Faced with ebbing product demand, decreasing consumer spending, and falling valuations, tech company C-suites may feel enormous pressure to reduce their costs and improve profitability. They’re responding in many ways: conducting strategic reviews of talent; modernizing their tech infrastructure; and looking for bargains in M&A. Tech leaders should consider a mix of approaches that could enable them to emerge from a downturn with the right tech, talent, and growth opportunities in place.

After hiring aggressively to meet demand during boom years, leaders are now aiming to rightsize their workforces. But right-skilling continues to be just as critical: 58% of technology decision-makers Deloitte surveyed reported that recruiting talent is a major challenge, and 48% said the same about retaining personnel.

Tech leaders are using other cost and efficiency levers, too, such as revisiting procurement decisions, using digital tools to optimize sourcing activities, reexamining operations from a tax perspective to identify potential savings, and transforming operating models.

Tech leaders will likely be looking to increase revenue in 2023 through strategic mergers and acquisitions. Indeed, M&A activity flourished in the enterprise IT sector in 2022, with DevOps and cloud transactions leading the deals. Additionally, alliances and joint venture partnerships present alternate pathways to grow market and revenue footprint. At the same time, to enhance margins and become more agile in dealing with future uncertainties, tech leaders may consider divesting their noncore assets to become leaner and unlock value from their core businesses.

Strategic questions to consider:

• What steps are we taking to evaluate and improve our tech company’s operating models and business processes? 
• How can we foster greater productivity, despite potential resource constraints?
• How can our company accelerate research and development of innovations that create opportunities for new products, services, business models, and ultimately new revenues?
• How can we ensure that our workforce has the right mix of skills for competitive success?

Beyond the concerns around macroeconomic conditions, the technology industry faces global challenges ranging from geopolitical tensions to supply chain uncertainties, ongoing semiconductor concerns, raw material shortages, and enactment of new legislation and trade restrictions. In 2023, all these issues will likely top the priority lists of many prominent tech companies as they reassess partnerships, suppliers, and the markets in which they do business.

With nearly 80% of digital components manufactured in Asia, the reliability and swift supply of parts and components pose a huge risk for US tech companies in the current market environment. In light of the supply chain threat posed by China’s COVID crisis and an ongoing trade war, tech leaders should consider exploring additional countries for manufacturing and sourcing of their products. While it may not be possible to shift product sourcing entirely away from China, the manufacturers that command a lion’s share of the technology market are likely to explore other Southeast Asian countries and perhaps nearshoring for sourcing components and assembling their products.  

Global economic instability is likely to compound the challenges facing tech companies. Owing to conflicts such as the Russian invasion of Ukraine and geopolitical tensions in Asia, tech companies may witness product shortages and delays, service disruptions, bankruptcy of core suppliers, increased product costs, and reduced global sales in the months ahead. Additionally, tech companies that have prior purchase commitments with their suppliers will be constrained to buy components at higher prices than those available in the current market, which will affect gross margins. In 2023, tech companies should consider revising supplier agreements to reflect new circumstances.

Strategic questions to consider:

• How will our tech company manage our existing deals with Chinese companies, considering the push for onshoring supported by the CHIPS Act?
• How can we reduce our reliance on Asian manufacturers and diversify the component suppliers for our products?
• With ongoing geopolitical tensions, how will our company manage risks associated with technology and business continuity?

Seeking new growth areas in the face of macroeconomic pressures, tech giants are accelerating their ventures into other industries. Health care is a prime example of this convergence: Tech companies are bringing improved efficiencies and innovation to a system that’s ripe for digital transformation. The global digital health market—estimated at US$211 billion in 2022 and projected to reach US$1.5 trillion by 2030—represents a huge potential opportunity for tech giants to continue their growth.

But the health care industry is hardly alone in seeing transformations driven by tech. In automotive, some cars are becoming large mobile computers, equipped with sensors and software that can control almost every function, from assisted driving to safety and infotainment. Tech companies are supplying maps and voice assistant technologies to car makers. Some large tech companies are working on autonomous driving technologies—and may even have ambitions to produce their own branded vehicles and to offer self-driving rideshare services.

In real estate, Internet of Things (IoT) sensors and smart devices are being installed in homes, offices, and warehouses; analytics on the resulting data flows can lead to energy use optimization and smarter inventory management. In manufacturing, deploying smart factory solutions that combine a variety of capabilities has been shown to improve cost, throughput, quality, safety, and revenues. And in retail, augmented reality and 3D technologies are providing consumers with immersive digital experiences when they shop—whether in-store, online, or on-the-go.

Strategic questions to consider:

• How might our tech innovations improve efficiency; enable new products, services, and business models; or revolutionize experiences in other industries? How can we ensure adoption at scale?
• Which methods—for example, partnerships or strategic acquisitions—could be most effective to bring our technology capabilities to other industries?
• What steps can our company take to comply with stringent regulatory requirements of other industries, which may include data privacy, security, and transparency of data handling?

Innovative technologies and new business models tend to evolve more quickly than tax regulations can be written. The push into cloud and as-a-service subscription models, along with the increasing popularity of virtual assets, has blurred the lines between tangible goods, services, and usage rights. Different jurisdictions define and tax goods and services in different ways. Add globalization into the equation and it’s not always simple for companies to ascertain what’s being sold, where, and to whom.

All of these complexities are emerging even as company shareholders and governments around the world are pushing for transparency—especially from tech companies. They want to know where companies are doing business; how locations and ecosystems are impacted; how much these companies are contributing in terms of taxes, employment, and commerce; and whether they’re paying a “fair share.”

Tracking environmental and social impacts is another element for tech companies to focus on in the coming year. While consensus has yet to be reached on standards and metrics, reputable ERP vendors and industry groups have frameworks that may satisfy anticipated requirements. Compliance with evolving regulations may feel like a moving target, but companies may achieve success working by analogy (likening a new business practice or transaction type to an existing guideline) and documenting practices meticulously.

Strategic questions to consider:

• How can we ensure we have a clear view of operations across the enterprise and the value chain?
• What reports and outputs will we need to achieve compliance with new and evolving regulations?
• To what extent is our tech company responsible for monitoring business practices and impacts across partners, suppliers, and service providers?
• How can we leverage transparency reporting to highlight our company’s dedication to social good?