Legal Technology News

February 21, 2013

Report Finds Private Companies are Embracing Bold Innovation, Including Investments in Cloud Computing, to Meet Growth Objectives

US private companies are embracing innovation to help them fulfill their growth agendas, according to PwC US’s Trendsetter Barometer survey. Their innovation initiatives include creating novel products and services never before seen by the marketplace, with 39 percent of private companies saying that these will be important growth engines for them in the next year. They are not approaching these innovations as one-off efforts - 20 percent of the surveyed companies say that novel products/services will be even more important to their growth objectives over the next two to three years. Another 37 percent of businesses are focusing on products and services that would be newly offered by their companies but not be new in the marketplace as a whole.

Introducing new products and services isn’t without its challenges. Almost one-third (29%) of private companies say that difficulty tailoring products and services across geographic markets could impede their ability to pursue top growth objectives. The concern is greater among US private businesses that sell abroad (40 percent of these companies cite concern, compared with 21 percent of domestic-only companies). Accordingly, more of them are focused on developing new products and services (68 percent versus 45 percent domestic-only companies) and say R&D investment is critical/important to fueling growth (73 percent versus 43 percent).

Other main avenues of growth cited by private companies include increased market share (83 percent), new geographic markets (62 percent), new joint ventures and strategic alliances (39 percent), and mergers and acquisitions (29 percent). Interestingly, international companies that are contemplating these last two avenues of growth are more focused on pursuing them in the United States than abroad - 34 percent US versus 25 percent abroad for new joint ventures and strategic alliances, and 26 percent US versus 16 percent abroad for M&A.

“Private-company executives recognize that achieving their business goals requires putting innovation at the heart of their efforts,” says Ken Esch, a partner with PwC’s Private Company Services practice. “We especially see this with private companies that sell abroad. Developing products and services for a highly diverse customer base across geographies - and then finding innovative ways to reach those customers - is critical to success in foreign markets. Having the right partners there can also be instrumental to success. That said, we’ve recently seen a number of private companies reconsider their initial partners and alliances abroad as they become more familiar with key foreign markets, signaling their increased sophistication.”

Workforce Investment Is Critical to Innovation, But Talent Costs Pose a Challenge

Consistent with their focus on innovation, roughly one-third of private companies say that investments in information technology (IT) and research and development (R&D) will be critical in helping them achieve their growth objectives (cited by 36 percent and 32 percent of companies, respectively). The important role that talent plays in making the most of IT and R&D investments is not lost on the survey respondents. Indeed, the majority (54 percent) of them cite talent as another investment area that is critical to their growth agendas. The private companies in that majority flag IT professionals (32 percent), engineers (30 percent), and R&D staff (17 percent) as workforce demographics they plan to invest in over the next year.

So that their innovations can be put to profitable use, private companies are also placing a strong emphasis on their marketing and sales function - nearly two-thirds (59 percent) of them say that this will be a critical area of investment for their businesses over the next year.

Accordingly, of the majority that cite talent as a critical investment area, nearly two-thirds (62 percent) plan to invest in marketing and sales representatives over the next year, and 44 percent plan to invest in business development professionals.

However, talent costs are a concern, with 71 percent of private companies saying that wage pressure and healthcare expenses, among other talent-related costs, could impede their growth over the next 12 months (34 percent cite these as a “major” potential impediment). International private companies, in particular, see talent-related expenses as a possible impediment (76 percent versus 66 percent of their domestic-only peers) as wages continue to rise in formerly low-cost labor markets such as China.

Meanwhile, fast-growth companies are concerned about having enough workers on hand to keep up with their growth pace. (For purposes of the Trendsetter Barometer survey, fast-growth companies are defined as those that project revenue growth of 10 percent or higher over the next 12 months.) Over two-thirds (69 percent) of fast-growth companies cite talent shortages as a potential challenge, compared with 56 percent of their private-company peers. Consistent with this picture, far fewer fast-growth companies are worried about a potential drop in customer demand, compared with their private-company peers (56 percent versus 74 percent).

“Private companies recognize that to keep pace with aggressive growth plans, they must have a strong bench to support their objectives,” says Esch. “Hiring continues to stay at the margins, however, as business owners remain cautiously optimistic about the economy.”

New and Emerging Technologies Help Private Companies Do More with Less

Among private companies that ranked IT investment as critical to fueling their growth (36 percent), the majority of them plan to invest in the following areas over the next year: data analytics (75 percent), cloud computing (61 percent), social media (57 percent) and mobile devices (53 percent).

A greater percentage of international companies (41 percent) say IT is a critical area of investment overall, compared with their domestic-only peers (33 percent).

Cloud computing, in particular, is an area where these international companies plan to invest (66 percent), since it enables them to move nimbly across borders instead of being tied to infrastructure back home or needing to build costly new infrastructure abroad.  Fast-growth companies, meanwhile, are noticeably more focused on investing in social media, with 65 percent of them reporting that this investment area is critical to supporting their growth objectives, versus 52 percent of their private-company peers. Data analytics, however, is the top area of focus for the overall group of companies that are prioritizing IT investment, with 62 percent of those companies saying that their planned data-analytics investments will have a significant impact on their business.

“Technologies such as social media and cloud computing enable private companies to do more with less,” says Esch. “For instance, with social media and mobile devices, private companies can reach far more customers than they ever could in the past, both quickly and inexpensively, as well as obtain considerably more information about them than previously. To effectively harness that information, however, private companies will need to have the right data-analytics capability, and so it’s not surprising that this is their top area of planned IT investment.”

PwC US is a member of the PwC network of firms in 158 countries with more than 180,000 people, providing assurance, tax and advisory services.

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