Volatility Brings Growth Opportunities

Despite an increasingly challenging business environment, industrial manufacturing CEOs are finding reasons to look to the next year with optimism. EY’s most recent CEO Outlook Survey reveals insights from 45 manufacturing leaders on their responses to supply chain volatility, rising costs and geopolitical uncertainty.

Organizations ready to commit to investments in innovation, people and new business models will be best positioned to benefit from the sector’s most attractive growth markets.

Supply Chain, Cost Pressures Challenge Operational Discipline

CEOs named geopolitical and trade tensions and macroeconomic and market uncertainty among their top challenges to achieving financial targets.

These challenges appear first within supply chains. Only 18% of industrial manufacturing CEOs in EY’s survey feel “very optimistic” that they can deliver products and services despite supply chain and continuity disruptions.

Rising business costs also pose new challenges. While 3 out of 4 industrial manufacturing CEOs indicate confidence about managing the impact of higher costs, they acknowledge that traditional responses are becoming less effective. Many organizations have stabilized revenues and margins through volatile demand cycles by raising prices. Only 16% are “very optimistic” about their ongoing ability to pass cost increases on to customers; 49% are “somewhat optimistic.” Conversations on second-quarter 2025 earnings calls also signaled that price increases, even when consistent among providers serving the same end markets, will not be sustainable at the rates of increase seen since the start of the year.

When costs rise and pricing strategies don’t provide relief, maintaining a commitment to key internal priorities becomes more difficult. Just 1 out of 4 (27%) of CEOs are “very confident” they will be able to preserve operational and financial discipline through challenging macroeconomic conditions in the coming year.

Reason #1 for optimism: Innovation investments will support growth

How, then, are industrial CEOs finding reasons for optimism? Strategic investments in innovation, talent, and new business models are seen as critical—even, and especially, when market conditions are difficult to predict.

CEOs are confident that their organizations can support the innovation needed to produce growth. Almost 9 out of 10 respondents are optimistic that their innovation investments will drive increased product and service revenues. Half (42%) describe themselves as “very optimistic.”

This confidence comes from a readiness to invest in the organization’s future through research and development, capital expenditures and emerging technologies. Commitments to existing resources are recognized as important, but not enough to drive meaningful growth.

CEOs are roughly twice as likely to be “very optimistic” about the outcome of investments in research and development, capital expenditures and emerging technologies than in existing operations and technology stacks.

Technological transformation through automation and AI is driving new discoveries and helping manufacturers commercialize these discoveries more quickly. New or upgraded facilities and manufacturing processes are needed to bring these products to market at scale. When commercialization cycles go from years to months, industrial manufacturers can move ahead of their competition—or just as quickly fall behind.

Inorganic growth will be needed to fuel the commitment to innovation. CEOs are confident that the potential for gaining new technologies and talent can come through mergers and acquisitions as well as joint ventures. About 3 out of 4 CEOs are optimistic about investment in new areas through inorganic growth, with 42% “very optimistic.”

Reason #2 for optimism: Talent outlook improves—especially for employers ready to invest in their people

The success of a manufacturer’s innovation investments depends on the people who build and lead the programs and bring the new products and services into being. According to the survey, the ongoing challenges faced by industrial CEOs in attracting and retaining talent have changed in recent months. In spite of naming labor costs and availability as one of the top three challenges to reaching financial targets in the coming year, a surprising 51% of CEOs are “very optimistic” about finding and keeping a strong workforce. 

However, maintaining competitive compensation may be a challenge. Only 24% are “very optimistic” that their pay packages will be competitive. Manufacturers may need to consider other means to keep their best talent, such as providing attractive career paths and using new technologies in a way that makes jobs safer and more satisfying.

Reason #3 for optimism: Demand for power generation, new business models open up above-market revenue growth opportunities

Among the diverse end markets served by industrial manufacturers, electricity and power generation is seen as offering one of the most promising opportunities for growth. Data centers are creating a need for new electricity sources at an unprecedented rate. More than 3 out of 4 CEOs (78%) agreed that, as demand for electricity accelerates, they plan to launch and/or expand offerings to benefit from increased investment in power generation and distribution.

Industrial manufacturers are also looking for new business models to increase both the growth rates and stability of their revenue streams. Many are expanding their offerings into service-focused businesses, where growth potential and margins can be much higher than product sales alone. Offerings can include software, products-as-a-service and aftermarket services such as maintenance and upgrades.

As service-based business models become more widely available and more expansive, competition among industrial manufacturers is increasing. CEOs shared a range of perspectives on competitive dynamics for their service offerings. While 40% agree that market share for services, software and/or solutions is more challenging to maintain now than a year ago, 29% “neither agree nor disagree.” Another 18% did not agree.

The diversity in answers suggests that both the market and the competition are growing, with some participants more secure in their ownership of the space than others. Deep relationships with customers and a thorough understanding of their needs are critical to success in a service-based business. Industrial manufacturers that fully commit to a service-oriented business model—a journey that involves transformation throughout all aspects of the business—are best-positioned to build, and keep, their market share.

In crisis lies opportunity

Manufacturing CEOs continue to demonstrate their ability to recognize opportunities in challenging environments. When investments in innovation are combined with a commitment to building an attractive workplace and a readiness to pursue new business models, manufacturers will be well-positioned for growth not just in the next 12 months, but in the years to come.

Now is the moment to focus on building resilience, embracing innovation and ensuring the sector is ready to seize future opportunities. These themes will be explored further at CES 2026, where industry leaders will discuss how innovation, AI partnerships and new business models are shaping the future of manufacturing.