2018 Technology Industry Outlook - Navigating toward the future: Leveraging technology advances in the digital transformation era - Deloitte
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2018 Technology Industry Outlook Navigating toward the future: Leveraging technology advances Technology, Media & in the digital transformation era Telecommunications
2018 Technology Industry Outlook
Where do you see better decisions, and improve operations.
Cloud services make cognitive computing
accessible and scalable to companies,
opportunities for
and may be the way cognitive reaches
broad adoption. Cognitive computing
encompasses machine learning, which
is helping companies find patterns (and
growth in 2018?
anomalies) in large data sets, including
qualitative data.
In a recent Deloitte survey, 83 percent
of respondents said their companies
Interview with Paul Sallomi have already achieved either moderate
In an age of digital disruption, technology companies face increasing (53 percent) or substantial (30 percent)
pressure both to improve time to market and ensure their offerings are benefits from their work with these cognitive
technologies. In addition, 28 percent see
best in class. According to Paul Sallomi, global technology, media, and
new ways of working arising in which
telecommunications industry leader and the US and global technology cognitive technologies augment people’s
sector leader, “Buy-Build-Partner” and M&A strategies provide a capabilities, while another 28 percent
solution for gaining a competitive edge through key technologies such anticipate many new jobs created as a result
as cloud, cognitive computing, and data analytics. of the adoption of cognitive technologies.5
Another cloud-driven trend is user-friendly
Important innovations are making cloud as you go”). Thanks to the explosion of tools, APIs, and apps. In the future, fewer
computing even more valuable for connected devices driven by the Internet of people will need to know how various
companies as they seek to transform Things, more products are now suitable for technologies actually work.
their operations and business models. consumption as a service than ever before.
These advances are helping organizations Benefits to customers include flexibility, Of course, because data is at the core of
accelerate deployments of artificial convenience, and affordability, while vendors everything we’ve discussed, companies
intelligence and Internet of Things solutions, that offer consumption-based products, must learn to take full advantage of it to
while also enabling deep, analytics- platforms, and services can enjoy lower derive insights that move their businesses
driven insights and accelerated software unit costs from aggregation, along with forward. Many companies continue to be
delivery.1 By coupling advances in cognitive enhanced customer relationships. hindered by data silos that prevent effective
computing2 with the availability of cloud analysis and insights. However, we’re
platforms, companies gain more control It has become critical for business-to- starting to see the breakdown of these
over cost and enjoy greater ability to business and business-to-consumer silos, along with the emergence of tools that
drive revenue—possibilities that simply companies to provide cloud-based, flexible excel at connecting disparate information.
weren’t affordable or attainable before. consumption options to customers. The As a result, companies are getting better at
As companies get started with cognitive increasing commoditization of traditional extracting key business insights. Cognitive
computing, cloud services can help them infrastructure necessitates a migration up technologies are assisting in this process by
take advantage of the expertise of cloud the value chain, from products to platforms, taking information from various data silos
providers that have invested billions in software, and services. and combining it in ways that previously
technology and talent. would have required expensive ERP
Technology leaders are getting the message: software or similar solutions.
For all these reasons, cloud adoption According to a recent Deloitte survey, 91
continues to build momentum: In 2018, percent of CIOs have adopted flexible Companies are also starting to realize that
cloud is expected to cross the 50 percent consumption capabilities, and over the next to capture business insights, you don’t
adoption milestone. Cloud applications, two to three years, 91 percent of adopters start with data—you begin by identifying a
platforms, and services will continue expect to allocate more than 10 percent specific business problem and the resources
to radically change the way enterprises of their IT spend to flexible consumption needed to resolve it. In some cases, the
compete for customers.3 offerings.4 solution may require specific expertise—
such as data scientists—that companies
Cloud is also driving another critical Although still in its infancy, cognitive don’t necessarily have. However, the key is to
business model transformation as we computing is already helping companies start asking the right questions to pinpoint
enter 2018: flexible consumption (“pay enhance products and services, make the best use cases to emulate.
2
2018 Technology Industry Outlook
Which strategies are become best in breed. When organizations
can’t scale their investments to reach that
level, we’re seeing spinoffs into areas where
tech companies using
they can acquire the assets needed to gain a
competitive edge.
Technology companies also need to
to facilitate growth?
consider mergers and acquisitions when
they need to enter a high-growth market or
to obtain scarce and strategically important
talent. Divestitures, on the other hand,
are an essential tool when companies
“Buy or build?” is a familiar concept to customer? Who gets paid for what? How need to focus on higher-growth areas and
most senior executives in the technology do you structure deals? How do you make shed businesses where they are lagging
marketplace. However, the complexities and the process easy? Of course, customer competitors, or that no longer fit their future
relentless pace of digital transformation experience is paramount—companies must strategy.
have altered this concept: It’s now buy, effectively work through the complexities of
build—or partner. partnered solutions without compromising The M&A strategy has been especially
on customer value and experience. This evident in the technology, media, and
This is an important change—and an dynamic is definitely going to challenge a lot telecommunications sector, which in the
essential strategy for technology companies of enterprises in 2018. The ones that master first half of 2017 recorded 1,482 M&A
in the coming year. As more and more it will capture market share. transactions globally, worth a total of $175.9
capabilities move to the cloud, companies billion. The sector’s deal count during that
are collaborating like never before to Another strategy for technology companies period was exceeded by that of only one
match the end-to-end offerings of their in 2018 will be mergers, acquisitions, other industry (energy, mining, and utilities).7
competition. Hardly a week goes by that and divestitures, which can provide a
we don’t hear about would-be competitors fast track to fending off competitors from In addition to pursuing acquisitions, major
collaborating. These companies are using both inside and outside one’s industry. tech companies have actively invested in
“coopetition” (cooperative competition) Technology companies face tough choices artificial intelligence startups through their
essentially to pool their resources for mutual about harnessing the capabilities needed to venture arms.
gain—in areas where they don’t compete
directly.
The concept of “coopetition” is not new—it
was coined by Adam Brandenburger and
Barry Nalebuff in their best-selling book,
Co-opetition, initially published in 1996. The
authors’ research led them to conclude
that most businesses succeed when other
businesses succeed.6
The complexity involved in designing
today’s technology platforms requires deep
expertise in a wide array of areas. The rising
number of technology partnerships is an
acknowledgment that to compete more
effectively, developing end-to-end solutions
can be less appealing (and less attainable)
than collaborating. These partnerships
are driven by a need for comprehensive
solutions that demand best-in-breed assets
from multiple companies.
Technology partnerships create many
complexities: How do you contract with the
32018 Technology Industry Outlook
What should businesses
be mindful of as they
plan for growth?
fingers on the pulse of regulatory change.
Of course, this is easier said than done.
The regulatory environment is highly
complex, with different regulators at the
national, state, regional, and city levels.
Further complicating matters is that some
enterprises conduct business in over a 100
different countries—each with its own laws.
Regulatory changes have the potential to
drastically alter a company’s competitive
position.
Moving forward, the most successful
companies will be those that have the ability
to “see around corners”—not only regarding
regulatory changes, but also in recognizing
potential industry disrupters. In today’s
fast-changing technology marketplace, it
While the cloud and mobile devices are automation (RPA) capabilities of bots enable has become imperative to recognize where
essential components of any company’s cyber automation, including autonomous new, disruptive technologies are emerging.
digital transformation, they do present processing of vast sources of threat Increasingly, this will involve looking beyond
a significant cybersecurity risk. In fact, intelligence.13 one’s own industry—the most dangerous
according to a recent report, 27 percent of disrupters often lurk in industries far
connected third-party cloud applications As they plan for growth in 2018, companies different from those that they could
introduced by employees into enterprise must also be mindful of the ever-changing eventually impact.
environments in 2016 posed a high security regulatory environment. Organizations
risk.8 Another study revealed that the building cloud solutions, for example, need
information industry 9 experienced 1,000 to comply with regulations pertaining to
cybersecurity breaches during 2016, with data sovereignty. The challenge is that data
an incident rate10 of over 1.5 percent.11 On must be managed and controlled according
average, US companies in the information to regulations that typically vary by country.
industry suffered $1.7 million in lost As a result, data sovereignty regulations
business per data breach.12 have emerged as one of the biggest barriers
to cloud adoption.
To help minimize cybersecurity risk, many
enterprises are already using multiple Technology companies face a host of other
security vendors and products in their regulatory challenges, ranging from privacy
environments. New technologies are and security to taxation. The power of the
also beginning to play an increasingly regulators is undeniable—their impact
important cybersecurity role. For example, literally can be catalytic or catastrophic
AI-powered bots are helping companies for businesses. To navigate this difficult
mitigate cyber risks. The robotic process environment, companies must keep their
42018 Technology Industry Outlook
Endnotes
1. Dave Bartoletti, Lauren E. Nelson, Liz Herbert, Paul Miller, Charlie Dai, Andras in the software, broadcasting, media, internet and telecommunications, and
Cser, Andre Kindness, “Predictions 2018: Cloud Computing Accelerates data processing industries.”
Enterprise Transformation Everywhere,” Forrester, November 7, 2017.
10. The research paper describes incident rate as the frequency of cyber-attacks.
2. For more about how cognitive technologies are helping companies to The incident rate is calculated as the number of cyber incidents divided by the
transform themselves, while delivering early returns on investment, see: Tom total number of firms within that industry.
Davenport, Jeff Loucks, and David Schatsky, “Bullish on the Value of Cognitive,”
11. Sasha Romanosky, “Examining the Costs and Causes of Cyber Incidents,”
Deloitte, November 2017, https://www2.deloitte.com/us/en/pages/deloitte-
Journal of Cybersecurity, Vol. 2 (No. 2), 2016, 121–135, Oxford University Press,
analytics/articles/cognitive-technology-adoption-survey.html.
August 8, 2016.
3. Bartoletti.
12. Ibid.
4. 2017 Flexible Consumption Impact Survey, Deloitte.
13. Anthony Abbatiello, Tim Boehm, Jeff Schwartz, Sharon Chand, “No-collar
5. 2017 Deloitte State of Cognitive Survey, Deloitte Development LLC, 2017. Workforce: Humans and Machines in One Loop—Collaborating in Roles and
New Talent Models,” 2018 Tech Trends, Deloitte Insights, December 5, 2017.
6. International Business: Text and Cases, Fifth Edition, Francis Cherunilam, 2010.
7. David H. Deans, “The Technology, Media, and Telecom 2017 M&A Deal
Update,” Telecom Tech News, July 28, 2017, https://www.telecomstechnews.
com/news/2017/jul/28/technology-media-and-telecom-2017-ma-deal-
update/.
8. Cisco 2017 Annual Cybersecurity Report, January 2017.
9. In NAICS classification (code No. 51), “Information sector includes companies
5This publication contains general information only and Deloitte is not, by means of this publication, rendering accounting, business, financial, investment, legal, tax, or other professional advice or services. This publication is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified professional advisor. Deloitte shall not be responsible for any loss sustained by any person who relies on this publication. About Deloitte Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee (“DTTL”), its network of member firms, and their related entities. DTTL and each of its member firms are legally separate and independent entities. DTTL (also referred to as “Deloitte Global”) does not provide services to clients. In the United States, Deloitte refers to one or more of the US member firms of DTTL, their related entities that operate using the “Deloitte” name in the United States and their respective affiliates. Certain services may not be available to attest clients under the rules and regulations of public accounting. Please see www.deloitte.com/about to learn more about our global network of member firms. Copyright © 2018 Deloitte Development LLC. All rights reserved.
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