As we plan for the next 12 months, 2022 is looking to be a year of business growth. The economy is recovering from the pandemic, and we are still adjusting and continuing to pivot. The technology industry fared better than most during the pandemic and has significant opportunities for growth. At the same time, there are challenges to overcome. This article reviews technology industry trends, challenges and business goals for the coming year.
The Rapidly Changing Business Environment
Top Business Challenges
As businesses look to plan in 2022, Gartner reports that they are focused on growth, digitalization and efficiency. The pandemic accelerated new technology adoption by several years across all businesses. Much of the technology adoption has been out of necessity due to a reduced workforce and availability of skilled laborers.
The promise of digital transformation to thrive and outperform competition during these times remains clear, which brings a great challenge to the technology industry. The responsibility to support the technical and digital side of these businesses rests on the shoulders of the technology industry and IT leaders.
As reported in our 2021 survey, developing new products has been a struggle, and we see this continuing to be an issue in 2022. How technology companies have endured has had much to do with their stage of lifecycle and their industry vertical. Young tech companies that were not surviving on revenue but fueling growth from capital have kept themselves to task with platform development. More mature firms either survived or thrived by aligning themselves with the altered economy. Businesses whose technologies align well with remote work, e-commerce, and supply chain have obviously been winners.
Top External Business Challenges
Data from consulting firm Bain & Company showed that technology has been leading the way in global economic growth. The largest growth among technology companies is reportedly coming from “born tech” companies, which have technology at the center of their identity. These companies have contributed 52% of total market value growth since 2015. An additional 20% of market value growth has come from companies with a tech-led strategy that augments more traditional models.
Along the same lines, CompTIA’s Cyberstates describes the direct economic impact of the technology industry amounts to 10.5% of U.S. economic value, which translates to over $2 trillion. In terms of industry specifics, the International Data Corporation (IDC) projects that the technology industry is on pace to exceed $5.3 trillion in 2022.
In talking with our technology clients throughout the pandemic, we noted most were adapting quickly to changes in operating structure and product/service demand. We heard and continue to hear optimism with respect to their individual business outlooks, and essentially all businesses have experienced noticeable revenue increases.
More technology companies are moving to Tennessee, and the Middle Tennessee market in particular, from other states such as California and New York.
The technology companies we interact with remain positive, as their revenue models and workforces are still largely in place. Similar to all industries, maintaining a workforce in technology continues to be a challenge. This business challenge may drive some consolidation within verticals in the near future. In addition to these observations, we have noted that M&A activity in the technology space continues to surface at a significant pace.
Business Performance/ Strategies
Sales & Profitability Strategies
Technology companies plan to improve their productivity, efficiency, and technology in pursuit of greater profitability in 2022. Initially reported in early 2021, technology companies are still focused on primarily selling their products and services (new or existing) to existing markets, with 70% looking to develop new products for existing markets as they move into 2022.
Strategies for Increasing Profitability
This year a top concern for technology businesses is how to get their product to market faster. Overall, the LBMC 2021 projections based on CEO input were pretty spot on and continue to hold true for 2022. Unlike other industries, technology businesses were extremely busy with growth and innovation, spending over a third of their capital budgets on research and development, with an increase in capital spend averaging over 11%. A top concern for technology businesses is how to get their product to market faster, so it is no surprise that research and development and marketing has risen to the top.
This is what we noted from last year, and so far, our early observations of 2022 results are similar.
Areas in Which Increased Capital Spend Is Anticipated
“For 2022, businesses will need to keep in mind that any R&D costs, including software development, are no longer fully deductible in the year incurred. For tax purposes, the costs are capitalized and amortized over five years if the activities take place in the U.S. and 15 years if the activities take place outside the U.S.”
BEN CARVER, CPA, SHAREHOLDER, TAX
Mergers & Acquisitions
Technology firms have a greater appetite for mergers and acquisitions than any other industry. In our 2021 survey, over 44% of technology firms considered merging with, acquiring, or being acquired by another firm. Growth-oriented technology firms had an even higher likelihood of participating in a merger or acquisition in early 2021, and we don’t see that changing in 2022.
The mergers and acquisitions market for technology companies remains strong. Similar to what we found last year, diligence on the buy and sell side as well as tax structure diligence are significant considerations in the M&A process. Technology businesses should be prepared for potential investors when opportunities arise. Taking the time to get financials ready now will pay off in the long run.
Merger and Acquisition Considerations—Growth vs. No Growth
HOW HAS THE PANDEMIC AFFECTED BUSINESS STRATEGIES?
On a global basis, technology was a challenge for many businesses. Many were not at all ready to operate in a remote environment, either from a hardware or software perspective. Supply chain management has also been a big issue, resulting in much more visibility for and focus on inefficiencies within supply chains than ever before.”
Key Business Topics
Digital transformation trends continued in 2022, and investments in various technologies have accelerated because of the pandemic.
Technologies that Businesses Plan on Investing
“The most critical piece of a digital transformation is your people. Technology enables and amplifies the potential that your people have. It takes more than technology to bring solutions to our businesses. The human dimension really matters and is valued when it frees your people from a redundant and repetitive task allowing them to be more creative.”
STACY SCHUETTLER, PRESIDENT, TECHNOLOGY SOLUTIONS
Everyone is talking about security, but the impact is really starting to be felt by all businesses with the rising prevalence of attacks targeting managed service providers. We reported in our early 2021 survey that 37.1% of technology companies plan to prioritize cybersecurity, and we see this slightly increasing as we move into 2022. Reported strategies include 42.6% of businesses planning to conduct IT assurance and compliance upgrades.
“Companies that make investments in cybersecurity controls, processes, and tools want to know that those investments are providing the intended security protections and associated risk reduction. As such, many organizations are commissioning IT security assessments to validate that their cybersecurity programs are working as management intended.”
MARK BURNETTE, CPA, CISA, CISSP, CISM, CRISC, CCSFP, QSA, SHAREHOLDER-IN-CHARGE, INFORMATION SECURITY
Acquiring and Retaining Skilled Talent
As with all other industries, technology companies continue to see a high demand for technical talent. The tools and solutions are becoming more and more advanced, and the expert talent to manage those applications is becoming harder to recruit. As we regain balance in 2022, providing flexible or remote work arrangements continues to be a top hiring strategy for the technology industry and a top challenge.
Strategies for Either Acquiring and/or Retaining Talent
The technology industry performed better than other industries during the pandemic, and these companies remain optimistic regarding their business outlooks over the next year. At the same time, several challenges remain. Like other industries, the technology industry must wrestle with continuing to acquire and retain top talent. In addition, these companies will have to prioritize developing new products to stay ahead. That said, we believe the technology industry will accelerate at a rapid rate and are bullish about opportunities in this space in the next 12 months.