2016 Technology Industry Outlook | Deloitte US has been added to your bookmarks.
2016 Technology Industry Outlook
Interview with Paul Sallomi
Technology is not only fueling major business transformation across industries, it’s also changing how technology enterprises sell their products and services, operate, and plan for future growth, says Paul Sallomi, Global Technology, Media & Telecommunications Industry leader and US and Global Technology Sector leader.
Where do you see opportunities for growth in 2016?
Technology is the backbone of the digital economy. The rate of change and the level of disruption driven by modern technology are exponential. Advancements in computer processing power, data storage, and chip design; the ubiquity of bandwidth; enterprise mobility; and many other developments that have unfolded in recent years are enabling myriad opportunities that were once impossible, both technologically and economically.
Now, we have reached a tipping point where cognitive computing, big data analytics, cloud computing, and the rapidly growing Internet of Things (IoT) are transforming businesses around the globe—including those outside the technology sector. We’re also seeing promising advancements in materials, software, fabrication techniques and machine design that are likely to lead to an expansion in enterprise applications for additive manufacturing (3D printing).
Meanwhile, in the technology industry itself, enterprises are making plans for the next economy rising from today’s disruptive and unprecedented change.
We are seeing technology businesses beginning to think more strategically about adapting their business models and operations, and creating new revenue opportunities. Companies across the entire IT services landscape are changing how they deliver their offerings, shifting toward more flexible consumption business models that allow customers the flexibility to consume and pay for products and services based on need and usage.
Technology companies considering this path—which can create real value for businesses and customers—need to think strategically about how flexible consumption can drive future growth. Before evolving their business models, technology companies also must be prepared to manage near-term transition costs, which could be significant, and ensure that there is alignment and integration of key decisions.
Advancements in computer processing power, data storage, and chip design; the ubiquity of bandwidth; enterprise mobility; and many other developments that have unfolded in recent years are enabling myriad opportunities that were once impossible, both technologically and economically.
What should businesses be mindful of as they plan for growth?
There are several views on what all this change means for the tech sector. Some suggest that as the next new economy evolves, a select group of enterprises will hold all the knowledge and innovation cards, pushing smaller and aspiring players so far off the sidelines that they won’t be able to compete. Others take an opposite view: They argue that a more fragmented economy is almost assured, because affordable access to technology and information will allow almost any innovator anywhere to rapidly develop prototypes, outsource manufacturing and distribution, and gain access to global markets, while remaining independent.
We anticipate that both scenarios will exist in harmony, creating valuable ecosystems. Parts of the tech economy (e.g., cloud and data storage, hardware, computers and systems) will need to scale to battle continuing margin pressures. Fragmentation will also increase, with more startup ventures launched to develop ideas, solutions, and products that can stand on their own or complement existing platforms and devices with specific applications.
The smartphone is an early example of a platform that, once opened to the developer community, resulted in millions of applications. We see early signs of similar trends emerging in the IoT, cognitive technologies, and potentially other areas. With the IoT, we anticipate that there will be a handful of large open platform providers. However, they will pave the way for the emergence of many other players in the IoT ecosystem (for example, companies providing solutions or applications for specific industries). Platform providers will be responsible for orchestrating the ecosystem by ensuring their platforms are interoperable.
The current wave of divestiture activity in the industry underscores the struggle many companies with diverse business models are experiencing in sustaining profitable growth. These businesses—many of them multinationals—are divesting not to become smaller, but to increase focus, making them more “fit” to dominate a specific part of the technology ecosystem. Once the divestiture activity cools, we expect to see a series of acquisitions, as many of these same companies seek to scale for greater concentration in their chosen area of focus.
Another dynamic that could significantly impact strategic planning and growth potential for many technology companies, especially multinationals, is ongoing uncertainty in the global and regulatory environment. Global regulators, increasingly focused on the digital economy and technology companies, see opportunity to increase revenues through taxes and incentives. While regulatory uncertainty around taxation doesn’t change the fact that global markets are an essential expansion channel for most technology companies, it does mean that many of these businesses will need to manage regulatory uncertainties when implementing their growth strategies.
Partnering strategies are another way for technology companies to grow by providing more opportunity for development of new business models, top-line acceleration, and faster adoption of offerings in the marketplace. Some firms may want to explore partnerships with customers in verticals that they sell into, such as healthcare or transportation, so they can serve those markets more effectively. Others may want to consider go-to-market (GTM) relationships, which can offer a shorter path to major customers in need of specialists to help them solve complex problems or to seize new opportunities. And some may want to open up their platforms to developers to help drive innovation.
Technology businesses looking to grow should also strive to work more collaboratively with their customers to truly understand the core challenges they are facing. This insight will help them to better communicate how their products and services can deliver greater value to their customers.
Partnering strategies are another way for technology companies to grow by providing more opportunity for development of new business models, top-line acceleration, and faster adoption of offerings in the marketplace.
What markets do you see emerging in the sector?
Open platforms are a powerful tool for transformative change. They help to accelerate innovation by enabling developers and companies to explore the art of the possible. The IoT, big data analytics, cloud computing, additive manufacturing, and cognitive computing are all areas where we expect to see platform plays in the near future—and where significant investments are being made. We’re already seeing rapid growth in Artificial Intelligence (AI) applications for commercial use—and that is due largely to the availability of open developer platforms.
Many new technologies that emerge from developers’ use of open platforms will help to transform the customer experience. Companies and consumers will be able to forge relationships that are not just transactional or event-driven, but holistic. Technology, such as big data analytics and cognitive computing, is already helping businesses understand and even anticipate customer needs. Of course, the depth of these relationships will depend on how much customers are willing to share about themselves through the technology they use.
In the rising digital economy there are three certainties:
- The pace of technological change will not slow down. However, the tech sector as a whole must continue to seek the answer to achieving seamless integration and communication between products and platforms. Standardization also needs to move to the front and center as businesses and consumers look to realize the full potential of the IoT.
- As more companies recognize that standing still is not an option, the technology market’s barriers to entry will continue to fall. We are already seeing the rapid rise of “unicorns”—privately funded companies in existence for several years whose market capitalization would exceed US $1 billion if they were to go public. The population of unicorns is likely to increase as innovators and investors look to develop new products, platforms, and services as rapidly as possible.
- Continued innovation and critical attention to effective privacy and security solutions will remain an essential component of the adoption of new technologies across all industries.
From both established players and unicorns, expect many innovations that specifically benefit the enterprise to emerge. Many C-level executives are looking seriously at how technology—from data analytics platforms to enterprise security solutions—can boost competitive advantage, help reduce risk, and enable growth.
Executives will also seek solutions that suit their current objectives and needs and offer a predictable and manageable operations cost structure with a built-in buffer against the rapid pace of technological change. This trend will help further fuel the move toward flexible consumption and new, creative ways in which technology creates value and is consumed.
The IoT, big data analytics, cloud computing, additive manufacturing, and cognitive computing are all areas where we expect to see platform plays in the near future—and where significant investments are being made.