Business services industry outlook

Business services firms—in particular, facility services and waste management firms—are operating in the most complex environment since the Great Recession. Generative artificial intelligence, regulatory shifts, labor dynamics and a structurally higher cost of capital are forcing leaders of these organizations to rethink growth and capital allocation strategies.

As complexity mounts, firms must prioritize customer durability and labor productivity. While each business’s approach will vary based on its circumstances, leaders must systematically reduce complexity to maximize enterprise value. Otherwise, firms risk decision paralysis—or worse, focusing on operational variables that fail to drive value.

Operational complexity—the expanding web of interdependent people, processes, technologies, data and capital decisions—is reshaping how staffing firms operate, compete and allocate resources. A recent study by RSM US LLP found that U.S. middle market companies have become vastly more complex since 2009, with supply chain relationships growing ninefold, sales per employee nearly doubling, and capital per employee more than doubling over 15 years. For staffing firms, whose operating models hinge on distributed labor, high‑volume transactions, multisystem environments and thin margins, this complexity compounds faster and hits harder. 

Artificial intelligence dominates headlines, but for business services firms—especially those in staffing, workforce solutions, facility services and waste management—AI is just one of the disruptive forces transforming the business services industry. The evolution of the workforce, increased regulatory pressures and private equity developments are equally disruptive—and cannot be overlooked.

Every industry is currently poised for a massive labor adjustment as the tail end of the baby boom generation, those born between 1946 and 1964, approaches retirement age.

Approximately 4.2 million people in the U.S. will turn 65 each year for the next five years. The upcoming wave of retirements is leading to concerns about continuity, succession planning and maintaining a skilled workforce. This mass exodus will disproportionately affect the business services industry, as it has a higher concentration of workers over 55 when compared with the overall U.S. workforce. These issues are mirrored in Canada.

Business service firms are operating in an uncertain economy. The one aspect that is certain to be crucial is the workforce, as labor is critical to business service firms. So determining how to best use the workforce is key. Companies are embracing technological innovations, which can lead to significant benefits, but this requires careful management to ensure employees are supported and upskilled to adapt to new roles.

A dynamic workforce continues to be crucial to success for marketing and advertising firms, particularly given the uncertain economic environment. One factor is the ongoing discussions around tariffs. While advertising firms are less likely to feel a direct impact from tariffs given their service-based offerings, the effect of tariffs on consumer spending and the economy will affect advertising spend from companies. One of the first cuts a business may choose to make is its advertising budget. In a sector that is already so closely aligned to the U.S. gross domestic product, any additional economic pressures will limit growth.

Marketing and advertising firms, environmental and facility service companies, and workforce solutions companies are concentrating their efforts on strategic growth initiatives. They are also emphasizing technological advancements to foster long-term viability and efficiency.

Three key themes have emerged for marketing and advertising firms, according to Bloomberg Intelligence:

• Dealmaking
• Generative AI
• Economic conditions tempering the ad-spending outlook

Each of these themes will directly affect the value of marketing and advertising firms, which have underperformed the MSCI World Index for multiple consecutive quarters. The index measures the performance of large- and mid-cap companies across developed markets worldwide.