and investors were thrown by last year’s interest rate increases, the cost of capital needn’t be a threat. Companies that integrate the cost of capital into their strategy and planning reap real benefits. When something is cheap, people waste it.

With the cost of capital back to normal levels, it’s simply irresponsible not to make it a management discipline that changes the way you do business. To do that, executives need to rediscover the concept of economic profit — that is, revenue minus not just operating and administrative costs, but also the cost of the capital needed to produce that revenue.

Indeed, when our colleagues3,100 executives about forces that had disrupted their business last year, interest rates and inflation topped the list. When the executives were asked about threats to their business in 2024, interest rates and inflation again led the list, ahead of other issues such as politics, regulation, AI, or climate change.Accelerate your career with Harvard ManageMentor®.

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