Technology, Media and Telecommunications Industry Perspectives May 2018

technology, media and communication
Technology, Media and Telecommunications Industry Perspectives May 2018

Time for Technology Companies to Commit to Women in Leadership Roles

In the digital age, technology companies face relentless pressure to innovate before they are out-innovated or wholly disrupted. But many tech firms, by not making a concerted effort to assemble diverse leadership — including recruiting more women for senior executive and board roles — are undermining their ability to compete. They are also risking their long-term survival. That includes both well-established technology businesses and “born digital” players on the rise.

All technology companies need diverse and dynamic workforces that reflect the markets they want to serve. Without a broad mix of perspectives at the executive and board level, companies risk making decisions that can lead to the development of products and services that don’t resonate with all customers; thus, these firms are also at risk of underperforming relative to more diverse competitors.

Diversity in business leadership can certainly impact the bottom line: A recent study performed at the Peterson Institute for International Economics found that companies with an executive team that is 30 percent female can realize as many as six percentage points more in net profits. However, in the tech industry today only 21 percent of executives are women; in other sectors, that figure is only somewhat better — 36 percent. So, clearly, there is room for improvement across the business spectrum.

More Diverse Leadership Could Help Reduce Risk Exposure

Women also make up half of the total U.S. college-educated labor force, yet they account for less than a third (29 percent) of employees in the science and engineering workforce. And the current gender imbalance in science, technology, engineering and math (STEM) will have employers struggling to fill the millions of STEM jobs that will be created over the next decade. Without an ample supply of skilled talent, technology businesses won’t be able to keep pace with change, let alone drive it.

Staying ahead of the change curve is already a key concern for technology executives, according to the latest Executive Perspectives on Top Risks survey from Protiviti and North Carolina State University’s ERM Initiative. Technology, media and telecommunications leaders who responded to the 2018 survey identified the following as the top two risks for their organizations this year:

  1. Rapid speed of disruptive innovations and/or new technologies within the industry may outpace our organization’s ability to compete and/or manage the risk appropriately, without making significant changes to our business model.
  2. Our organization’s culture may not sufficiently encourage the timely identification and escalation of risk issues that have the potential to significantly affect our core operations and achievement of strategic objectives.

These risks are related and could be better managed through more diverse leadership, which can help to do two things. First, as explained earlier, a C-suite and board of directors that are more representative of what the real world (and hopefully, the company’s workforce) looks like will lead to better business decision-making and products and services that are more relevant to customers. Second, having a more diverse senior executive team and board helps to create a more open and collaborative corporate culture overall, where everyone is comfortable sharing ideas and speaking up about potential risks.

Diversity Matters to the Future Tech Workforce

The first step to change is, of course, admitting there is a problem to be solved. Tech firms need to take a hard look at the current makeup of their C-suite and board, and then set clear goals for improving diversity in both areas, if needed. It’s likely they’ll find plenty of opportunity for change. For example, according to the 2020 Gender Diversity Index, women held just 19.8 percent of board seats at companies in the 2017 Fortune 1000, and smaller and newer firms lag behind larger companies in finding women to serve on their boards.

A related trend for technology companies to keep in focus as they assess the level of diversity in their leadership ranks is the rapidly changing demographics in the workforce. In just a few years, Generation Z — those born between 1990 and 1999 — will make up more than 20 percent of the workforce. A recent report from Robert Half and nonprofit organization Enactus explains that Gen Z is more diverse than other generations currently in the workforce, and its members want to work for companies that share their views and values. Gen Zers also have an inclusive mindset.

So, if technology companies don’t commit now to improving workforce diversity throughout their entire organization, it will without question impact their ability to recruit and retain in-demand talent in the future. Brand cachet and other “cool factors” won’t be enough to satisfy a generation of professionals who expect to work in an inclusive environment guided by diverse leadership.

Go Bold in Setting a New Standard

The commitment to recruiting more women for leadership roles — and helping to increase the number of women working in STEM careers, generally — must be a bold initiative for the tech industry if real change is to occur. Technology businesses, large and small, old and new, should be asking themselves, “What are we doing to ensure we are creating an environment where women, who represent 50 percent of the workforce population, can participate meaningfully and rise up in our organization?” These organizations should also adopt strategies such as:

  • Taking a chance on new talent — Because the current population of women in technology leadership roles is small, companies should consider recruiting up-and-coming female talent in the industry, including from startup companies. Tech leaders should turn to their own professional networks for ideas and recommendations, and explore resources such as theBoardlist, which is “a curated talent marketplace that connects highly qualified women leaders with opportunities to serve on private and public company boards.”
  • Providing relevant training — Female attrition rates are higher in the tech industry than in other non-STEM fields, according to a report from the National Center for Women & Information Technology. One common reason that women leave technology jobs is the lack of opportunities for training and development. Providing such opportunities is important for attracting and retaining all tech talent, but employers will be wise to ensure they are targeting female tech professionals specifically.
  • Charting the path up — Technology companies need to outline to their female employees exactly how they can advance in the organization. Over time, as more women assume top leadership roles at the company, this path will become more obvious. But management should never assume that the female tech professionals on their team already visualize the way up. Female staff should also be strongly encouraged to pursue leadership roles (if that’s what they aspire to). Managers should also work closely with women employees to help them set career goals, outline clear steps for achieving those objectives, and access the necessary support and resources.

These are just a few ways that technology companies can become more diverse, including at the top, over time. Another best practice: Making it easier for women to transition back into the workforce — or better yet, stay engaged in it — when they need to prioritize other obligations, such as raising young children or caring for elderly family members. Too often, companies let their female talent slip away because they don’t support these women enough at pivotal moments in their nonwork lives.

A final tip: Technology companies (and all businesses, really) should use digital transformation initiatives to raise the visibility of women employees and help them expand their skills. These complex efforts require extensive collaboration across the organization and new ways of thinking and working. This is new territory, and everyone has something to offer in shaping this landscape. So, as businesses pursue digital change, they should seize the opportunity to change the face of their workforce, too. Doing so will help position them for long-term success, as well as inspire more women to see their future in STEM careers.

For more on this topic, see “Gender Imbalance in STEM: A Growing Concern,” in the January 2018 issue of Protiviti’s PreView newsletter. And to learn about Protiviti’s commitment to promoting diversity and inclusion, visit www.protiviti.com/US-en/diversity-and-inclusion.

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Don’t Squash the Butterfly: Three Steps to Technology Acquisition Success

Technology companies are in-demand acquisition targets, and not only within the technology sector. Between 2013 and 2016, private technology investments by non-tech Fortune 500 corporations grew 149 percent and were on pace to exceed investments by Fortune 500 technology firms for the first time in 2017, according to a recent report from CB Insights.

Faced with the choice of building; partnering; or buying the tools, resources and talent required to compete in the face of accelerating digital disruption, many older established companies are choosing to buy. Not surprisingly, technology industry respondents in a recent survey from Protiviti and North Carolina State University’s ERM Initiative identified the rapid speed of disruptive innovation and new technologies outpacing an organization’s ability to compete and manage that risk appropriately as the top risk issue.

Done right, technology acquisitions can provide established organizations with a transformative opportunity to reinvent themselves and achieve synergetic returns far in excess of what analysts might forecast based on simple quantitative measures. To get it right, however, acquiring companies need to take steps to preserve the unique success characteristics that made an acquisition target attractive in the first place, so that they are not eliminated in the transition. In other words, they need to be sure not to “squash the butterfly.”

The history of mergers and acquisitions (M&A) is not good in this regard, as explained by Harvard professor Clayton Christensen in the Harvard Business Review.

“Failing to understand where the value resides in what’s been bought, and therefore integrating incorrectly, has caused some of the biggest disasters in acquisitions history,” wrote Christensen, who is widely regarded as one of the world’s leading authorities on disruptive innovation.

The ability to effectively preserve and enhance the value of an acquired company during and after integration is critical to M&A success, and will depend on how much effort is expended throughout the deal life cycle to identify and preserve the unique value that created the target’s success. This effort is one of many success factors in the technology acquisition deal life cycle and should be taken at the outset of Component 5: Transition Readiness (see graphic). For the purpose of this discussion, we want to highlight three phases shown in our comprehensive, five-phase Protiviti deal life cycle.

Decisioning Phase – Step 1: Identify Value. The first value assessment of a potential target should occur prior to any offer or pricing decision. This involves evaluating the target’s value in terms of the acquirer’s ability to preserve that value when integrated. Understanding the integration expectations necessary to preserve that value informs the value preservation metrics and risk profile to be managed throughout the rest of the deal life cycle. Understanding value at this early stage is critical because it will form the basis for post-merger assessments of value preservation.

Operationalizing Phase – Step 2: Define Value. Once key value drivers have been identified, it is important to communicate with stakeholders on both sides of the deal as to what those drivers are and the steps that will be taken to preserve them during and after the merger. This activity occurs during Component 8: Transition Planning and is executive-sponsored, becoming a daily-monitored focus point during the transitioning phase.

Stabilizing Phase – Step 3: Assess Value. The acquiring company needs to follow through after the acquisition with assessments to make sure that all of the transitioning activities have been completed and that none of the key value drivers have been destroyed. There is a tendency in M&A transactions for leadership to become focused on financial details to the detriment of strategic goals, which hinders integration improvement on the next deal.

One important concept, or key principle, in our MAD Playbook is the need, throughout the integration process, to keep making intangibles tangible. Culture is such an intangible; to identify what the tangible elements of culture are and how to carry them over into the merged entity is often difficult but not impossible.

As the pace of M&A activity accelerates, it is increasingly important for organizations to not do the wrong things faster! Rather, both sides of the M&A equation need to understand where true and lasting value is created and how to enhance it in the integrated organization for long-term success. Companies that look beyond the finances and pay careful attention to preserving a culture of innovation are clearly the smart ones when it comes to technology acquisitions. Innovation is the ticket for success in the current competitive and disruptive environment. Those who manage to get hold of the right target and nurture its full transformational potential by executing a thoughtful post-acquisition integration strategy will be the clear winners in the race.

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The New U.S. Steel and Aluminum Tariffs: A Precursor of What?

Today, the Trump administration announced steep tariffs on steel and aluminum to go into effect in 15 days. According to the administration, these two industries have been targeted for many years and subjected to unfair trade practices resulting in plant closings and decimation of whole communities — a trend that is creating not only economic consequences but also a national security concern. As President Trump announced today, strong steel and aluminum industries are vital to the national security of the United States. Specifically, the president indicates that he intends to build up the country’s military using American-made steel and aluminum.

The tariffs will consist of a 25 percent tax on foreign steel and a 10 percent tax on foreign aluminum. No tax will be levied on any product made in the United States. According to the administration, it is open to modifying or removing tariffs on individual countries. Canada and Mexico will be excluded from the tariffs for the time being. The president indicated that if these countries and the United States can come to agreement on the North American Free Trade Agreement (NAFTA) renegotiation, the exclusions will become permanent; the implied message is that if the renegotiation is unsuccessful, tariffs will be applied to all imports, regardless of source.

No one should be surprised at today’s actions. The president campaigned on this issue and can be expected to play to his base that this is a “promise kept.” That said, there are signs of flexibility for countries willing to make adjustments in the interest of more fair and reciprocal trade. However, any country granted an exclusion would result in higher tariffs for other countries in view of the administration’s apparent commitment to maintain a level of protection in defense of domestic steel and aluminum industries.

Critics of the administration’s move today have raised concerns regarding the possibilities of strong reprisals and escalating protectionist practices that could lead to full-scale trade warfare, create strong headwinds of slower global growth and higher inflation for exporters and multinationals, as well as consumers and businesses having strong reliance on imports. Given this week’s fluctuations in the markets in which there was an abrupt decline followed by a recovery, fears of an extreme response appear to have subsided – at least for now.

These tariffs have understandably raised questions among many organizations in different industries. While this obviously is an evolving situation and much more will develop and become clearer in the coming weeks, I asked some of Protiviti’s Global Industry Leaders to share with me their initial thoughts on some of the potential impacts in their industry and the questions their clients are asking. Here’s what they had to say:

Manufacturing and Distribution: The proposed tariffs are applied broadly rather than to specific countries, which opens up the risk of retaliation, even from U.S. allies. Clearly there will be winners and losers in the manufacturing industry, based on the particular sector. Obviously, domestic steel and aluminum producers stand to gain the most from these tariffs as they counter cheaper imports “dumped” from heavily subsidized countries like China. However, due to tariffs raising the cost of steel and aluminum in global supply chains, many U.S. industries that use those metals could see decreasing margins, increasing prices for customers and/or a reduction in manufacturing jobs. This could include automakers, machinery and equipment manufacturers, beer and soda companies and the construction industry, to name a few. From a trade partner standpoint, certain European and Asia-Pacific allies who are larger trading partners than China on certain goods could be harmed. If a trade war ensues, no one wins.

Consumer Products and Services: Steel and aluminum tariffs will likely drive up costs on manufacturing equipment and raw materials used in packaged consumer goods manufacturing as well as the finished goods themselves, although no one knows for sure just where the point of levy will be in the value chain. For a long time, companies have taken full advantage of cheap labor costs abroad through outsourcing, offshoring and emphasizing low cost producers in building global supply chains. As a result, U.S. businesses and, in particular, retailers have benefited from less expensive imported goods. Accordingly, the National Retail Federation and the Food Marketing Institute have expressed concern that these tariffs will impact the finances of all Americans with higher costs on basic consumer items, including food and food packaging. Additionally, for many years, Americans appetite for imported goods has increased and a trade war could lead to higher prices for imported goods Americans enjoy. If the administration’s trade policies and retaliation by other countries were to increase the cost of imported goods, it is reasonable to expect – at least initially – upward pressure on the prices of consumer goods.

Technology: Although the technology industry is not typically called out as one of the significantly impacted industries, steel and aluminum are major components for many manufactured technology products. A key unknown as of this writing is whether the tariffs will be assessed on raw materials or finished goods. Companies (e.g., Apple) that manufacture components and products outside the United States will fare better if the tariff is on raw materials than those that import steel and aluminum to produce components in the United States. If assessed on finished goods, manufacturing outside the United States will not protect products from cost increases. Companies that have implemented and utilized technological advances to streamline their manufacturing processes, and therefore their use of affected metals, may insulate their import costs as compared with companies that continue to manufacture via less efficient processes. Another significant unknown involves retaliatory tariffs. The EU has proposed very targeted product tariffs so the potential impact on technology industry players remains a risk should their products be targeted by affected countries.

Energy: Margins are already tight in the industry, so this could create a bump in the road to what has been recently on a steady (albeit small) uphill climb. U.S. companies with assets and operations internationally are likely not affected. However, oil field services companies that make rig and production equipment will likely see higher costs to machine their products. These higher costs could be passed on to upstream companies purchasing oil field services materials and services. Pipeline companies would likely incur increased costs. Given that most of their revenues are domestic, utilities are less likely to be impacted by anti-trade policies. They may incur increased costs – probably construction-related costs – that could be passed on to general public in the rate making process.

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To sum it up, one thing we can say is this: No matter what happens, protectionist rhetoric is now out in the open. Once that cat is out of the bag, it’s hard to stuff it back in.

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Gordon Tucker
Gordon Tucker
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