Adapt Your Strategy to Higher Interest Rates.

The article discusses how businesses can adapt their strategies to higher interest rates. It emphasizes the importance of integrating the cost of capital into strategy and planning, as companies that do so have been found to deliver higher shareholder returns. The concept of economic profit (EP) is introduced, which takes into account not just operating costs but also the cost of capital needed to produce revenue. By identifying where economic profit is concentrated, companies can direct their investments more effectively and achieve a competitive advantage. The article also highlights the benefits of incorporating EP into strategy, such as more focused margin and cost management, smarter growth, a more powerful planning toolkit, and a more constructive partnership with finance. However, the article acknowledges that there are obstacles to implementing this approach, such as measurement complexities, the need for tenacity, and the importance of education, empowerment, and incentives for managers. Overall, the article suggests that viewing the cost of capital as an opportunity rather than a threat can lead to smarter decision-making and better financial outcomes for businesses. [Extracted from the article]