Sector convergence, AI, and regulatory shifts are among the market factors reverberating across private and family-owned companies, a new report finds.
The world is being reshaped and redefined by convergence. The lines between traditional industries, competitors and collaborators, and customers and suppliers are becoming increasingly blurred. Platforms, partnerships, and products are no longer the domain of single industries or adjacent industries. All these elements are converging—creating a transformation that's enabling new efficiencies, streamlined processes, and novel opportunities for companies to grow.
That's one finding from the Deloitte Private 2023 Midmarket Technology Trends report,1 the ninth annual assessment of the technology priorities, investments, and challenges facing America's middle market private and family-owned companies. The report highlights how industry convergence is accelerating as companies activate cloud, AI, 5G, mobile, and other technologies that can enable movement into adjacent sectors or transform existing services in new ways. In fact, over two-thirds of respondents see a high or very high threat to their position in the marketplace from outside their sector. And nearly a third of businesses are spending more than 5% of their revenue on growth outside of their industry or sector.
Enterprises across this slice of the commercial landscape are also seizing on the potential of AI to help transform the ecosystem, increase efficiencies, and improve customer service. “For companies with active AI initiatives, there's a growing level of confidence in these investments as the business harnesses, monetizes, and generates revenue from selling data and tech-enabled services,” says Khalid Kark, CIO research director with Deloitte LLP.
Ethical and regulatory considerations, meanwhile, are another factor. More than half (55%) of respondents say boards should focus on cybersecurity and regulatory matters.
A Foundation for Growth
If budgets are reflections of a company's ambitions, private enterprises surveyed are conveying a strong desire to innovate at the edges. This year's survey reveals that overall technology spending among respondents is at its highest level since 2017, perhaps making up for lost ground during the pandemic. Further, of those businesses that reported spending more than 5% of their revenue on technology, 90% also reported an increase in their technology spending compared with last year.
The leading areas of technology investment span a range of business needs as companies adapt to new innovations. In the prior survey in 2021, just 12% of respondents predicted AI would have a significant impact on their business within a year. In the current survey, AI has leaped ahead of other technologies as 40% of respondents call it the top tech investment priority. For many of these organizations, AI can provide value in the automation of repetitive processes, working to create demonstrable value and savings for organizations.
About nine out of 10 respondents (87%) who state their companies have active AI solutions report that those solutions are currently both generating revenue and saving costs. What's more, respondents from companies with active AI solutions are more likely to be very confident about their companies' cybersecurity capabilities compared to businesses not using or exploring AI at all.
“Advanced AI and machine learning (ML) models are already helping to solve some of the biggest problems facing humanity—things like the development of new drugs and vaccines, and the enabling of customers in the health care, medical, and life sciences fields in a number of ways,” says Lamont Orange, chief information security officer with cybersecurity firm Netskope. “But the key to doing this is doing it safely. Just as previously intractable problems in different industries are being solved using AI/ML, cybersecurity is a big concern, because attackers are also stealing sensitive data in very innovative ways using these tools.
“Successful adoption of AI ultimately depends on how effectively we address the risks,” Orange adds. “Forward-thinking technology companies have already put AI/ML at the heart of their data protection strategies.”
Respondents want their boards focused on cybersecurity and regulatory compliance more than any other topic over the next year. Examining those priorities by industry, respondents from consumer companies say they would like their corporate boards to focus on emerging technologies. Respondents at life sciences and health care companies say the priority is diversity, equity, and inclusion as it relates to tech teams. Meanwhile, respondents from energy companies say cybersecurity and regulatory compliance and potential risk and opportunity with AI should rise to the top of the board agenda.
Tech Is the Unifying Thread
Convergence could offer a significant growth opportunity for private and midsized companies. But there's complexity that comes with that. As CIOs, CFOs, and other executives driving technology priorities for their organizations prepare for this next chapter, they should consider:
- Ensuring their organizations have a solid digital foundation with data quality that's sufficient to enable technologies such as AI
- Developing plans to manage internal ethical and cyber/privacy challenges as they relate to technologies such as AI, as well as external ethical complexities that may arise as they pursue growth in sectors within and beyond their industries
- Increasing their ability to have regulatory compliance at the top of the board and leadership agenda, especially as industry lines continue to blur.
“Tech is the unifying thread as the lines between humans and machines, traditional industries and their competitors, and customers and their suppliers continue to converge,” says Brett Davis, a principal with Deloitte Consulting LLP and Global Assets leader and general manager of Converge by Deloitte. “That a significant share of companies are devoting resources to exploring growth in industries beyond their own tells us that employees, leaders, and boards see opportunity and value through convergence.”
Read the full 2023 Midmarket Technology Trends report.
Note: A version of this article was originally published in Deloitte Executive Perspectives in the Wall Street Journal’s CIO Journal
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Footnote:
- In May 2023, a market research firm surveyed private and midmarket companies on behalf of Deloitte. The 500 survey respondents represented companies with annual revenues ranging from $250 million to a little more than $1 billion. Half of the respondents were C-suite executives.
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