Opportunities and Issues for 2017

Opportunities and Issues for 2017

Take Tech Smarts Seriously

In today’s digital world, tech smarts are critical for successful private companies. But many aren't putting such skills at the top of their priorities list.

Not wise. Digital disruption, along with a host of other business dimensions, should be seriously considered, according to a new report from Deloitte Growth Enterprise Services titled Private company issues and opportunities: What to consider in 2017.

“Digital’s simply not as big a priority as it should be, and more often than not companies are simply getting in their own way,” said Doug Palmer, principal, Deloitte and a leader in Deloitte Digital’s strategy practice in the report.

When considering new recruits, Palmer advised, “they need to be able to bridge the gap between the company’s traditional culture and where it wants to be in the future. That means that soft skills should often trump technology knowledge when it comes to driving the digital transformation, especially for organization leaders.”

The Deloitte report examines digital disruption, analytics, cloud computing, cyber risk, capital spending, financing, globalization, talent, governance and succession planning, and M&A preparation.

Here’s an overview of this year's issues and opportunities:

 

 

Digital disruption

First, there was ZipCar. Founded in 2000, the car-sharing company became a hit with urban consumers by providing a cheaper, shared alternative that could be used on demand. In the years since, vehicle-sharing has made way for ride-sharing, with services such as Uber and Lyft, and driverless cars may follow next. What do all of these innovations have in common? One, they were empowered by digital technologies. Two, they disrupted business models that hadn’t fundamentally changed for decades. With a raft of new technologies set to disrupt business as usual across every sector of the economy, are private companies doing enough to get ahead of them?

 

Analytics

 A universe of sensors can offer up-to-the-minute reports on the temperature, a personal activity, or the exact coordinates of an online order. The digital platforms providing that information “talk” to one another, forming a vast network known as the Internet of Things (IoT). Those conversations, in turn, become a massive supply of details from which organizations can analyze customers, employees or partners. The proliferation of sensors has accelerated the power of data analytics, turning this class of technologies into an increasingly attainable means of translating information into insight.

 

Cloud computing

New generations of cloud computing solutions are chipping away at one of the most persistent challenges for growth-minded companies: creating a high-quality customer experience. In addition to their role in powering front-office functions, cloud-based technologies are equipping growing numbers of organizations with fuel for back-office operations. As firms look for new ways to create connections to customers, expect private companies to continue to integrate customer-focused cloud solutions into their technology mix.

 

Cyber risk

The high-profile data breaches over the past couple of years across public, private, and government sectors show that any company or organization is at risk of a cyberattack. Private companies understand this: the management of cybersecurity and information risk continues to be the most pressing assignment for technology leaders at private companies, according to our latest technology survey of the middle market. Confronting cyber risk is now a priority for private companies, but the ever-changing cyber threat landscape means total prevention is close to impossible.

 

Capital Spending

Faced with growing uncertainty surrounding technology, globalization, and political and economic policy changes, many private companies are re-examining how they allocate capital. Demands on capital budgets are becoming more complex, from cybersecurity to maintaining global supply chains. Many private companies find themselves having to make spending decisions more quickly in an environment in which they already must do more with less. Senior management faces the challenge of improving their strategy development and processes for measuring risk to ensure that capital is spent where the company needs it most.

 

Financing

 Driven by an economy that continues to pick up speed, private companies are gearing up to borrow more in the year ahead. Our latest annual survey of private and mid-market companies found that more of them plan to tap cash-flow financing, secured loans and private sources of capital as their optimism in the economy’s direction grows. Three Federal Reserve rate hikes since December 2015 have started to push up borrowing costs, though rates remain low by historical standards and a growing economy is expanding private companies’ borrowing capacity.

 

Globalization

Tapping new markets and customers. Reducing labor and production costs. Realizing tax efficiencies. Gaining access to new pools of talent. All of these reasons factor into private companies’ desire to take their business global. Today, a supportive economic backdrop and a strong dollar are adding to the business case for international expansion and pushing the decision past the tipping point for more private company leaders.

 

Talent

The US labor market is tighter than it’s been in years. After unemployment peaked at 10 percent in October 2009, it’s been on a steady descent; by January 2017, it had dipped all the way down to 4.7 percent. As the labor market tightens, small- to midsized businesses report having a harder time finding qualified workers. The share of small businesses with few or no qualified applicants for job openings recently hit a 17-year high in November 2016. For private companies, the question becomes how they are going to find and retain top talent.

 

Governance and succession planning

Managing and growing a private company may take more decision-making expertise and leadership than ever before. The growing complexities of globalization, electronic commerce, risk and supply chains, to name a few, require greater professionalism among company leaders, board members, and a deeper bench of senior managers. As labor markets tighten, finding and retaining the best and most relevant talent and leadership often can be the biggest governance challenge facing private companies.

 

M&A preparation

Private companies are confident that corporate combinations will grow in frequency and size in 2017. The predictions for a prolonged M&A spurt follow a year in which global volume dropped 15 percent from the previous year. Market observers had to wait until the fall of 2016 for the environment to show measurable signs of traction. Our work with private companies reveals the depth of the pent-up demand: in our most recent M&A trends report, 70 percent of mid-sized firms expect their total number of deals to grow moderately or significantly this year.