Faced with continued economic uncertainty in 2013, technology companies are focused on conserving cash and exploring acquisition opportunities with exciting startups that have not gained market traction, according to Eric Openshaw, vice chairman and U.S. Technology, Media & Telecommunications leader, Deloitte LLP. Read on to get his perspective on what’s in store for the technology industry.
What is the key issue facing the technology sector in 2013?
The number one issue for the tech sector is still the economy. The U.S. economy, the potential inflationary path and what we see in the aftermath of the elections will all be top of mind for tech executives. But what happens outside the United States, specifically in Europe, also bears watching. Under almost any scenario, from the euro holding strong under a committed central bank to complete euro collapse, European demand for consumable technology and enterprise technology will likely be dampened. If EU countries experience tax hikes and commodity price increases, U.S. exports, corporate profitability and credit availability will suffer. The Asian economy, although strong, also depends on the European economy.
Despite the potential for the euro to temper European demand for consumable technology, we’ll still see tech companies investing in cool new products. They’re also going to continue to hoard cash — cash is king. The tech sector is sitting on billions of dollars in cash. We’ll see more bottom-feeding as interesting companies that cannot withstand the market uncertainty become better buys. On the flip side, acquisition will continue to be the exit strategy of choice because the initial public offering (IPO) market is still an undependable alternative.
What are some steps companies can take to manage through the current climate of economic uncertainty?
Internally, companies need to continue to manage costs. In addition to the traditional tools of headcount and discontinuing product lines, companies can begin using tools, like social media, to improve operational performance. Social media is still very relevant to improving the performance of the enterprise — to enhance information flows, crowdsource ideas and provide customer support — and most companies haven’t figured it out yet.
It may seem counterintuitive, but this is a time to expand partner networks rather than contract, to rely on more participants rather than fewer. Broader ecosystems better spread the risks and provide nimbleness and flexibility to respond to changing demand and conditions. The ecosystem also provides opportunities for talent and innovation.
What are high-performing companies doing to foster innovation and growth?
Smart companies are doing what they’ve always done: creating an incredible customer experience and innovative products. That is really the core of the tech sector. And they are following demand, which means smart phones and mobile devices. Tech companies are shifting focus to get their components and software integrated into those products and to create or expand that market.
Innovation is going to come from continuing to actively participate in the ecosystem, to tap into ideas and talent outside of the company, but also create structures where innovation can flourish. The tech industry pioneered crowdsourcing, and we expect to see more innovations around those concepts, whether it is creating physical environments where participants can self-select to collaborate on product development or further developing creative platforms (like the SAP Developer Network and the Netflix $1M Challenge) that foster collaboration and support talent acquisition.
This article first appeared on http://www.deloitte.com/view/en_US/us/Industries/technology/e0836763192c...