The “people” problem
The TMT industry has a “people problem” – one that is complicated by the global economic downturn, disruptive and fast-paced digital innovation, as well as cultural change. The top risk survey indicates a lack of skilled talent available for hire and challenges retaining current talent including at the highest ranks of the organisation, have been a growing concern in the last five years.
Last year, for instance, after not even making the top five list of key risks the prior year, the talent shortage made a dramatic appearance as the No. 2 risk concern, upstaged only by restrictive regulations related to the pandemic. In the latest survey, succession challenges and the ability to attract and retain top talent is at the very top of the list, though it comes at an interesting time for the industry.
In recent months, a number of TMT organisations have announced layoffs and hiring freezes, citing inflation, rising cost of wages and benefits, and a need to eliminate less value-added resources to focus on profitability.
The changing labor model spurred by the pandemic likely has something to do with this. The shift to remote and virtual work models during the pandemic reduced geographic barriers to talent recruitment. As an example, top technology talent, such as engineers, programmers, developers and sales staff can be recruited from anywhere in the world, and do not need to live in proximity to traditional tech hubs like San Francisco, New York and Seattle. This ease with which employees and senior management are able to move between jobs appears to be driving some of the people management challenges that some TMT companies now face.
Going into 2023, it is important for TMT leaders to understand the multiple factors involved with retaining talent during a potential recession. They need to consider these key questions: How do you determine the skills/experiences your organisation needs during and after the recession? How well do you communicate to your employees during these uncertain times, including during potential downsizing? What type of employee experience are you creating for the people that you do retain?
Ensuring data privacy and compliance with growing identity protection expectations and regulations is the second top risk issue identified by TMT respondents in the 2023 survey. This risk underscores the growing pressure TMT companies are under to bolster their organisations’ compliance capabilities, refresh privacy programmes, and identify and mitigate increased areas of risk brought on by changes to business processes, adoption of emerging technologies and business operational models. There are also reputational and legal concerns associated with this risk, as well as major cost implications. The necessary alterations require significant resources to restructure how organisations collect, store, share and use data to run their business.
This top risk concern is only going to worsen, as regulators globally introduce measures that will push organisations to identify and remediate potential gaps in policies and processes related to data privacy. In the United States, for example, a new federal privacy legislation, the American Data Privacy and Protection Act (ADPPA), is making its way through Congress and has bipartisan support.
There is also the stringent new Trans-Atlantic Data Privacy (TADP) framework, which the United States and the European Union (EU) agreed to in 2022, addresses data privacy and protection of EU citizens’ data. The Digital Services Act, which the European Council signed into law in September 2022, aims to protect the digital space against the spread of illegal content, and carries significant financial penalties and enforcement actions against infringing companies. The EU’s Artificial Intelligence Act is another one; deemed the first legislation globally that aims to regulate the use of artificial intelligence across all sectors, it proposes state-of-the-art security and privacy-preserving requirements for companies developing high-risk AI systems.
Many TMT leaders fear their organisations may not have the right skills to take advantage of emerging digital technologies, especially during this period of economic instability, high inflation and talent shortage.
This explains the No. 4 top risk pick, which concerns the adoption of digital technologies (e.g., artificial intelligence, automation in all of its forms, natural language processing, visual recognition software, virtual reality simulations) in the marketplace and within organisations. Keeping up with digital disruption requires assembling the right talent, putting in significant efforts to upskill and reskill existing employees, and focusing on change management.
Other risk issues are entangled here as well. For example, in the event of a recession, companies are likely to cut research and development budgets, and startups building emerging technologies will struggle to raise venture capital. Companies with deeper pockets may invest in struggling startups, by either acquiring the business or picking off their talent. Either way, there would be disruption all around, even for the buyers.
The scenarios cited above also entail big risks for the companies with deeper pockets. Conflicting corporate cultures is one of the major reasons many merger and acquisition transactions fail or do not measure up to expectations. It is no surprise that TMT executives identified resistance to culture as the No. 5 risk issue. The concern here is that culture resistance would restrict organisations from making necessary adjustments to the business model and core operations on a timely basis.