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Three key risk trends in 2023 for tech companies to manage

The technology industry in Canada and elsewhere is in the midst of a reset, brought on by a shift in global economic realities due to shocks ranging from the conflict in Ukraine to lingering impacts of the pandemic and more. As tech companies adapt their resilience strategies in 2023, key risk issues they will need to pay particular attention to include inflation, people risk, and digitization.
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By Chris Johnson , 

National Tech Industry Leader

03/14/2023 · 4-minute read

The technology industry in Canada and elsewhere is in the midst of a reset, brought on by a shift in global economic realities due to shocks ranging from the conflict in Ukraine to lingering impacts of the pandemic and more. As tech companies adapt their resilience strategies in 2023, key risk issues they will need to pay particular attention to include inflation, people risk, and digitization.

Cost of living crisis remains a top issue globally

Inflation and economic strife propelled the cost-of-living crisis to the top of short-term risks (two-year horizon) in the World Economic Forum’s 2023 Global Risks Report. Whether or not inflationary pressures lead to a recession, tech companies more than ever need to aggressively manage available spending and investment capital.

In fact, more than 80% of tech companies are already acting to counter the impacts of global economic uncertainty, according to Marsh’s Global Technology Risk Study 2023. Survey respondents said their actions include:

69%

Direct cost reduction initiatives, both administrative and operational.

51%

Capital preservation and rethinking risk retention strategy.

46%

Workforce reductions or slower hiring.

The state of the economy and geopolitical tensions also affected deal volumes for IPOs, M&A, special purpose acquisition companies (SPACs), and the like. IPOs and M&A have long been tools modern tech firms use to grow.

In 2022, there was a 42% reduction in the total values of deals in the Canadian information, communications, and technology sector, with 381 deals valued at CAD$6.2 billion. This creates a unique situation in which the ranks of potential targets has been thinned out, the remaining candidates are more likely to be financially strained, and deal capital is not as easy or cheap to access. This financial strain, together with a shift in customer preferences, has likely contributed to significant layoffs announced recently by a number of tech companies.

People risk impacts your growth objectives

Regardless of advances in AI, digitization, the metaverse, and other technologies, companies depend on people to keep running and growing. As this year’s global technology report notes, “people risk is tech risk.” This means that how you manage the talent pipeline will go a long way in defining your success and growth in 2023, especially as your employees may be experiencing job security concerns or seeing their workload shift due to layoffs.

But even at companies undergoing layoffs, you can’t afford to ignore employees’ physical and mental health.  Companies that understand employee well-being is critical to their resilience strategy — and take appropriate action — are likely to fare better in the ongoing competition for talent.

The rise in remote-based commerce and digital offices brought on by the pandemic changed the way companies and employees view the work environment. One positive from the pandemic has been the increased focus on employee health and safety issues by C-suite executives. Most respondents (88%) to the People Risk 2022 survey from Mercer Marsh Benefits said that the pandemic fostered higher levels of executive involvement in the design and communication of benefits.

The pandemic also highlighted the importance of building blocks such as digital access to healthcare and support for essential workers. Other key actions include: providing preventative health measures, such as vaccines and screening; focusing on employee mental health; adopting an overall culture of health; and breaking down silos within and among business units.

Digitization: Artificial intelligence adoption keeps climbing

Inflation won’t kill off opportunities in technology — digitization has gone too far to pull back now. And for many companies, digital transformation is one of the levers they are pulling to save costs and streamline operations.

Take AI, for example. The global adoption rate of AI in business continues to increase rapidly, with 35% of companies saying they currently use it and another 44% saying they are working to do so. In Canada, data delivery infrastructure is at an inflection point; communication speeds and availability can now handle the massive transmission pipe required to implement many modern AI-supported solutions.

But as with other digital measures, AI is not a quick fix. While investment in AI-based solutions increases, there remain long-term questions regarding its ethical administration and emerging risk management concerns.

Digitization, of course, involves far more than AI. Consider the rise of electric and autonomous vehicles, an area in which Canada is a leading player. Not only are digital technologies driving an increase in EVs and AVs, they are affecting the insurance industry by capturing data used in claims and policy pricing, terms, and conditions. While only 19% of global tech companies in the Marsh tech survey said they are operating in the areas of autonomous and next-generation mobility, another 32% said they are exploring opportunities in the area.

But AI and other digital technologies come with their own risks, as noted in the GRR: “For countries that can afford it, these technologies will provide partial solutions to a range of emerging crises, from addressing new health threats and a crunch in healthcare capacity to scaling food security and climate mitigation. For those that cannot, inequality and divergence will grow.” 

Conclusion

For tech companies, success in managing the rising cost of business — this year and into the future — relies on understanding the needs of all your stakeholders, reassessing and confirming the definition of value, and remaining agile and decisive in investing in R&D, M&A, sales, marketing, talent, and more.

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