Many businesses today may feel they do not have the luxury of predicting ‘good weather’ when they plan their future budgets, including spending on technology. That is not surprising given the collective scenario that we have faced – a seemingly unending series of economic and geopolitical shocks that are impacting the economic outlook.
This has included Covid-19, the global energy crisis, the war in Ukraine, inflationary pressures and, most recently, concerns about a banking crisis. However, rapid technological advancements that are underway – such as developments in artificial intelligence (AI) which offer the extraordinary potential for transforming businesses, developments in ‘web3’ and ‘metaverse’ technologies, and others – have given us a chance to pause.
I believe that CFOs should prioritise investments in technology, even if facing stormy weather. This will enable them to keep pace with emerging trends that will shape business in the coming decades and avoid having to play a painful game of catch-up in the future.
Benefits to all
Whilst challenges decidedly differ between business and government, the need to invest in digital solutions to future-proof for challenges, is similarly crucial. Benefits for organisations include more effectively connecting with customers, raising business efficiencies, and helping them stay competitive.
Lockdowns during the Covid-19 pandemic helped accelerate the move to digital platforms and new generations of consumers are now digital natives. They expect to transact everything in a digital world. Yet many companies still only offer a relatively basic way of conducting business. Despite the demand from consumers for digital platforms, and the productivity gains available from technology, UK businesses have continued to underperform international peers when it comes to technology investment.
A recent article from the Royal Statistical Society stated that prior to the Global Financial Crisis (GFC) of 2007-2008, intangible investment in the UK (that is, investment into digital assets and technology) was growing at 3.2% per year, and in the US it was growing by 4.4% annually. After the crisis, investment in intangible assets in the US stayed at 4.4% but fell in the UK to 2.3% a year. The analysis goes on to state that had the UK continued investing at the levels until 2007 when the GFC began, the UK’s GDP would now be more than £59 billion higher each year.
Such is the case for building the foundations for a strong economy (and strong businesses) that will endure into the future.
In addition, investments in cybersecurity technology and advanced fraud-fighting solutions can literally be life-saving and are smart and necessary business investments. Cybersecurity investments help thwart more sophisticated and ever-emerging threats, breaches and ransomware attacks and aim to prevent dire consequences including financial losses and reputational impacts.
Investing for evolving business models
While business leaders may balk at the idea of maintaining, or even accelerating investment in technology, failing to do so means baking obsolete business models into their recovery planning. It also fails to provide solutions to one of the persistent challenges dogging the UK economy – the productivity gap with the rest of the world. UK productivity remains around 20% lower per worker hour than it is in the US. It is no coincidence that the US also has the highest investment in technology among the G7 and remains the world’s largest technology market.
One example of key technology investment opportunities lies in ‘web3’ and the ‘metaverse’ which have the potential to transform lives by creating a decentralised and immersive world. Organisations like banks could host customers in a future virtual office, show customers around metaverse models of houses, view videos of the real thing, receive mortgage, insurance and lending advice, exchange contracts via blockchain, and even transact in digital currencies. Such convenience for the consumer would bring huge time and cost savings to the business. By combining the web3 and metaverse with AI and blockchain technology, customers can be offered tailored products/services that build a deeper relationship with the firm.
There has also been much interest in generative AI programs such as ChatGPT which officially launched in November 2022. AI has been steadily implemented by businesses over the past decade with adoption more than doubling since 2017. The proportion of organisations using AI has stood at 50% to 60% for the past few years, according to McKinsey’s ‘The State of AI in 2022’ report. AI offers the opportunity to significantly increase productivity, as well as help drive new ways of doing business by enabling companies to anticipate customer needs and offer customised services to them.
Key opportunities also exist in digital currencies and digital assets as well as in distributed ledger technology based on blockchain. These will reduce friction in financial transactions and create new ways for individuals and business to transact directly with each other using decentralised finance (DeFi). Central Banks are now launching digital currencies backed by fiat currencies. Multiple regulators are currently working to create regimes that will allow for financial market infrastructure based on distributed ledger technology.
Investment concerns vs. digital resilience
In the UK, creating an environment that encourages greater business investment in technology has significantly increased. Recent budget changes introduced new tax breaks allowing business to write-off the cost of investment in IT equipment and machinery against corporation tax on profits (up to 100% of the value of that investment). That, in theory, creates a strong incentive to invest more in technology and to start accelerating business transformation.
However, businesses are facing a double challenge of rising costs and squeezed consumer spending power. This means businesses are having to absorb some of the additional costs themselves rather than passing them along. Additionally, the cost of borrowing has soared with rising interest rates, and the recent banking crisis will inevitably lead some to consider pausing investment plans. While caution is understandable, enormous technological innovations surround us. The pace of change is such that business models, systems and IP can become obsolete at a dizzying pace.
Although the global and economic outlook remains cloudy, the need to invest in the future remains an imperative. Without it, businesses risk weakening the chances of recovery in the face of global economic slowdown. Investing in technology can help to build digital resilience by helping to prepare for the next business cycle, streamline business processes, increase efficiency, and reach key customers. Cost pressures affecting businesses are likely to persist in the short-to medium-term. This means investment in technology now ensures that businesses avoid playing catch-up into the future.