Article
From transformation to operating advantage
How mid-market leaders are creating operational advantage under sustained economic pressure
Feb. 17, 2026 · Authored by Jivka Batchvarova
The shift to operational advantage
Table of contents
- Introduction
- The pressure is structural, not cynical
- Leaders are pulling multiple levers at the same time
- Supply chain decisions are now operating model decisions
- Talent is no longer an HR issue it is an operating constraint
- AI investment is accelerating, but execution remains the gap
- Conclusion: The real reframe - Operational advantage as a strategic tool
- Baker Tilly Managed Services as the foundation of operational advantage
For much of the last decade, transformation was treated as a destination. Organizations modernized systems, automated processes and restructured teams with the assumption that change alone would make the business easier to run. New platforms, simplified structures and faster processes were expected to improve performance.
As we move into 2026, mid-market leaders are sending a clearer, more sobering signal. Transformation alone does not make organizations easier to operate.
Many leaders report the opposite. Despite years of investment in technology and process improvement, execution has become more complex and more fragile. It now depends on a small number of experienced individuals. Growth remains possible, but running the business requires greater coordination, stronger judgment and more tolerance for disruption.
What now differentiates performance is not the pace of change, but operational advantage. This is the ability to absorb sustained volatility while continuing to execute with speed, confidence and discipline.
The Baker Tilly 2026 Mid-Market Report , based on responses from 500 leaders across organizations with revenue between 200 million and 2 billion dollars, captures this shift with unusual clarity. When viewed holistically, the data does not point to reactive cost-cutting or short-term retrenchment. Instead, it reveals a pattern of deliberate operating redesign. Leaders are rethinking how work gets done, where decisions sit and how execution is sustained, not because demand is collapsing, but because execution risk is rising.
J.P. Morgan’s 2026 Business Leaders Outlook reinforces this finding. While only a minority of midsize leaders anticipate a recession, a much larger share points to persistent microeconomic pressure. Tariffs, labor constraints, policy uncertainty and higher capital costs are making day-to-day execution more difficult, even in stable or growing markets.
The implication is subtle but significant. The challenge facing mid-market leaders is no longer whether to grow or whether to invest, but how to operate effectively in an environment where disruption is continuous rather than episodic.
As leaders rethink how work gets done, many discover that creating an advantage increasingly depends on how execution is structured and sustained, not simply on which initiatives are launched. In this context, the operating model refers to how work, accountability, governance and decision rights are designed and sustained across the organization.
The critical question has shifted from what we should change next to whether the operating model is designed to deliver consistent and governed execution under persistent pressure. As a result, leaders are recognizing that execution quality is shaped less by strategy alone and more by how work is delivered, governed and sustained over time. This raises questions about whether traditional in-house operating models are sufficient under continuous pressure.
This article explores how mid-market leaders are responding to that shift. It examines the economic forces reshaping execution, the constraints emerging around talent and artificial intelligence (AI) and why operating model choices, including managed services, are increasingly central to sustaining performance.
The pressure is structural, not cynical
Mid-market leaders are entering 2026 with a level of confidence that appears, at first glance, contradictory. Many expect stable demand and continued growth, yet a growing majority describe their operating environment as increasingly constrained.
The Baker Tilly data helps explain this tension. Leaders cite technology adoption at 37%, tariffs at 35% and tax and regulatory change at 34% as their top concerns. These are followed closely by broader execution risks, including the economic environment at 55%, cyber exposure at 52%, regulatory complexity at 49% and talent shortages at 43%. These pressures are not concentrated in a single domain. They accumulate across finance, operations, supply chains and workforce management.
What distinguishes the current environment is not volatility alone, but the persistence of cost and complexity regardless of growth conditions.
While only a minority of midsize firms anticipate a recession, far more point to sustained microeconomic friction. Tariffs permanently alter cost structures, higher interest rates raise the cost of capital, and policy uncertainty complicates planning and compliance. As a result, growth no longer brings operating relief and often introduces additional strain.
This explains why 92% of mid-market leaders are preparing for sustained increases in overhead costs. These increases are not driven by discretionary expansion, but by the cumulative weight of regulation, labor constraints, technology maintenance and risk management. As cost and complexity persist regardless of growth, leaders are increasingly evaluating not just what work is done, but where execution should sit to maintain consistency, control and resilience.
The result is a fundamental shift in how leaders evaluate performance. Cost reduction remains important, but it is no longer sufficient. The real risk is not higher expense in isolation, but whether the operating model can absorb pressure without slowing decisions, increasing errors or relying too heavily on a shrinking pool of experienced talent.
In this environment, operational advantage is not created through episodic efficiency initiatives. It is created when organizations redesign execution so that growth, compliance and complexity can coexist without degrading speed or control. The cost of operating friction is now measured less in expense alone and more in slower decisions, reduced confidence in data and delayed responses to market signals. These effects compound under sustained pressure.
Leadership effectiveness, in turn, is shaped not just by strategy, but by confidence in execution. This is the belief that decisions will translate into reliable outcomes without constant intervention.
Leaders are pulling multiple levers at the same time
Mid-market leaders are not responding to structural pressure with a single bet. Instead, they are acting on multiple fronts simultaneously.
The Baker Tilly data makes this clear. Nearly six in ten leaders are increasing technology investment (59%), while a similar share is driving internal productivity (55%) and strengthening customer relationships (55%). At the same time, leaders are enhancing products and services (49%) and developing new revenue streams (46%). These efforts are not substitutes for one another; they are pursued in parallel.
This pattern reflects a fundamental reality of the current environment. No single lever is sufficient on its own. Technology without productivity gains increases cost. Productivity without growth erodes relevance. Growth without operational discipline amplifies risk. Acting on many levers at once, however, introduces a different challenge - the complexity of execution.
As initiatives multiply, coordination becomes harder, decision rights blur and accountability fragments across functions. The limiting factor is rarely strategy or intent. It is the organization’s ability to orchestrate work consistently across people, process and technology, cycle after cycle. In many organizations, the constraint is not a lack of initiative, but finite management and execution bandwidth, making it harder to coordinate multiple priorities within a single operating model.
Cost actions illustrate this tension. Rather than resorting to widespread layoffs, most leaders are choosing structural adjustments: flexible and hybrid work models (79%), hiring freezes (55%) and real estate rationalization (51%). Only 20% are considering workforce reductions. These choices signal caution, but they also reflect recognition that blunt cost cuts can destabilize execution when complexity is already high.
Midmarket leaders prioritize controllable operational levers, delivery models, process ownership and cost structures over market timing. The goal is not simply to do more, but to ensure that doing more does not degrade execution quality or speed.
The advantage is no longer how many levers organizations pull, but how well those levers work together. Performance improves when growth, efficiency and resilience reinforce one another rather than compete. As complexity increases, effort alone is no longer a reliable measure of success, shifting focus toward operating models built around outcomes, consistency and accountability.
Supply chain decisions are now operating model decisions
For much of the past decade, supply chain strategy was evaluated mainly through the lenses of cost efficiency and supplier reliability. Disruptions were episodic, and organizations could absorb change through temporary workarounds without fundamentally altering how the business operated.
That assumption no longer holds.
The Baker Tilly data shows that 80% of mid-market leaders have already made, or are actively considering, supply chain changes in response to tariffs, regulatory shifts and geopolitical uncertainty. What distinguishes the current moment is not the scale of any single change, but the frequency with which supply chains must now be reconfigured.
Leaders are responding by weighing resilience at 41%, cost at 39%, speed and flexibility at 38%, and talent availability at 33% simultaneously. These trade-offs reflect a growing recognition that sourcing decisions increasingly affect cash flow timing, compliance exposure, system configuration and workforce demands.
As a result, supply chain decisions are no longer isolated procurement choices. They have become operating model stress tests. This has led many leaders to explore execution models that can absorb frequent reconfiguration without repeated disruption to internal teams or control environments.
Each reconfiguration ripples through finance, accounting and operational processes. Transactions are recorded differently, controls must be adjusted, forecasts change and performance measures shift. When these changes occur repeatedly, informal workarounds begin to fail, manual effort increases and execution risk compounds.
Mid-market leaders increasingly treat tariffs as a permanent planning assumption rather than a temporary disruption. In doing so, they acknowledge that resilience cannot depend on ad hoc responses. It must be embedded in how the organization executes day to day.
In this environment, execution resilience is created not by avoiding supply chain change, but by building operating models that can absorb continuous reconfiguration without destabilizing core processes. The differentiator is no longer the chosen supplier, but whether the organization can sustain speed, control and confidence as conditions evolve.
In practice, many of these pressures converge first in finance. Supply chain volatility, labor constraints, and technological changes translate into forecast risk, close complexity and reduced confidence in the numbers used to make decisions. As a result, finance increasingly functions as the control tower for operational advantage, not just a reporting function.
Talent is no longer an HR issue it is an operating constraint
Talent constraints in the mid-market are often discussed in terms of availability. Leaders point to how difficult it is to hire, how expensive it has become to retain talent, and how competitive the market for skills remains. The data support this view. 43% of leaders cite talent shortages as a material business risk. 55% are investing in upskilling and 43% are prioritizing retention, even as 28% report rising burnout.
But availability alone does not explain leaders' hesitation toward workforce disruption. Only 20% of mid-market organizations are planning workforce reductions, despite sustained pressure on margins and costs.
The deeper issue is not headcount. It is execution risk tied to experience.
Across finance, human resources (HR) and core operations, much of the work that keeps organizations running depends on tacit knowledge. This includes familiarity with client-specific risk, historical decisions, process exceptions, regulatory nuance and informal workarounds that never make it into documentation. This knowledge accumulates over time and is difficult to replace quickly, regardless of hiring volume. For many leaders, the question is no longer how to add capacity, but how to access experienced and trusted execution without eroding institutional knowledge or increasing risk. In response, leaders are seeking operating models that institutionalize experience rather than concentrating on individuals.
Over time, this reliance on a small number of experienced individuals creates a hidden tax. Execution becomes resilient only as long as those individuals remain available, engaged and willing to compensate for system gaps. These place increasing strain on confidence, continuity and control.
Labor remains a top operational constraint not simply because workers are scarce, but because experienced talent has become a critical stabilizer in an environment of continuous change. As operating models are stressed by repeated supply chain shifts, regulatory updates and technology adoption, execution increasingly relies on judgment rather than routine.
This dynamic explains why many leaders are cautious about reshaping their workforce before operating model clarity is established. This caution reflects deliberate sequencing rather than resistance to change, as leaders prioritize execution stability while redesigning how work will be performed in the future. The risk is not disruption in the abstract, but the loss of reliable execution while change is underway.
As a result, forward-looking leaders are rethinking not just workforce capacity, but execution capability. Rather than viewing talent as something to be augmented or replaced, they are seeking operating models that combine institutional knowledge with experienced and credible execution. In these models, risk is understood, controls are applied consistently and accountability is clear.
This is accomplished when organizations reinforce internal knowledge with trusted delivery models that bring domain experience, process discipline and governance. This allows leaders to redesign where and how work is performed without compromising quality, confidence or control.
AI investment is accelerating but execution remains the gap
Few topics generate as much urgency and uncertainty for mid-market leaders as artificial intelligence. The Baker Tilly data clearly reflects this tension. Average annual AI investment now exceeds $600,000. Leaders are targeting efficiency and automation at 76%, overhead reduction at 60%, improved insight at 57% and talent attraction and retention at 62%.
Yet despite this level of commitment, adoption remains uneven. 17% of leaders cite a lack of internal AI experience. This is compounded by ongoing concerns around governance, reliability and risk, particularly in finance and HR, where errors can carry regulatory and reputational consequences.
This disconnect is not a failure of ambition. It is a symptom of operating model misalignment. In practice, AI adoption slows not because tools are unavailable, but because ownership, governance and accountability for execution are unclear.
J.P. Morgan’s 2026 outlook identifies this year as the first in which AI is materially influencing workforce planning. Importantly, most leaders do not expect immediate headcount reduction. Instead, they anticipate process stabilization. AI is expected to absorb complexity, standardize execution and reduce reliance on manual intervention.
The challenge is that AI does not operate in isolation. Its value depends on the structure into which it is introduced. In operating environments built on fragmented ownership, undocumented workarounds and inconsistent controls, AI can amplify variability rather than reduce it. In contrast, in environments with clear process design, governance and accountability, AI becomes a force multiplier.
This is driving interest in operating models that embed automation, controls and accountability into execution rather than owning them separately across functions.
This explains why the gap is not technological. It is operational.
As AI moves from experimentation to execution, the defining question for leaders is no longer which tools to deploy. It is whether the operating model can embed intelligence into daily workflows in a controlled and repeatable way.
The result is execution models where AI strengthens judgment rather than replacing it, designed for scale, governance and trust. In these models, automation strengthens judgment rather than replacing it, and insight accelerates decisions without increasing risk.
Conclusion: The real reframe - Operational advantage as a strategic tool
For much of the past decade, leaders have framed transformation as a sequence of initiatives. Success was measured by progress against road maps, milestones delivered and technologies implemented, rather than by the resilience of execution once those initiatives were complete.
The evidence now suggests a more consequential shift is underway.
Across the mid-market, leaders are operating in an environment defined by persistent economic pressure, rising complexity, talent constraints and accelerating technology adoption. Growth remains possible, but it no longer simplifies the business. Instead, it increases the demands placed on execution, coordination, judgment and trust in outcomes.
In this context, operational advantage becomes a strategic tool. It allows leaders to absorb volatility without slowing decisions, to manage complexity without exhausting teams, and to adopt new capabilities such as AI without increasing risk. It connects supply chain flexibility, talent stability, financial confidence and execution discipline into a single operating system.
Operational advantage is no longer defined by efficiency alone. It is defined by durability. This is the ability to execute reliably as conditions shift, to absorb change without destabilization and to scale without eroding confidence in results.
The organizations that outperform will not be those that pursue the most change, but those that design operating models resilient enough to carry change forward. These models create optionality. They give leaders room to respond, adapt and invest with confidence, even as external pressures persist.
Transformation may initiate progress. Operational advantage determines whether progress endures.
For many organizations, this reframing leads to a broader strategic question. It is no longer only about what to change next, but whether the operating model itself is designed to sustain performance in an environment where pressure, complexity and change are constant.
Baker Tilly Managed Services as the foundation of operational advantage
The leadership context we are responding to
At Baker Tilly, our Managed Services platform has evolved directly in response to what mid-market leaders are telling us through the data. Organizations are operating under sustained cost pressure, persistent talent constraints and rapid adoption of AI. At the same time, leaders remain cautious about destabilizing their organizations before the future operating model is fully defined.
This tension is not about resistance to change. It reflects the reality that execution has become harder even in growth environments, and that missteps in core operations carry greater risk than ever before.
The design choice behind our Managed Services platform
As a result, our Managed Services design is not focused on short-term labor arbitrage. It is built to support continuity and adaptability in daily operations.
This reflects a broader shift away from one-time improvements toward sustained execution. In this environment, value is created through consistency, governance and reliable delivery, not through episodic projects that require constant intervention to maintain.
These are the conditions required to build operational advantage in an environment of persistent uncertainty.
The operating model principles that anchor our approach
At its core, Baker Tilly Managed Services is grounded in four operating model principles that are reflected clearly in the data and reinforced by what leaders are experiencing in practice.
- Deep industry partnership over generic labor support: Baker Tilly operates as a long-term operating partner, not simply a service provider. We bring decades of cross-industry and vertical-specific experience across manufacturing, distribution, technology, healthcare, financial services and other sectors. This approach preserves strategic ownership and judgment within the organization while removing transactional burden. It reduces dependency risk at a time when talent shortages and burnout continue to rise.
- Embedded expertise, not episodic assistance: Our model embeds proven practices into daily execution. These practices are drawn from thousands of client journeys and refined across diverse industries. Technology, automation and controls become part of the operating rhythm, delivered by teams that understand real-world complexity. This avoids project-based support models that further strain already constrained internal capacity.
- Scalable, experienced capacity without organizational disruption: Our global delivery model is built on standardized, yet adaptable processes refined across hundreds of clients. This allows organizations to scale volume in response to demand shifts, cost pressure or regulatory change without repeated cycles of hiring, restructuring or retraining. Clients gain access to experienced teams who know how to operate in complex environments and are supported by a platform designed to attract and retain high-caliber talent.
- Trusted vertical credibility in high-stakes functions: Finance, HR and core operations demand governance, rigor and accountability. These functions do not allow room for experimentation without consequence. Baker Tilly delivers predictable, auditable and resilient execution backed by deep domain experience across industries and regulatory environments. This ensures continuity and confidence even as processes, technologies and market conditions continue to evolve.
Managed Services as an operating model extension
Taken together, this is how Baker Tilly Managed Services functions as a true operating model extension and strategic partner, not a conventional outsourcing arrangement. It enables organizations to redesign how work gets done across people, process and technology while maintaining control, confidence and continuity. The result is not simply lower cost, but a more resilient operating model that can absorb pressure, support growth and sustain execution over time.
This is how Managed Services, delivered through a genuine partnership lens, become a powerful mechanism for creating operational advantage rather than simply a cost decision.
