The tables have turned on information technology (IT) companies. After being hailed for their disruptive nature and new and different solutions, they’re facing serious disturbances themselves. They’re being pushed hard to keep up with the pace of changes that spring from the very technologies they provide.
The cloud has made their technologies virtually available to all possible customers. And the reach of IT companies equals their grasp. “Reaching new markets has never been so straightforward or as low-cost,” said Steve Perkins, Technology leader at Grant Thornton LLP. As a result of this ease, IT companies are aggressively blurring traditional industry boundaries. But there are challenges, he added.
The pressure’s on
No doubt, the IT industry is still enjoying the fruits of its labors. The global everything-as-a-service market is moving up fast. Technavio reported a 40% compound annual expected growth rate by 2020 for its storage-as-a-service segment alone. By the end of 2016, U.S. companies will have invested more than $232 billion in internet of things (IoT) hardware, software services and connectivity, and IoT revenue is forecast to reach $357 billion by 2019, according to International Data Corporation.
The potential has attracted attention from competitors and regulators, as well as customers who expect greater capabilities. Pressures are on IT companies to meet the expectations of business, global and personal-use markets. To succeed, they must recognize these trends that are shaping the future of the industry and align their operational models accordingly.
Hypercompetition creates risk
Brave information technology companies are meeting their competition where it lives, often in new territory, which exposes them to significant risk. Their inexperience with the specific technological and compliance requirements can erode their gains. As they are finding their footing, they face the threat of others wanting to do the same thing — crossing their borders and capturing their clients.
To prepare to advance and defend their market share, IT companies must understand the environment and the risks, and evaluate partnership and acquisition strategy for expansion.
International growth means volatility and scrutiny
As tech companies make international moves, they’re subject to legal and regulatory obstacles. They will be up against privacy protection and face scrutiny of their tax strategies based on where their support, sales and innovation activities are physically located.
IT companies must educate themselves in how legal, regulatory and tax risks affect much of their business. Joel Waterfield, Grant Thornton’s national managing director for Technology, advised: “Information technology companies need to build a detailed view of the tax landscape in all their target markets — understanding where the inconsistencies are, where changes are pending and what the implications are for compliance and tax reporting.”
Redefining platforms and creating value
Platform communities that connect producers and consumers have become more important, and tech companies can’t afford to make simple incremental improvements. Their mandate must be to develop redefined platforms because platforms can be easy to commoditize or imitate.
To create value, IT companies need strong operational discipline, vigilance, data governance, structure and processes. Customers must be offered a compelling end-to-end experience. In addition, IT companies need to be sure their acquisition strategy is sound. According to Perkins, “Constant prioritization of investments must be made to favor those features most apt to build and sustain customer participation in the platform. IT must address questions by using constant customer feedback, an agile approach to development and an obsession with client service."
Purpose must be clear
Success depends on managing competitive risk, regulatory and tax scrutiny, and consumer engagement. Disruption can be effective when executives have a clear purpose and align to themes and trends.