As we come to the end of another eventful year, it is a good time to look ahead at the key trends to watch in 2023. The five areas discussed below will be at the forefront for most companies as C-suite leaders look for ways to maximize growth and profitability in the new year and beyond.
Global Inflation and Economic Uncertainty
The McKinsey Global Economics Intelligence report says "Global forecasting institutions, such as the International Monetary Fund, the World Bank, and the OECD, as well as central banks, are trimming growth estimates to align with high inflation and slowing economic activity."
Although the US economy has rebounded slightly in Q3 to a GDP growth of 1.8% year over year after two quarters of contraction, many experts are still projecting a recession during 2023. While unemployment rates remain stable at around 3.5% in the US and 6.6% in the eurozone, the tight job market is also driving up wage levels. In addition, persistent wage pressure is a key driver for the Federal Reserve to keep raising interest rates.
The impacts of these inflationary and economic risk factors on businesses take a variety of different forms. For example, rising prices can be a boon to some businesses by increasing their revenues for existing products and services. On the other hand, rising costs and wages pose major challenges. Also, because the severity of inflation varies from region to region, global companies need to navigate the impacts of foreign exchange (FX) fluctuations on their cash flows and bottom line.
Acceleration of Digital Transformation and Cloud Deployments
In 2023, executives plan to direct $4.6 trillion into enterprise IT spending, a year-over-year increase of 5.1%, according to Gartner projections. “Enterprise IT spending is recession-proof as CEOs and CFOs, rather than cutting IT budgets, are increasing spending on digital business initiatives,” said John-David Lovelock, Distinguished VP Analyst at Gartner. “Economic turbulence will change the context for technology investments, increasing spending in some areas and accelerating declines in others, but it is not projected to materially impact the overall level of enterprise technology spending."
Bain and Company's annual Global Technology Report indicates that , despite the turbulence in the technology sector, CIOs and CTOs are still increasing their technology spending. According to Bain, "There may be budget pressure in the future, but over the long term, tech is not so much a cost as an investment that spurs productivity."
There is also an important shift toward cloud deployments. Gartner data predicts a growth rate of 11.3% in software spending in 2023 vs only 3.4% growth in data center systems. This is exemplified by SAP's leadership in the movement toward cloud deployments.
Creating New Revenue Streams
According to McKinsey's Global Survey, "Business leaders predict that by 2026, half of their revenues will come from products, services, or businesses that haven’t yet been created." McKinsey further observes that "the more new businesses you build, the better you get at building them; there’s an experience curve that may explain why only a small segment of companies capture most of the growth from new-business building."
The team at Bramasol has seen this phenomena first hand in our work supporting clients who are using the SAP Billing and Revenue Innovation Management (BRIM) applications portfolio to create new product and service offerings for the Digital Solutions Economy (DSE). Not only does the agnostic nature of BRIM enable companies to build new DSE offerings that mesh with their existing legacy CRMs and other systems; BRIM's agility enables clients to rapidly pilot-test their future with new business models. As they obtain experience and tangible metrics from using BRIM in the cloud as a "DSE sandbox", the ability to quickly shift into wider production enables smooth scaling of the new business along with the end-to-end visibility to maximize results.
Supply Chain Security and Agility
The Global Supply Chain Pressure Index kept by the New York Federal Reserve continues to show subsiding congestion, though the reading is still elevated. Sea freight rates have moderated somewhat from the highest levels during the pandemic but still remain two to three times higher than pre-pandemic rates. Although supply chain shortages have subsided, spot shortages still can be major problems for companies that they impact, especially if the shortages are unforeseen until they occur.
Rather than wishing and hoping for a new normal, forward-looking companies instead need to focus on building in more resiliency, agility and end-to-end integration as fundamental pillars in their supply chain transformation programs. For example, SAP's Supply Chain Management (SCM) portfolio of products includes focused applications for Supply Chain Planning, Supply Chain Logistics, Manufacturing, and Product Lifecycle Management, all of which operate seamlessly within the overall SAP S/4HANA enabled ERP ecosystem. These integrated systems use demand sensing, statistical modeling, and machine learning algorithms to make accurate short- to long-term forecasts and collaborate on cross-departmental sales and operations plans that balance inventory, service levels, and profitability.
Evolution of ESG as a Business Strategy
"As organizations are beginning to take their corporate sustainability initiatives to the next level, we see an increasing convergence of digital and sustainable transformation," said Bjoern Stengel, global sustainability research lead, Sustainable Strategies and Technologies at IDC. "Decision makers are realizing that technology is essential for reaching their ESG goals, in addition to the strategic, operational, and organizational changes that they are making to capitalize on the opportunities of sustainable business."
As a sign of the ESG's evolution toward more tangibility regarding compliance requirements, the SEC is currently taking public comments on a rule that it proposed in March requiring publicly traded companies to provide detailed disclosures on carbon emissions and climate risk.
Among the leaders in addressing the need for end-to-end regenerative business management is SAP with a suite of circular economy solutions that provide comprehensive value chain transparency and extend sustainability initiatives – from raw materials sourcing to last-mile logistics and product returns and recycling.
Summary
The common thread that runs throughout all five of the key trends is the need for better visibility and agility across all business systems. The phenomena we've seen in the Digital Solutions Economy where data is increasing in Volume, Velocity, Density and Complexity also applies across the board, from macro economic conditions to supply chains to digital transformation and ESG.
As the pace of change accelerates, companies need to invest in enterprise-wide systems that can provide an end-to-end, real-time picture of not only what has happened but what is likely to happen. The ability to anticipate change and plan accordingly will define the difference between companies that struggle and those that thrive.