Today, many businesses may think they can't afford to predict “good weather” when planning future budgets, including technology spending. This is not surprising given the overall scenario we are facing: a never-ending series of economic and geopolitical shocks that are impacting the economic outlook.
These include concerns about COVID-19, the global energy crisis, the war in Ukraine, inflationary pressures and, most recently, the banking crisis. However, ongoing rapid technological advances such as the development of Artificial Intelligence (AI), which offers extraordinary potential to transform business, and the development of “Web3” and “Metaverse” technologies have given us an opportunity to pause.
I believe that even when times are tough, CFOs should prioritize technology investments so they can keep up with emerging trends that will shape business for decades to come and avoid having to play painful catch-up later.
Benefits for everyone
While the challenges for business and government are clearly different, the need to invest in digital solutions to meet those challenges in the future is equally important. The benefits for organizations include being able to connect with customers more effectively, improve business efficiency, and stay competitive.
Lockdowns during the COVID-19 pandemic have accelerated the shift to digital platforms, and a new generation of consumers are now digital natives. They expect all transactions to take place in the digital world. However, many companies still only offer relatively basic ways of doing business. Despite consumer demand for digital platforms and the productivity gains that technology offers, UK businesses continue to underperform their international peers when it comes to technology investment.
According to a recent article by the Royal Statistical Society, prior to the 2007-2008 Global Financial Crisis (GFC), intangible investment in the UK (investment in digital assets and technology) was growing at 3.2% per year, while in the US it was growing at 4.4% per year. After the crisis, US intangible investment remained at 4.4% per year, but fell to 2.3% per year in the UK. The analysis goes on to say that if the UK had continued to invest at that level up until 2007, when the GFC began, UK GDP would be increasing by over £59 billion per year today.
The same goes for building the foundations for a strong economy (and strong business) that will last well into the future.
Moreover, investing in cybersecurity technology and advanced anti-fraud solutions can literally save lives and is a smart and necessary business investment. Investing in cybersecurity helps thwart more advanced and emerging threats, breaches and ransomware attacks, aiming to prevent disastrous outcomes such as financial loss and reputational damage.
Investing in evolving business models
Business leaders may balk at the idea of sustaining or even accelerating investment in technology, but failing to do so could mean incorporating outdated business models into turnaround plans. It also fails to provide a solution to one of the enduring challenges of the UK economy: the productivity gap with the rest of the world. Productivity per worker hour in the UK remains around 20% lower than in the US. It is no coincidence that the United States invests the most in technology among the G7 members and remains the world's largest technology market.
An example of a significant technology investment opportunity is 'Web3' and 'Metaverse'. These have the potential to change people's lives by creating a decentralized and immersive world. Organizations such as banks can host customers in their virtual offices of the future, walk them through model homes in the Metaverse, watch real-life videos, receive mortgage, insurance, and financing advice, and more through blockchain. You can exchange contracts and trade with digital currencies. This convenience for consumers means significant time and cost savings for businesses. By combining Web3 and Metaverse with AI and blockchain technology, customers can be provided with customized products/services that build deeper relationships with businesses.
There is also significant interest in generative AI programs such as ChatGPT, which officially launched in November 2022. AI has been steadily adopted by enterprises over the past decade, with adoption more than doubling since 2017. According to McKinsey's “State of AI 2022” report, the percentage of organizations using AI has remained at 50% to 60% for the past few years. AI not only offers the opportunity to significantly improve productivity, but it can also help drive new ways of doing business by enabling companies to predict customer needs and deliver customized services.
Significant opportunities also exist in digital currencies, digital assets, and blockchain-based distributed ledger technology. These reduce friction in financial transactions and create new ways for individuals and businesses to transact directly using decentralized finance (DeFi). Central banks are now introducing fiat-backed digital currencies. Several regulators are currently working to create enabling financial market infrastructures based on distributed ledger technology.
Investment Concerns and Digital Resilience
The UK has made significant progress in creating an environment conducive to increased business investment in technology. Recent budget changes have introduced a new tax relief that allows businesses to write off the cost of investing in IT equipment and machinery against corporation tax on profits (up to 100% of the amount invested). This theoretically creates a strong incentive to increase investment in technology and begin accelerating business transformation.
However, businesses face the dual challenge of rising costs and declining consumer purchasing power. This means that companies must absorb some of the additional costs themselves, rather than passing them on. Additionally, borrowing costs are skyrocketing as interest rates rise, and the recent banking crisis may cause some companies to consider pausing investment plans. It's understandable to be cautious, but the technological innovations surrounding us are enormous. The pace of change is rapid, and business models, systems, and IP can become obsolete at dizzying speed.
While the global economic outlook remains uncertain, the need to invest in the future remains essential. Without it, businesses risk weakening their chances of recovery in the face of a global economic slowdown. Investing in technology can help build digital resilience by helping businesses prepare for the next business cycle, streamlining business processes, improving efficiency and reaching key customers. Cost pressures affecting businesses are likely to continue in the short to medium term. This means investing in technology can help businesses avoid playing catch up in the future.
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