KPMG global tech report 2023: Technology, media and telecom sector insights

Technology companies are at the forefront of digital transformation, creating the tools that drive change across other industries, and applying these innovations to their own businesses. To this end, the technology sector has become increasingly cost conscious, according to new research from KPMG. While the industry remains focused on leveraging new technologies to enhance its capabilities, improved efficiency has also become a clear priority.

KPMG global tech report 2023, based on a survey of 2,100 executives in 16 countries and nine industries, reveals that 57 percent of technology companies have been able to secure greater efficiency and reduce their overall costs through their digital transformation investments. By contrast, only 52 percent of companies across all sectors can say the same. This expectation around financial discipline shows no sign of slowing in this industry: 71 percent of tech respondents state that in comparison to last year they are expected to do more with less budget.

However, the path to building more efficient tech stacks with lower overheads has its complications — especially the constraints of legacy technology. In fact, the restrictions triggered by legacy systems are one of the two risks most likely to slow technology companies’ digital transformation progress. This challenge appears to be hitting the tech sector harder than other industries surveyed: on average legacy systems are placed below the top three challenges in digital transformation journeys overall.

A sector that has traditionally concentrated on creating solutions for its customers is now getting to grips with modernizing its own systems, it seems.

Nevertheless, tech companies will need to find ways to overcome the limitations of legacy systems in order to reach their innovation goals to drive new value. Alongside its pursuit of efficiency and financial prudence, the tech industry still has an appetite for bold innovation.

As part of its tech innovation goals over the next two years, the sector is the most likely to be focusing on using technology to launch brand new offerings. Fifty-seven percent of businesses in the sector expect technology to help them deliver new products or services versus 48 percent of all sectors surveyed.

To reach that goal, companies in the tech sector are determined to invest in the foundational systems that underpin innovation. In particular, almost a third of technology companies (32 percent) now see 5G, the latest technology standard for cellular networks, as critical to their short-term ambitions (compared with 27 percent across all sectors surveyed). In fact, tech is the most likely industry to consider 5G as very important to meeting their objectives over the next three years.

That demonstrates the importance of 5G in the broader context of other emerging technologies, where network modernization is vital to ensure reliable and rapid connectivity. From autonomous vehicles to smart devices at home, many advances depend on 5G, points out Gibson. “[5G] is what we need to enable the innovation that’s happening in the technology sector today,” he says. “It is how these technologies communicate with one another.”

That is reflected in the research. Technology companies say they are prioritizing 5G investment because customers are requesting enhanced connectivity. And to monitor whether this investment spending is being put to good use, increased output productivity is the top return tech companies track to quantify the success of their 5G investments.

This kind of monitoring work has become more important in the sector, adds Gibson, with funding for investment in shorter supply than in the past. “Many companies are much more mindful of cost, rather than throwing 50 things at the wall to see what sticks,” he says. “Where projects are not headed in the right direction, they are shut down quickly.” 

Technology companies’ willingness to invest is also being tested by other anxieties, KPMG’s research suggests. In particular, more than two-thirds of businesses in the sector (69 percent) say their confidence to invest in new technology has been stymied by cyber threats. Granted, this is a problem for all businesses, with 64 percent of the sectors surveyed making the same point, but technology businesses, on the front line of the battle against fraud and other cyber threats, are particularly feeling the strain.

Certainly, the threat is increasing, with the volume and sophistication of cyber attacks continuing to grow – including those from state-backed bad actors. But technology companies also feel the pressure of regulation, with authorities in regions including North America and Europe now taking a closer look at whether further interventions in the sector are necessary. A major cyber security failure has the potential to inflict substantial reputational damage on technology businesses – and there are countless examples of where this has taken place elsewhere already.

More broadly, many technology companies view improving their cyber threat detection and management capabilities as an opportunity to strengthen their customer relationships. The chance to enhance customer trust in this way is rated as the top innovation goal for technology companies over the next two years. 

To outpace their competitors, tech companies will need to continue embracing digital transformation at the core of their strategies as a way to achieve forward momentum and innovate boldly while maintaining a focus on operational and cost efficiencies. 

• Financial Efficiency Focus: Tech companies prioritize financial discipline and operational efficiency, with 57% achieving cost reduction through digital transformation. 71% expect to do more with less budget.
• Legacy Tech Challenges: Legacy systems hinder tech companies' digital progress more than in other industries. Modernizing internal systems becomes crucial for innovation.
• Innovation Goals and 5G Priority: Tech firms remain innovation-driven (57% focus on new offerings), with 32% considering 5G crucial. 5G investments aim to meet customer demands for enhanced connectivity, monitored through increased output productivity.

From startups to Fortune 500 companies, Technology companies worldwide aim to secure their market position through disruptive innovation. As new technologies are adopted around the world, it has become increasingly important for the leaders in this sector to understand the complexity and business transformation impact of rolling out these new products and services.

KPMG’s technology professionals understand this changing and challenging environment. We combine industry knowledge with technical experience to provide insights that help technology leaders deal with their complex business models. Our professionals go beyond today's challenges to anticipate the potential long and short-term consequences of shifting business, financial and technology strategies. We also help clients explore potential obstacles to change and collaborate on critical decisions that can deliver real value to their businesses.