companies technology percent growth tech cloud likely
Tech Industry Outlook for 2019×Enterprises are likely to continue pursuing cloud, AI, blockchain, and otherpowerful technologies this year, providing varied opportunities for industrygrowth.Entering 2019, innovation and agility are essential ingredients forcompetitive organizations, and technology companies are poised to respond tothese enterprise needs. The outlook could be brighter than expected: Large-company technology sector CFOs participating in Deloitte’s fourth-quarter 2018North America “CFO Signals™ survey” expect year-over-year growth of 10.1percent in earnings and 8.6 percent in revenue—among the highest across theeight industries surveyed, although these expectations are lower from theprevious survey. And they expect 5.1 percent year-over-year growth in capitalspending. Another bright spot for the tech sector is the finding that 73percent of the 147 CFOs surveyed, the vast majority from companies with morethan $1 billion in annual revenue, say they will implement technology toreplace talent, up from 58 percent a year ago.Paul Sallomi, Deloitte’s global Technology, Media, and Telecommunicationsindustry leader and U.S. and global Technology sector leader, discusses theservices, strategies, and industry trends likely to guide technology industrygrowth in the coming year.Where do you see opportunities for growth in 2019?Cloud computing will likely grow more indispensable as everything-as-a-service(XaaS) solutions make it faster and easier to experiment, innovate, andincrease user access to cutting-edge technologies and services. Thanks to thecloud, companies no longer need to shoulder the risk and cost of buyingcomplex technologies and acquiring scarce expertise. This trend is readilyapparent in AI. According to Deloitte’s most recent State of AI in theEnterprise survey report, the most popular path to acquiring cognitivecapabilities is through enterprise software, much of it cloud-based. Fifty-seven percent of survey respondents globally use it now, and an additional 37percent plan to in the next two years. Flexible consumption models shouldcontinue to boost both cloud and AI adoption in 2019, with multicloudstrategies playing a crucial role in enterprise transformation.2019 is also the year many enterprises will likely begin exploring blockchaintechnology, which provides an incorruptible and encrypted method ofrecordkeeping that is easily verifiable. As people and devices areincreasingly connected, identity/privacy protection is a prime concern. Bothblockchain and biometrics can help to secure and manage user identities, andtechnology companies may even combine them to make their offerings moresecure.Year-over-year Growth Expectations of CFOs from the Technology SectorWhat strategies are tech companies using to facilitate growth?Acquisitions are likely to play a significant role in the industry’s growthplans, with 40 percent of tech CFOs participating in the Q4 CFO Signals surveyexpecting M&A to be a substantial portion of their growth strategy this year.Also, partnerships are essential. Companies may need to place greater trust invendors to provide capabilities, including security, that they’re not equippedto handle themselves. External partnerships can also open up new markets forplatforms and products, helping companies overcome traditional barriers toexpansion and scale.From an internal perspective, it is important that businesses buildrelationships with their own IT departments. Too often, disconnects breedshadow IT challenges. In a recent Deloitte survey on flexible consumptionmodels, 55 percent of respondents said their IT department reacts too slowlyto business needs, sending business users in search of XaaS alternatives.Recent tax reforms will likely reshape business strategies. Many technologycompanies are looking to repatriate their cash back to the U.S. with a goal ofenhancing shareholder value. Successful cash deployment could powersignificant growth—the top 16 U.S. technology behemoths alone could repatriatemore than $1 trillion of overseas cash—and may also spur a sizable increase inmergers and acquisitions across the sector. Companies are also likely toassess global operations—including supply chain, treasury, distribution, salesand marketing, and finance—to better align processes and functions against newtax requirements. They will also look to invest in and nurture smallercompanies, not only to accelerate growth but also to fend off competitors andadd niche capabilities.What should businesses be mindful of in planning for growth?Global regulatory uncertainties will continue to cast a shadow over the U.S.technology sector: * Compliance with the European Union’s General Data Protection Regulation requires tech companies to make architectural and engineering changes due to the user data they hold directly or through their cloud solutions for enterprise customers. * India is expected to work on a policy that would require data generated in India to remain within the country. The data localization law would require U.S. cloud providers to ramp up their data centers and storage in India. * The recently passed CLOUD (Clarifying Lawful Overseas Use of Data) Act states that U.S. law enforcement agencies can demand access to user data irrespective of where it is stored. This could challenge tech companies that have promised to protect the personal information of cloud services subscribers—even those from other countries.There are other major areas of concern as well. Addressing customers’ privacyconcerns may challenge technology companies, particularly social mediacompanies looking to monetize user data. Data silos may prevent many companiesfrom gleaning critical insights regarding their customers and business.Cybersecurity is a continuing threat; in many cases, companies could be well-served to leave cybersecurity management to large cloud providers with moreextensive experience and resources.Finally, on the talent front, the shelf life of tech skills is gettingshorter, so many companies may look to invest more in educating and trainingworkforces for the digital era. Indeed, talent was a top internal concernexpressed by tech sector CFOs and others in the Q4 2018 CFO Signals survey.