How technology CXOs are changing strategy development and execution

Executives at technology companies are revising their strategy formulation and execution in this era of accelerated disruption.

The pandemic has been a seminal moment for the technology sector — even for a sector used to a permanent state of disruption. The sector has been confronting disruptions on many fronts: powering an economy-wide acceleration of digital transformation driven by COVID-19, responding to changing regulatory and geopolitical environments, and undergoing its own product and business model transformation. Executives are responding with a new view of how to develop strategy, as well as how to address the needs of multiple stakeholders.

The EY-Parthenon team recently conducted one of the most comprehensive C-suite studies in the last decade to identify how strategy formulation and execution will evolve. The study surveyed 1,000 CEOs, CFOs and other C-suite executives with the partnership of the Economist Intelligence Unit.

COVID-19 and the state of the technology sector

While most technology executives are adjusting strategy due to the pandemic, very few expect a drastic impact. As the pandemic has accelerated disruption across the entire economy, the contrast between the haves and have-nots within the technology sector has accelerated. Technology companies, whose businesses are enablers of a more digital, virtual, cloud and consumption-based world, have seen performance improve. In contrast, technology companies that are more focused on serving the legacy on-prem, license and physical location-based world did not. For many companies, this period has driven greater urgency in the transition of their own portfolios to be more focused on products aimed at enabling the digital, virtual, cloud and consumption-based world.

A greater set of stakeholders

The survey revealed that for technology companies, a wider set of stakeholders including customers, employees, suppliers, and government and regulatory requirements are becoming as or more important than shareholders. Technology companies are also facing increased and oftentimes public scrutiny from their employees and customers. Understanding different stakeholders, objectives and mindsets are crucial to developing a successful enterprise strategy. 

The headwinds facing technology companies in the form of increased regulation create complexity due to geopolitical overlap. This is not just a “Big Tech” antitrust issue. Rather, it affects the entire sector as regulators with economic, privacy and security concerns turn their eyes to the internal operations of these companies. Technology companies who once considered themselves borderless can now count on grappling with different governments around the world. Going forward, they must invest more resources in political risk identification and mitigation and evaluate a more complex set of factors when formulating strategy.

Embracing the changing dynamics of their ecosystems

Innovation in the sector is constantly driving change in the way products and services are bundled. This is leading to a more dynamic competitive environment. Technology companies were the only sector surveyed where most executives stated the biggest competitive threat in the past three years has come from non-traditional competitors. Eighty-one percent of technology organizations indicated that these unexpected entrants have created a material impact on their organizations. Nearly all surveyed expect the trend to continue.

To remain competitive, companies should continually evaluate and embrace the changing dynamics of their ecosystem, anticipate potential new entrants and have a plan of action. As an example, we recently assisted a global software company with assessing product expansion into new vertical markets. This included assessing the ecosystem within these verticals, as well as exploring partnering opportunities with incumbent providers.

Digital capabilities that are not just imperative but the norm

With the technology sector enabling accelerated digital transformation across the broader economy, the need for many companies within the sector to also digitally transform themselves can be overlooked. Thus, executives are increasingly focused on digitalizing their own organizations. We found that about half of technology executives plan to continue their digital transformation efforts by integrating new technologies, including robotic process automation (RPA), artificial intelligence and blockchain capabilities, by 2023. Additionally, a third of top-quartile technology companies plan to rapidly speed up implementation and leverage their digital maturity to take an opportunistic approach.

To maintain leadership, companies must implement strategic digital initiatives quickly and boldly. To accomplish this mandate, companies can add board members with desired competencies and create new leadership roles. Not surprisingly, we found 88% of technology companies that said they have added the roles of chief digital officer and chief data officer during the past five years also indicated that these roles are significantly influencing their strategic mandate. As an example, in our work with a global semiconductor company, we have helped implement a range of digital transformation initiatives, including utilizing RPA to simplify some key processes within major functional areas.

Rethinking the capital allocation process

Many technology companies have grown fast. They’ve acquired companies in record numbers but, in many cases, have not reevaluated portfolios and properly integrated new assets. Consequently, the study found that two-thirds of technology executives believe they must substantially change their capital allocation process to maximize the value of investments.

We recommend that organizations develop an objective framework that can be consistently applied across strategic initiatives or uses of capital. The rigor and approach to measure value across strategic initiatives should be consistent across organic (capex, R&D, sales and marketing, etc.), inorganic (M&A, divestitures, partnerships, etc.) or passive minority investments. The process must be systematic and objective, supported through data and linked to strategic goals but still flexible enough to quickly respond to changing market conditions.

Reimagining strategy formulation in the technology sector

With companies experiencing so much change, we have outlined several actions tech companies can take to reimagine strategy in an era of disruption. Actions include:

• Focus on total stakeholder return (TSR) to maximize enterprise value
• Understand the totality of your ecosystem to effectively compete and innovate
• Redesign your processes to maximize the value from your ecosystem
• Redesign the capital allocation process to enable swifter capital redeployment
• Create a repertoire of playbooks to boost ROI from all types of transactions
• Keep the digital strategy in sync with enterprise strategy to unlock the full potential
• Build real-time, dynamic analytics and strategic planning to preempt disruption
• Inject agility in your organization’s DNA to increase adaptability

Ahana Sarkar, Sonesh Bahel, Angad Jain and Rohan Jain of the EY-Parthenon team contributed to this study.