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As economic conditions evolve and interest in artificial intelligence intensifies, technology companies are realigning their strategies. Several emerging trends are now driving how these businesses focus, grow, and optimise their operations.
RSM’s experienced technology sector team has identified four key trends that are shaping the industry, and should be top of mind for executives.
1. Scaling and capital markets
For growing technology companies, there is no straight route to scaling up. Each stage of growth brings significant opportunities, along with challenges and numerous ways to tackle them.
While the talent market demand has eased of late and wages stagnated, there is still a need for talent immediately to meet the constant need for innovation while also managing capital appropriately. This all means companies focused on scaling up must be especially ready to tackle these challenges.
Various ways exist for a tech business to scale, including:
- build-versus-buy strategies
- capital markets
- managing cash flow while driving growth
Choosing the best approach requires a thorough assessment of your business.
With interest rates at their highest point in over a decade, capital efficiency is also crucial. When it comes to investment decisions, technology businesses need to strike a balance between risk and innovation - fostering innovation amid leaner operations.
2. Global expansion
The increase in remote work has brought new global expansion possibilities for many technology companies. Those that decide to leverage this to broaden their operations or workforce to new countries need to do so strategically. It’s important to consider not only technological scalability, but international regulations and other factors that may apply.
On the regulatory front, some of the factors to consider include:
- foreign in-country tax and audit requirements
- international tax concerns (including transfer pricing)
- labour and employment laws
- intellectual property use
Pros and cons are likely to arise in numerous areas. In the workforce, expansion allows access to a larger talent pool. However, it also brings cultural differences and more competition for that talent.
Because Australia is still quite a small economy, understandably many technology companies look to scale by entering overseas markets – USA being a popular destination. However, many embarking on expansion to the USA fail to do it methodically. While you may believe you have a TAM (total accessible market), how to penetrate that market becomes crucial. It’s essential to build a strong sales and marketing team with people who understand your product and the market, and have connections to those who would want it.
3. Artificial intelligence
People discuss AI everywhere, whether for positive or negative reasons. The acceptance of AI-related tools has accelerated significantly. The middle market stands to gain from natural language advancements as the barriers to entry are lowered.
Technology companies can tap into AI-powered data analytics to improve business and customer insights and drive a more tailored experience for users.
At the same time, leadership teams need to develop guidelines for ethical AI governance and educate on the drawbacks related to AI. The Policy for the responsible use of AI in government is a recent example where policy has been set to facilitate the government playing a leadership role in embracing AI for the benefit of Australians while ensuring its safe, ethical and responsible use, is in line with community expectations.
Unsurprisingly, malicious actors are using AI to refine their methods of carrying out cyberattacks. Tech companies need to counter this by:
- investing more in preventing cyberattacks
- bolstering employee training
- preparing an incident response plan
Companies also need to understand the energy implications of growing AI use, including power grid capacity. AI systems, especially those that use advanced machine learning models, require extensive computational resources, including high-powered processors.
While the Australian Energy Market Operator (AEMO) forecasts show the maximum demand for electricity from data centres is expected to grow at a slower rate than was forecasted a year ago, it does expect demand to triple. This would see an increase from almost 3 TWh now – from a total demand of 175 TWh – to about 10 TWh by 2034, when total demand is estimated at 196 TWh. This signals that data centres’ share of total demand will rise from about 1.7 per cent to more than 5 per cent.
A spokesperson for the AEMO pointed to on-site generation and flexible demand as a way to reduce this impact:
“Accelerating investment in data centres to cater for the projected demand for streaming services, cloud storage and artificial intelligence applications, is emerging as a significant contributor to forecast demand. While data centres will increase annual consumption, the potential flexibility of these loads and/or the provision of on-site generation means that their impact on maximum demand is uncertain.”
To maximise efficiency and not overpower the grid, the onus will be on tech companies to work with the energy sector and be creative.
4. Cybersecurity and data privacy
Cybersecurity is imperative for any business, but especially for technology companies as they provide foundational infrastructure for so many aspects of our lives.
Recent cyber incidents, such as the Medisecure data breach, highlight the growing vulnerability of technology companies to security breaches and the need to strengthen their cybersecurity measures.
With Australia’s Privacy Act currently under review, regardless of when or if legislative changes are enacted, technology companies must prioritise substantial investments in cybersecurity solutions to:
- protect company operations
- safeguard consumer privacy
- build and maintain consumer and investor confidence
FOR MORE INFORMATION
To learn more please contact one of RSM’s specialist technology team.
