The tech slowdown has caused VC investment in tech to drop, including in disruptive technologies such as AI. However, some sectors continue to pique investors’ interest — and companies themselves don’t show signs of slowing down.
Global consulting firm BCG found that 60% of companies plan to increase tech and digital transformation investments in 2023 despite the macroeconomic uncertainty.
Sifted spoke to Sylvain Duranton, global leader of BCG X, BCG’s new tech build and design unit, about the challenges companies are facing when it comes to tech, how to overcome them and what makes BCG X unique. Here are edited excerpts from the interview.
1/ Though the slowdown has caused investment in tech to drop, a BCG survey found that 60% of companies plan to increase tech and digital transformation investments in 2023 vs 2022. What are the factors driving this?
There are two factors: the first one is that companies that are successful in their digital transformation enjoy much higher performance than others.
But it's not just about financial performance; it's also about the rate of innovation. Companies that are most advanced digitally win in the market. That is why it's challenging, especially in the current environment.
During the pandemic, companies who were most advanced digitally could manage their supply chain, even if there was some disruption, and could continue to sell. Even if their physical channels were down, companies who could sell their service on the internet were winning massive market shares. This has been a wake-up call, especially for companies that were lagging behind, that they needed to catch up.
2/ Which technologies do you think will be the most disruptive?
In the short term, I think there are three areas where we'll see a lot of growth. The first one is advanced AI. With advanced tech, AI can come up with much better predictions and also create its own objects such as summarising a text to explain a picture.
Radical disruptive innovation is the most powerful way to regain customers and market share
Secondly, there are advancements in biotech (Synbio), which is also a very active area, and revolves around turning bacteria and molecules into efficient workers. For example, we work with a paper manufacturer to find ways to reduce water and energy consumption. And in the process of paper manufacturing, a lot of water is used up in softening the fibres. Using bacteria, the fibres can be made soft using much less water. So that's a process where you can save half of the water and energy consumption — a huge step forward for the industry.
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The last area is everything related to Web3. Everyone’s saturated with social media and Web2. Web3 is coming with the extensive use of blockchain, which will be a way for you to share your digital identity and digital assets and massively simplify every certification and transaction.
Of course, in a downturn, you want to reduce costs, and technology can help with that. You should aim to be more personalised and more precise to boost effectiveness. But radical disruptive innovation is the most powerful way to regain customers and market share.
3/ In an atmosphere of economic uncertainty, what are the challenges that tech companies typically face when it comes to product development and fundraising? What's your advice on how to overcome these challenges?
On product development, the challenge is to be realistic in terms of what is required to succeed. We see many companies peddle their investment on far too many initiatives, without being able to scale. There should be a focus on fewer things with bigger bets.
Rather than having 55 initiatives, have three or four that drive real disruption, and will make a real difference
Our latest research that was published in Oct 2020 shows that 70% of digital companies fail to materialise any impact from digital transformation. So rather than having 55 initiatives, have three or four that drive real disruption, and will make a real difference.
Fundraising has become harder but I think what will happen in response is closer cooperation between corporates and startups — especially for disruptive innovation. Corporate assets can make a huge difference, especially if we think about innovation outside of just Web2. VC funding is under pressure, but the drive from large corporations to innovate has remained intact and is bigger than ever. So I think there will be a shift in terms of funding and partnering from pure VC money to some corporate support to scale innovation.
4/ At what stage of a company’s growth cycle would you say is the best time to invest in tech talent? Do you think companies should hire tech talent during a slowdown?
You need tech talent at every stage — the question is if you need to internalise or externalise tech talents. Most startups and tech companies have internalised everything and you have large corporations who have externalised talent too much, and have lost the grip on their own technology.
In the downturn, there will be opportunities for large corporations to hire critical talents — such as data scientists, product managers and data or software engineers.
5/ How does BCG X’s tech and design talent plan to drive the development of tech? How is it different from BCG’s other initiatives?
The difference between BCG X and the rest of BCG is that the talent in BCG X are not consultants that come to advise — they build things with their hands. They build technology and businesses on these technologies. So when you combine BCG and BCG X, you have something pretty unique in the market.
We want to be the first company to be tech and consulting at the same time
Today, if you look at who the players are claiming that they will help companies digitally transform, you basically have two types. Pure consultants come in with a business mindset and support project management around strategic initiatives and technology developments. On the other side, tech players that could be software companies or IT integrators who come with a technology mindset and fail to deliver business value. BCG and BCG X combined are bringing both these worlds together.
We want to be the first company to be tech and consulting at the same time, because we think that’s the way to help clients accelerate the scaling of disruptive solutions.
BCG X is the tech build and design unit of BCG. Turbocharging BCG’s deep industry and functional expertise, BCG X brings together advanced tech knowledge and ambitious entrepreneurship to help organizations enable innovation at scale. Discover more here.