The biggest potential for tech companies in 2023 is to pursue an aggressive mergers and acquisitions (M&A) strategy in light of increasing inflation, an energy crisis, and falling consumer confidence, according to an annual EY report titled Top 10 prospects for technology firms in 2023.
Top 10 opportunities in technology for 2023 are:
- Accelerate M&A strategy execution to strengthen growth profile
- Experiment with platform ecosystems to disrupt the market
- Double-down on localization, even if it comes at a cost
- Prioritize environmental sustainability
- Introduce pay as you go to attract complementary revenue streams
- Leverage analytics tools to optimize revenues
- Invest in edge ecosystem to improve operations and experiences
- Cyber, cyber, cyber … ensure data protection
- Drive an agile talent strategy to match resources with company need
- Prepare for global minimum tax reform
The demand for transactions is expected to pick up again in the coming year as valuations decline. This is corroborated by a recent EY study, which reveals that 72% of CEO respondents in the tech industry want to seek M&A in the coming year, as opposed to 59% of CEO respondents from all other industries.
According to Olivier Wolf, EY Global TMT Strategy and Transactions Leader, macro headwinds and financial volatility have caused the deal market to slow down, but this has improved chances for corporate buyers with strong balance sheets. As a result, target competition should get more intense again in the coming year as hundreds of billions of dollars in private equity enter the market. Accretive acquisitions have the ability to boost portfolios with cutting-edge technology like artificial intelligence, while transformative acquisitions could push tech companies into new markets or adjacent verticals like HealthTech.
Revamping the Supply Chain
The political, economic, and financial environment has deteriorated over the previous few years, which has hampered supply chain improvements. The chance for tech companies to focus more on localization will allow them to lessen their reliance on politically unstable regions, which takes third place on this year’s rating. Additionally, the tech executive respondents agree, with 78% planning to decouple their supply chain, including nearshoring and reshoring.
“Last year’s efforts to build redundancies into the supply chain will not be sufficient to address the structural risks brought by geopolitical conflict and natural disasters. The sector now needs to spread its industrial footprint across multiple geographies, which will require large investments. Companies will be supported by regulation and sponsorship from governments, and those who are not deterred by the inevitable cost increases will ultimately be rewarded.” said Ken Englund, EY Americas TMT Leader.
Keeping Top Talent
The ninth opportunity on the ranking is for organizations to have an agile talent strategy. The COVID-19 pandemic caused a realignment in work priorities, which led to 56% of employee respondents in the sector saying they were considering leaving their current role in search of higher pay, better wellbeing programs, and new career opportunities. Up until a few months ago, “The Great Resignation” was the biggest workforce challenge for tech businesses.
The sector is now coping with hiring freezes and layoff rounds in reaction to economic instability, as well as talent shortages to support long-term growth.
“In this complex landscape, businesses must balance the workforce by taking steps to retain the highest performers, redefine hybrid work experiences, cultivate diverse teams and an inclusive culture, and address emerging employee concerns. This includes adopting attractive packages that take into account rewards and wellbeing, and redesigning career frameworks to support internal mobility between different roles within the business.” said Susan Robinson, EY Global TMT People Advisory Services Leader
Sustainability Reporting & Edge Computing
According to the report, environmental sustainability, which is ranked fourth, will have a greater impact on the tech industry in 2023 than it did in prior years as businesses adjust to new regulations requiring disclosure of emissions and climate change risks. The potential for edge computing to mature in the following year for companies prepared to invest in new IT architectures is a new entrant in seventh place.
