A recent report has revealed the top challenges currently weighing on leaders’ minds, from digital transformation to cost controls in an inflationary environment. Experts unpack the role of HR in responding to these challenges.
CEOs in 2025 are facing a landscape defined by uncertainty.
The acceleration of emerging technologies, rising economic pressures and shifting workforce expectations are forcing leaders to make complex, high-stakes decisions, and some have no precedent to guide them.
A recent report from KPMG reveals the top concerns dominating leaders’ agendas, from scaling digital transformation to navigating geopolitical and regulatory risk.
The top challenges CEOs are facing in 2025
Economic pressures, social upheaval and uncertainty surrounding emerging technologies are some of the top challenges weighing on the minds of today’s leaders, according to KPMG’s research.
Compared to last year’s edition of this report, the 2025 survey highlights an increasing overlap between technology, economic strategy and social responsibility.
Below, experts unpack the key trends revealed by the report and offer advice for HR to act as strategic partners in addressing these challenges.
1. Digital transformation and emerging technologies
Topping the list of business challenges reported by leaders was digital transformation, cited by 53 per cent of leaders – a significant increase from 38 per cent in last year’s report. Emerging technologies including AI were also seen as a challenge by 27 per cent of leaders.
“The focus on digital transformation is synonymous with the focus on AI,” says Levi Watters, Partner and AI Solutions Lead at KPMG. “AI becomes truly effective when it’s able to interact with a broader digital workplace.”
Now that AI integration in businesses is inevitable, some employers are struggling to close the gap between AI experimentation and delivering a real return on investment.
“A lot of organisations are overwhelmed by the sheer volume of proof of concepts that they’re trying and finding one that’s going to deliver the most benefit across the board,” says Watters.
“Scaling proof of concepts into something that’s truly enterprise-grade is harder than a lot of organisations imagined at first. Therefore, a lot of good ideas aren’t going much further than the idea stage.”
How HR can help:
In the short-term, HR plays a key role in preparing the workforce for digital transformation through upskilling and effective change management.
“I’ve worked for and with a number of organisations on their AI strategy,” says Watters. “Like all transformations, digital transformation fails when it doesn’t land with people. We [tend to] underestimate the people aspects of change management.”
In many cases, the rush to implement AI in order to remain competitive has distracted employers from its big-picture ramifications, says Dr Juliet Bourke GAICD, Professor of Practice at UNSW Business School and former Partner of Human Capital at Deloitte.
“What does it mean for our culture? What does it mean for productivity? What does it mean for nurturing talent? Should we always use AI or are there times we turn it off? HR leaders have to be one step ahead in predicting the HR implications of what is currently front-of-mind for the business,” she says.
For example, this might involve considering new ways to upskill junior employees now that AI is taking over many of the responsibilities once assigned to entry-level employees. Or it might be about nurturing relationships between employees now that AI can answer questions previously posed to a coworker, leading to the risk of isolation.
Crucially, HR also needs to put diversity, equity and inclusion (DEI) at the forefront of AI related conversations.
Left unchecked, AI has the potential to be corrupted by human biases and exacerbate workplace inequality. Managing this issue has become both more challenging and more important in the wake of slashes to DEI programs in many major companies in recent months.
“Two parallel things are now happening – the slashing of DEI and the huge increase in AI,” says Bourke. “So now there’s a very high level of obsession with AI without any governance or thinking about how it is going to affect DEI. The very people who would have a lens on that are being taken out of business.”
“Many CEOs and organisations aren’t sure as to which [technology] to bet on.” – Levi Watters, Partner and AI Solutions Lead at KPMG
2. Cost controls in an inflationary environment
Unsurprisingly, leaders are also concerned about the economic challenges businesses are facing; 39 per cent of leaders said cost controls would be a top challenge in 2025.
With low revenue growth and supply chain pressures, many leaders feel held back from seizing the opportunities presented by emerging technologies.
“A lot of CEOs are challenged with the need to move fast and at scale with the current capital envelope that they’ve got,” says Watters.
“It’s a challenging landscape to be able to forecast at the moment… Many CEOs and organisations aren’t sure as to which [technology] to bet on. It’s a really fine balancing act at this time.”
The inflationary environment is also impacting housing availability and affordability, an issue CEOs are increasingly aware of.
Interestingly, this was the number-one social challenge that leaders said was impacting the business environment (tied with preparing for a future skills gap), reported by 48 per cent of leaders. This has risen sharply from 33 per cent in last year’s edition of this report.
This increase may be due to the uptick in return-to-office mandates over the past year, says Bourke.
“[The current climate] means that people are making choices about work based on whether they can afford to do that work.”
How HR can help:
Supporting leaders with cost controls requires HR to look at the bigger picture. HR can support scenario planning efforts, helping businesses model different economic conditions and adapting workforce strategies to remain agile in uncertain times.
In terms of housing affordability, HR plays an important role in optimising an organisation’s flexible work policy to ensure it works in the interest of leaders and employees in the current economic climate.
“There’s this current return-to-office-versus-work-from-home dichotomy, and we’ll see how this plays out with some leading organisations announcing their expectation around employees returning to the office is increasing,” says Watters.
“It’ll be interesting to see whether it comes to pass that talent will move to organisations that have more flexible policies.”
Learn tools and frameworks to conduct workforce scenario planning by joining AHRI’s Foundational and/or Advanced Workforce Planning short courses.
3. Regulatory compliance and cybersecurity
Cybersecurity was the second-biggest challenge named by leaders in KPMG’s report (cited by 42 per cent of respondents), while regulatory compliance was a challenge for 38 per cent of employers.
According to Watters, much of this concern comes from the possibility that compliance failures and cybersecurity breaches will damage reputations and erode stakeholder trust.
“The expectation of the public is that organisations are operating in accordance with their values and being compliant,” says Watters. “We’re seeing a lot of very public, shocking examples where organisations are just not keeping up.”
Used well, AI and digital transformation have the potential to help organisations get compliance and cybersecurity under better control, he adds.
“[At KPMG], we use AI to keep on top of the massive scale of regulatory change… Previously, that was very difficult to do manually because of just the sheer volume of what has to happen, and right now we’re seeing unprecedented levels of regulatory change.
“[With cybersecurity], AI gives us the opportunity to be able to sustain and manage [things like] policy compliance or detecting threats…. It can get to the really granular risks and issues and address them.”
“HR leaders have to be one step ahead in predicting the HR implications of what is currently front-of-mind for the business.” – Dr Juliet Bourke GAICD, Professor of Practice at UNSW Business School and former Partner of Human Capital at Deloitte
How HR can help:
One of HR’s most important roles in navigating regulatory requirements is to keep a finger on the pulse of the evolving legal landscape and conduct thorough scenario planning based on potential changes or risks.
Beyond that, as organisations increasingly turn to AI to help manage cybersecurity and regulatory compliance, HR has a critical role to play in ensuring that this process is conducted safely and ethically.
“HR can lead the conversation about ethics, [including] helping leaders identify where the ethical tensions are and then helping them navigate those tensions,” says Bourke. “HR [is in a good position] to lead this, because ethics are a people-based question.”
4. Social issues impacting the business environment
As well as exploring the key business challenges facing today’s leaders, KPMG’s report also examines how contemporary social issues are affecting the workplace.
In addition to housing affordability, some of the top social challenges cited by business leaders included navigating geopolitical disruptions (47 per cent), meeting the challenges of an ageing population (42 per cent) and embracing the move towards net zero (40 per cent).
According to Watters, leaders are under increasing pressure to engage with social issues in ways they haven’t in the past.
“Our top companies are expected to have a voice and an opinion on social issues, and it comes from both employees who want to work with a company that has values aligned with theirs, but also from the broader stakeholder environment,” he says.
“There is an expectation that HR is the business partner helping leaders navigate this space, which means they need to be across what’s happening in the broader picture in terms of societal issues, and then how to respond. As a leader, I’m expecting HR to be stepping into that role to help educate and uplift our processes.”
Noting that the research was conducted in January this year, before the rapid policy changes that occurred in the wake of the US election, Bourke adds that DEI momentum will likely be on most CEO’s agendas.
Many have speculated that some of these policy changes, including the cuts to DEI programs, will have a ripple effect that jeopardises DEI in some businesses operating in Australia.
“If we don’t have DEI in our sights, there’s a real risk we won’t have an inclusive workplace. Then [eventually] we will have to retrospectively correct the errors that have been built in, because we’re not thinking about culture and equity at the same time that we’re thinking about digital transformation,” says Bourke.
As global policy changes threaten to undermine progress, HR can help to ensure DEI remains a business priority.
Addressing the challenges faced by today’s CEOs will depend not only on technical capability and infrastructure, but by the strength of organisations’ commitment to wellbeing, equity and ethical practice – which puts HR in a powerful position to influence business strategy in 2025.
Today’s HR practitioners are expected to be internal consultants to senior management and to deliver people management solutions that drive business performance. AHRI’s short course will equip you with the skills and knowledge to move from a transactional HR role to a strategic HR business partnering role.
