Embracing the changing dynamics of their ecosystems
Innovation in the sector is constantly driving change in the way products and services are bundled. This is leading to a more dynamic competitive environment. Technology companies were the only sector surveyed where most executives stated the biggest competitive threat in the past three years has come from non-traditional competitors. Eighty-one percent of technology organizations indicated that these unexpected entrants have created a material impact on their organizations. Nearly all surveyed expect the trend to continue.
To remain competitive, companies should continually evaluate and embrace the changing dynamics of their ecosystem, anticipate potential new entrants and have a plan of action. As an example, we recently assisted a global software company with assessing product expansion into new vertical markets. This included assessing the ecosystem within these verticals, as well as exploring partnering opportunities with incumbent providers.
Digital capabilities that are not just imperative but the norm
With the technology sector enabling accelerated digital transformation across the broader economy, the need for many companies within the sector to also digitally transform themselves can be overlooked. Thus, executives are increasingly focused on digitalizing their own organizations. We found that about half of technology executives plan to continue their digital transformation efforts by integrating new technologies, including robotic process automation (RPA), artificial intelligence and blockchain capabilities, by 2023. Additionally, a third of top-quartile technology companies plan to rapidly speed up implementation and leverage their digital maturity to take an opportunistic approach.
To maintain leadership, companies must implement strategic digital initiatives quickly and boldly. To accomplish this mandate, companies can add board members with desired competencies and create new leadership roles. Not surprisingly, we found 88% of technology companies that said they have added the roles of chief digital officer and chief data officer during the past five years also indicated that these roles are significantly influencing their strategic mandate. As an example, in our work with a global semiconductor company, we have helped implement a range of digital transformation initiatives, including utilizing RPA to simplify some key processes within major functional areas.
Rethinking the capital allocation process
Many technology companies have grown fast. They’ve acquired companies in record numbers but, in many cases, have not reevaluated portfolios and properly integrated new assets. Consequently, the study found that two-thirds of technology executives believe they must substantially change their capital allocation process to maximize the value of investments.
We recommend that organizations develop an objective framework that can be consistently applied across strategic initiatives or uses of capital. The rigor and approach to measure value across strategic initiatives should be consistent across organic (capex, R&D, sales and marketing, etc.), inorganic (M&A, divestitures, partnerships, etc.) or passive minority investments. The process must be systematic and objective, supported through data and linked to strategic goals but still flexible enough to quickly respond to changing market conditions.
Reimagining strategy formulation in the technology sector
With companies experiencing so much change, we have outlined several actions tech companies can take to reimagine strategy in an era of disruption. Actions include:
- Focus on total stakeholder return (TSR) to maximize enterprise value
- Understand the totality of your ecosystem to effectively compete and innovate
- Redesign your processes to maximize the value from your ecosystem
- Redesign the capital allocation process to enable swifter capital redeployment
- Create a repertoire of playbooks to boost ROI from all types of transactions
- Keep the digital strategy in sync with enterprise strategy to unlock the full potential
- Build real-time, dynamic analytics and strategic planning to preempt disruption
- Inject agility in your organization’s DNA to increase adaptability
Ahana Sarkar, Sonesh Bahel, Angad Jain and Rohan Jain of the EY-Parthenon team contributed to this study.