Perspectives

Private company issues and opportunities

What to consider in 2017

Today, even the most streamlined private organizations are being challenged by the quicksilver pace of technology’s progress. Breakthrough innovations such as the Internet of Things and augmented and virtual reality are disrupting commercial markets and business models on a seemingly daily basis. Every private company leader has to have a plan of action for channeling these disruptions into new business opportunities. This report provides an overview of digital disruption and a range of business dimensions to consider in 2017.

Private company issues and opportunities

Being king of the mountain isn’t what it used to be. These days, it’s harder even for the biggest companies in the world to hold onto higher ground. What happened? Pure and simple: Technological disruption.

First came the Internet, which dislodged plenty of large public and growing private companies alike. Then there was the cloud, mobile, and social. Now comes the next big wave of innovation, including the Internet of Things, artificial intelligence, augmented and virtual reality, and blockchain.

   

Private company issues and opportunities
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Every private company leader should have a plan of action for channeling these disruptions into new business opportunities. In this pursuit, we believe three attributes can distinguish leading private companies:

  • The first is speed. This translates for companies in different ways, but generally means being ready to act before you’re called upon to do so and having processes in place to help your organization respond in real time as conditions on the ground change.
  • The second is alignment. Speed for the sake of speed only leads to hasty decisions that can imperil future results if not enough care is taken to understand the implications of transformational change on each aspect of the business.
  • Finally, discipline becomes more important as you’re pressed to manage all of these considerations in tighter time frames.

This report examines how C-suite leaders can foster these attributes across a range of business dimensions. Read the full report, or click on the titles below to learn more about a specific topic.

Click the titles below to learn more about each topic

Digital disruption

First, there was ZipCar. Founded in 2000, the car-sharing company became a hit with urban consumers by providing a cheaper, shared alternative that could be used on demand. In the years since, vehicle-sharing has made way for ride-sharing, with services such as Uber and Lyft, and driverless cars may follow next. What do all of these innovations have in common? One, they were empowered by digital technologies. Two, they disrupted business models that hadn’t fundamentally changed for decades. With a raft of new technologies set to disrupt business as usual across every sector of the economy, are private companies doing enough to get ahead of them?

Analytics

 A universe of sensors can offer up-to-the-minute reports on the temperature, a personal activity, or the exact coordinates of an online order. The digital platforms providing that information “talk” to one another, forming a vast network known as the Internet of Things (IoT). Those conversations, in turn, become a massive supply of details from which organizations can analyze customers, employees or partners. The proliferation of sensors has accelerated the power of data analytics, turning this class of technologies into an increasingly attainable means of translating information into insight.

Cloud computing

New generations of cloud computing solutions are chipping away at one of the most persistent challenges for growth-minded companies: creating a high-quality customer experience. In addition to their role in powering front-office functions, cloud-based technologies are equipping growing numbers of organizations with fuel for back-office operations. As firms look for new ways to create connections to customers, expect private companies to continue to integrate customer-focused cloud solutions into their technology mix.

Cyber risk

The high-profile data breaches over the past couple of years across public, private, and government sectors show that any company or organization is at risk of a cyberattack. Private companies understand this: the management of cybersecurity and information risk continues to be the most pressing assignment for technology leaders at private companies, according to our latest technology survey of the middle market. Confronting cyber risk is now a priority for private companies, but the ever-changing cyber threat landscape means total prevention is close to impossible.

Capital Spending

Faced with growing uncertainty surrounding technology, globalization, and political and economic policy changes, many private companies are re-examining how they allocate capital. Demands on capital budgets are becoming more complex, from cybersecurity to maintaining global supply chains. Many private companies find themselves having to make spending decisions more quickly in an environment in which they already must do more with less. Senior management faces the challenge of improving their strategy development and processes for measuring risk to ensure that capital is spent where the company needs it most.

Financing

 Driven by an economy that continues to pick up speed, private companies are gearing up to borrow more in the year ahead. Our latest annual survey of private and mid-market companies found that more of them plan to tap cash-flow financing, secured loans and private sources of capital as their optimism in the economy’s direction grows. Three Federal Reserve rate hikes since December 2015 have started to push up borrowing costs, though rates remain low by historical standards and a growing economy is expanding private companies’ borrowing capacity.

Globalization

Tapping new markets and customers. Reducing labor and production costs. Realizing tax efficiencies. Gaining access to new pools of talent. All of these reasons factor into private companies’ desire to take their business global. Today, a supportive economic backdrop and a strong dollar are adding to the business case for international expansion and pushing the decision past the tipping point for more private company leaders.

Talent

The US labor market is tighter than it’s been in years. After unemployment peaked at 10 percent in October 2009, it’s been on a steady descent; by January 2017, it had dipped all the way down to 4.7 percent. As the labor market tightens, small- to midsized businesses report having a harder time finding qualified workers. The share of small businesses with few or no qualified applicants for job openings recently hit a 17-year high in November 2016. For private companies, the question becomes how they are going to find and retain top talent.

Governance and succession planning

Managing and growing a private company may take more decision-making expertise and leadership than ever before. The growing complexities of globalization, electronic commerce, risk and supply chains, to name a few, require greater professionalism among company leaders, board members, and a deeper bench of senior managers. As labor markets tighten, finding and retaining the best and most relevant talent and leadership often can be the biggest governance challenge facing private companies.

M&A preparation

Private companies are confident that corporate combinations will grow in frequency and size in 2017. The predictions for a prolonged M&A spurt follow a year in which global volume dropped 15 percent from the previous year. Market observers had to wait until the fall of 2016 for the environment to show measurable signs of traction. Our work with private companies reveals the depth of the pent-up demand: in our most recent M&A trends report, 70 percent of mid-sized firms expect their total number of deals to grow moderately or significantly this year.

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