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Were you one of the tens of millions who took part in Amazon’s recent Prime Day? The company said the event was its “biggest day ever,” with sales surpassing last year’s Black Friday and Cyber Monday results. Amazon is a prime example of disruption. But it isn’t a development exclusive to retail.
Technology is transforming nearly every industry, causing disruption that often creates unforeseen challenges to business models. Consider the emergence of online marketplaces that let people list and rent vacation homes for a processing fee competing with traditional hotels; smart phones’ disruption of GPS manufacturers; and digital retailers, like Amazon, forcing brick-and-mortar stores to rethink their entire strategy.
Companies that ignore technology, rather than embracing it, could become irrelevant.
Forward-thinking businesses are catching on. Most middle market companies plan on spending up to 10 percent of their budgets on technology, according to a recent Bank of America Merrill Lynch survey.
Smart companies invest in innovation to simplify daily tasks, expand product offerings and enter new industries, and they are already reaping the benefits. Technology is helping companies unlock previously inaccessible working capital through just-in-time delivery, reduce counterparty risk through open account structures and get faster access to everything from business information to credit.
Technologies Embraced Today
Most CFOs we surveyed plan to boost tech investment, with key drivers being a need for fraud prevention, growing market share, expanding sales from a physical footprint to a virtual footprint and upgrading aging technology. Tech investments are spread across four key areas.
♦ Data management and analytics. About a third of CFOs surveyed are investing in data management. The number of connected devices has grown explosively. The research firm Strategy Analytics predicts we’ll have four internet-connected devices per person by 2020, generating more and more information streams. The ability to harness and analyze this data to understand customers or market behavior is extremely valuable. Perhaps even more valuable is the ability to identify trends and make predictions.
♦ Cloud computing. Market research firm IDC says about 30 percent of the overall IT market is spent on cloud technology, and it’s growing. IDC forecasts that cloud spending will soon expand from 30 to 43 percent of the market. About 23 percent of CFOs plan to invest in the cloud. As the number of connected devices keeps growing, greater processing power will be essential. Cloud software and storage services allow companies to scale quickly, according to their needs, while reducing infrastructure and maintenance costs. Cloud services can create huge cost savings and greater efficiencies in short order.
♦ E-commerce. Pitney Bowes reports that 94 percent of survey respondents said they have made an online domestic purchase in the last year, with 30 percent buying online daily or weekly. About 20 percent of CFOs are investing in e-commerce technology to reach and engage customers online.
♦ Digital payments. CFOs also are beginning to invest in digital payments, and we expect that number to grow significantly in the coming years. In fact, merchant payment revenue is expected to double in response to new digital payment solutions. Not only do digital payment options provide added security benefits, but they also increase sales and revenue. The digital payments category includes payment through mobile devices, chip technology and digital wallets like Apple Pay or Google Wallet. Data encryption and authentication advances are driving growth and offering customers a trustworthy solution.
Technologies for the Future
Sixty-one percent of CFOs surveyed listed investing in advanced technology as their top strategic activity. We expect to see CFOs working more closely with IT departments to identify opportunities for new technology investments. Deciding where to invest depends on goals.
It’s becoming more important to invest in technological advancements now, but also to look ahead toward the future growing demand for differentiation of products and services based on emerging innovation. The speed of disruption requires companies to put new efficiencies to work faster to stay ahead of competitors, and technology should be the top of every CFO’s agenda to put capital to work via strategic investments.
Heather Albright is a vice president and senior relationship manager in business banking at Bank of America Merrill Lynch in Little Rock. Email her at Heather.Albright@BAML.com. |