Technology is quickly transforming nearly every industry and causing major disruption that often creates unforeseen challenges to a company’s business model. Consider how the emergence of online marketplaces that enable people to list and rent vacation homes are threatening traditional hotels. Or how smartphones disrupted GPS manufacturers and digital-native retailers forced traditional brick-and-mortar companies to rethink their strategy. Companies that ignore technology risk becoming irrelevant.
Businesses are catching on. This year, the majority of middle-market companies will spend up to 10 percent of their budgets on technology, according to the Bank of America Merrill Lynch 2016 CFO Outlook. Smart companies are investing in innovation to simplify daily tasks, expand product offerings and enter new industries.
The majority of CFOs surveyed for the 2016 CFO Outlook have plans to boost technology investment this year, with key drivers being an increased need for fraud prevention, growing market share, expanding sales from a physical footprint to a virtual footprint and upgrading aging technology. Currently, technology investments are spread across four key areas.
• Data management and analytics. Research firm Strategy Analytics reports that we’ll have four internet-connected devices, per person, by the year 2020. The ability to harness and analyze this data is valuable. Perhaps even more valuable is the ability to identify trends and make predictions about the future.
• Cloud computing. According to market research firm IDC’s Worldwide Quarterly Cloud IT Infrastructure Tracker, about 30 percent of the IT market is spent on cloud technology. IDC forecasts that within the next two years, cloud spending will expand to 43 percent of the market. As the number of connected devices continues to grow, greater processing power will be essential.
• E-Commerce. Global tech company Pitney Bowes reported in its Global Online Shopping study that 76 percent of U.S. consumers are likely to purchase products directly from online marketplaces.
• Digital payments. CFOs are beginning to invest in digital payments, and we expect that number to grow significantly in the coming years. Not only do digital payment options provide added security benefits, but they also help increase sales and revenue.
It’s becoming increasingly important to look ahead 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.
Al Welch is the Las Vegas market president of Bank of America Merrill Lynch.