Long before the COVID-19 pandemic, TMT executives had learned to expect disruptive digital and technological change. Now they sense that disruptive change – and related risk and uncertainty — will intensify with the growth of artificial intelligence, 5G, the Internet of Things, and other innovations.
They can mitigate digital risks by instilling cultural values that welcome and leverage change
To prepare their companies for the next wave, business leaders are shaping more resilient, enterprise-wide cyber cultures. TMT executives say they can mitigate digital and innovation risks by instilling cultural values that welcome and leverage change. This is something we have seen ourselves through our work around cybersecurity-focused organizational and cultural transformation. (Willis Towers Watson Insight: Cybersecurity organizational & cultural transformation.)
More robust data analytics can help companies better assess their own risks and shape optimal insurance and risk financing strategies for themselves as well as with third parties and other business partners. Contractors and other outside business partners need to be held to the same high risk management standards that a company would apply to itself.
Insurers are using data to provide rates that reflect a company’s risk profile
For their part, insurers are using data, including client data, to provide rates that reflect a company’s risk profile rather than a broader industry grouping. For companies that have an effective risk management program, this opens the door to more cost-effective insurance and risk management programs. (Willis Towers Watson Insight: How data can inform risk decision making.)
Talent and workforce issues surface throughout the exposures linked to digitalization and technological advances. Organic or in-house talent is being developed and nurtured at many companies with upskilling programs such as courses or workshops for employees. In the most effective settings, these programs are combined with broader efforts to build employee satisfaction and create new routes to career development.
A good example can be found in the AT&T University and the AT&T Aspire programs, employee development efforts that support AT&T’s position as a diversified provider of high-speed connectivity, software-based entertainment, premium content, and tailored advertising.
(This topic is discussed at greater length in the Global Talent & Skills Race section.)
A confusing mix of data protection and privacy laws is likely to challenge TMT companies for years
A confusing mix of data protection and privacy laws is likely to challenge TMT companies for years to come, especially as financial penalties and sanctions toughen. But related risks and uncertainty may be tempered if European GDPR standards, continuing to inspire regulators globally, become a de facto global standard.
Technology, media, and telecom companies should expect a rough ride if they are perceived to engage in anti-competitive practices, either in terms of market dominance (a bigger problem for technology companies) or mergers and acquisitions that might be seen as anti-competitive or against consumer interests.
Meanwhile, all TMT companies need to be alert to environmental, social and governance (ESG) issues with regulatory and legal implications highlighted in the earlier trends. In combination, how TMT companies handle these issues will have a profound impact on corporate brands and reputations, according to TMT executives. (ESG’s impact on the TMT industry, particularly from climate change, will be examined in a separate Willis Towers Watson study.)
Reputational risk is in some ways harder to measure and harder to define. It can come from any direction. Consumers, supported by regulators, are rightly concerned about how their data is gathered and used, and sloppy data protection and privacy practices can cause serious long-term damage to an image – or a balance sheet. Regulatory regimes, such as for example GDPR, are expanding or being mirrored across the globe with heavy fines likely if there is a failure to comply. If a merger is seen as a move to jack up prices or limit consumer choice, the parties may pay a heavy cost both in terms of reputation and in dealing with new barriers to a transformational strategic shift.
There is at least one area of appetizing risk and opportunity that is seen through a haze of uncertainty shared by nearly every TMT company: Finding ways to further monetize the huge mounds of data collected in the course of normal business operations through relationships with customers and business partners.
Digital adoption could release more than $5 trillion in profitable growth
The financial stakes are high. A 2021 Accenture global study found that digital adoption – defined to include artificial intelligence and data analytics – could release more than $5 trillion in profitable growth. The professional services company said that “future-ready” organizations are more than 10 times as likely to use analytics at scale with diverse data sets to yield actionable insights and inform decision-making.
While corporate performance and profitability is top of mind for all TMT companies, it was more likely to be cited as a concern among telecom executives. The pace of change requires ongoing and growing investments in digital transformation and technology. A good example is the transition from 3G to 4G to 5G broadband networks. Each generational shift has demanded new investment.
PwC’s Strategy&, a strategy consulting team, has estimated that TMT companies will be investing billions to build up equipment, network density and spectrum. But Strategy& notes that monetization of a large-scale investment proved to be a problem in 4G’s wake. After 4G’s 2012 introduction, for example, conventional telephone services plummeted, driving industry diversification and the application of new business models.
The growth of 5G looks to be much more disruptive than 4G, but TMT companies may have little choice but to make heavy 5G investments to remain competitive. Business models will no doubt change again with 5G and widespread use of artificial intelligence, the internet of things (IoT) and other developments that are likely to accelerate.
Some telecoms plan to better understand and to mitigate 5G risks by rigorously modeling various technical and business scenarios, including the identification of new revenue sources.
To a great degree, the ability to adjust to change and embrace innovation is influenced by the size of the company and the nature of its leadership. Bigger companies typically have greater financial and technological resources, but size may work against them for reasons that include:
Executives say they can mitigate failure-to-innovate risk by instilling values that leverage change
TMT executives say they can mitigate the failure-to-innovate risk by instilling cultural values that welcome and leverage change. In the short term, organic options can include formation of small teams in which effective leaders have senior management support to plow through internal barriers to change. Other companies are finding that it’s easier to acquire outside talent – a team, perhaps, or even talent though corporate mergers and acquisitions. Business partnerships can also boost innovation if accompanied with good system and process design.
Whether TMT companies have out-performed expectations or not, nearly all are finding that their business models and risk profiles have changed significantly amid the rush of technological change. Risk management must change, too. This is something we have seen ourselves through our work around cybersecurity focused organizational and cultural transformation. The section below is provided to provide further insight to this type of work.
There was one overarching theme: Without constant innovation, they fear being left behind
In our work with TMT business leaders, there was one overarching theme: Without constant innovation, they fear being left behind by their TMT rivals or pushed aside by nimble, growth- hungry start-up companies backed by ample capital. They don’t see innovation as simply improving existing products and services. They also look for innovations that might leapfrog existing products or services.
A classic example of innovation failure is a one-time market leader in cell phones that was pushed aside when it didn’t anticipate the smartphone revolution. Post-mortems point to a culture that discouraged innovation, poor strategic planning, and what might be called a form of institutional lethargy.
“There are a lot of examples of companies that become obsolete by not anticipating or promptly reacting to technological change that threatens their existing business model,” one executive said. “We don’t intend to be among them.”
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