The “2023 Mid-market Technology Trends Report” from Deloitte Private reveals that mid-sized businesses are currently investing in technology at their highest levels since the onset of the pandemic.
Deloitte Private recently conducted a survey to explore the current technology trends within the private and mid-market company segment.
The survey was administered online by an independent research firm from May 4 to May 24, 2023. Among the participants, 50% held C-suite executive positions, and the other half comprised non-C-suite decision makers, all hailing from companies in the United States with annual revenues ranging from $250 million to over $1 billion.
Furthermore, 80% of the respondents were affiliated with privately held companies, while the remaining 20% represented publicly-traded firms.
The surveyed companies spanned various industries, including technology, media, and telecommunications, financial services, consumer and industrial products, energy and resources, as well as life sciences and healthcare (LSHC).
More than half of the survey respondents (53%) indicated that their organizations are allocating over 5% of their annual revenue toward technology in 2023 marking a significant increase from the 2019 peak of 43% and represents a remarkable rebound from the meager 20% observed during the mid-pandemic year of 2021.
Deloitte Private has been conducting this survey since 2013, gathering insights from executives of mid-sized private companies with annual revenues ranging from $250 million to over $1 billion.
Worldwide IT Spending – Tech Sector
According to the latest forecast by Gartner, Inc Worldwide IT spending is projected to total $4.7 trillion in 2023, an increase of 4.3% from 2022.
As CIOs continue to lose the competition for IT talent, they are shifting spending to technologies that enable automation and efficiency to drive growth at scale with fewer employees.
“Digital business transformations are beginning to morph,” said John-David Lovelock, Distinguished VP Analyst at Gartner,”
“IT projects are shifting from a focus on external facing deliverables such as revenue and customer experience, to more inward facing efforts focused on optimisation.” he said.
In 2024, global IT expenditures are expected to reach $5.1 trillion, marking an 8% increase compared to 2023. Although generative AI (GenAI) has not yet significantly affected IT spending, investments in the broader field of AI are contributing to the overall growth.
Worldwide IT Spending Forecast (Millions of U.S. Dollars)
| SPEND TYPE | 2022 Spending | 2022 Growth (%) | 2023 Spending | 2023 Growth (%) | 2024 Spending | 2024 Growth (%) |
| Data Center Systems | 221,223 | 16.6 | 217,880 | -1.5 | 235,530 | 8.1 |
| Devices | 766,279 | -6.3 | 700,023 | -8.6 | 748,150 | 6.9 |
| Software | 811,496 | 10.7 | 922,745 | 13.7 | 1,052,956 | 14.1 |
| IT Services | 1,305,699 | 7.5 | 1,420,905 | 8.8 | 1,585,373 | 11.6 |
| Communications Services | 1,423,075 | -1.9 | 1,461,662 | 2.7 | 1,517,877 | 8.8 |
The Mid-Market
In the ever-evolving landscape of technology, it is no surprise that the mid-market, often considered the engine of economic growth, has its sights set on the latest innovations.
This year, artificial intelligence (AI) has surged ahead of other technologies as the top tech investment priority for these enterprises. In a survey conducted, a significant 40% of respondents declared AI as their foremost tech investment focus.
To put this in perspective, just a year earlier, in 2021, merely 12% of respondents had predicted that AI would have a substantial impact on their business within a year. The drastic increase in interest is a testament to the growing influence of AI.
What’s more, the impact of AI on revenue growth is striking. Respondents with active AI solutions reported a remarkable 47% experiencing revenue growth of 20% or more. This is in stark contrast to those businesses that have not yet embraced AI, with only 23% of them reporting such impressive financial growth. The message is clear: AI adoption is not just a trend but a genuine catalyst for success.
Data security has also risen to the forefront of tech priorities for these mid-market companies. A substantial 74% of respondents expressed high or very high confidence in their business’s cybersecurity capabilities, a sign that leaders are seeing positive results from their investments in safeguarding their data.
Notably, businesses with active AI solutions displayed significantly higher confidence levels in their cybersecurity capabilities. They were more than two-and-a-half times as likely to have very high confidence compared to businesses that have yet to explore AI (32% vs. 11%).
This highlights the symbiotic relationship between AI and data security, where one complements the other to create a fortified technological infrastructure.
In the era of technological convergence, industry boundaries are blurring, and mid-market companies are keeping a watchful eye on competitive threats coming from sectors beyond their own.
More than half of these enterprises (51%) acknowledge the presence of such threats but also seem prepared to pivot and expand into adjacent industries.
A survey revealed that a substantial 70% of respondents have developed assets with the potential for monetisation outside their core sector. The number rises even higher to 81% among organizations reporting the highest return on investment from their tech initiatives.
The adaptability and willingness to embrace cross-industry opportunities highlights the agility and resilience of mid-market players in 2023
Retaining tech talent remains a crucial concern for these companies. Multiple strategies are being employed to keep tech professionals within their ranks.
Competitive benefits and compensation packages (36%) are considered the most effective, along with the offering of flexible work environments and geographic options (36%). The strategies are closely followed by creating flexible career paths, transparency, better performance feedback (34%), and investing in diversity, equity, and inclusion programs (34%).
However, despite efforts, the demand for AI-related skill sets is intensifying, leading to fierce competition for talent. Respondents noted that their businesses are facing difficulties in attracting AI strategists (40%), engineering talent (37%), and data and deep-learning scientists (35%) underscoring the ongoing need for a robust talent pipeline to support the ever-expanding AI landscape.
Additional Survey Findings:
- AI takes the lead as the primary technology investment focus for mid-market businesses. This year, 40% of survey participants have identified AI as their top technology investment priority, a notable increase from the 12% who foresaw its significance in 2021.
- Notably, companies actively engaged with AI solutions (47%) report a remarkable revenue growth of 20% or higher, contrasting with those not exploring AI (23%).
- Business leaders are reaping the benefits of their sustained emphasis on data security. A significant 74% of respondents express a high or very high level of confidence in their organisation’s cybersecurity capabilities.
- Remarkably, those with active AI solutions exhibit over two-and-a-half times higher confidence in their cybersecurity capabilities compared to businesses not engaged in AI (32% vs. 11%).
- Industry lines become increasingly blurred as more than half (51%) of mid-market companies are aware of potential competitive threats encroaching from outside their sector. Nevertheless, these companies appear prepared to expand into adjacent industries.
- The survey reveals that 70% of respondents have developed assets with potential for monetisation beyond their sector, with this number rising to 81% for organizations reporting the highest ROI on their tech investments.
- Mid-market companies deploy various strategies to retain tech talent. They prioritize competitive benefits and compensation (36%) and offer flexible/hybrid work options along with geographic flexibility (36%) as the most successful retention methods.
- Close behind are initiatives like creating flexible career paths, fostering transparency, providing improved performance feedback (34%), and investing in diversity, equity, and inclusion programs (34%).
- The demand for AI skill sets intensifies, leading to a heightened competition for talent. However, companies are grappling with challenges in attracting the right individuals.
- Respondents highlight difficulties in recruiting AI strategists (40%), engineering talent (37%), and data and deep-learning scientists (35%).
Vice chair, and U.S. and Global Deloitte Private leader Wolfe Tone, said “Middle market private companies are reaping the benefits of a robust technology agenda, including higher revenue growth and greater preparedness to expand outside their industry — fueled by tech spending,”
“When it comes to talent, digitisation is also calling for these companies to leverage a mix of competitive approaches to develop and retain the tech skills needed not only for success today but to be prepared for what is needed five or ten years from now.”
Ryan Jones, private equity leader and principal, Deloitte Consulting LLP says boundaries between traditional industries, competitors and collaborators are continuing to blur and middle market private companies will likely face off against companies and sectors not traditionally seen as competitors.
“Thriving in this dynamic environment hinges on adopting an innovation mindset and actively putting the resources behind the development of assets that can be monetised for value outside their traditional sector to drive growth.” he said.
The Software Segment
In 2023, the software sector is poised for robust double-digit growth. This growth is being driven by organisations ramping up their usage and reallocating resources towards essential applications and platforms that enhance efficiency, such as enterprise resource planning (ERP) and customer relationship management (CRM) software. Additionally, vendor price hikes will further boost software spending throughout the year.
Despite a generally favorable outlook for enterprise IT expenditure, there is an expected 8.6% decline in spending on devices in 2023. This decline is primarily attributed to the persistent impact of inflation on consumers’ purchasing power.
Generation AI – 2023
Meanwhile, A new report titled “Generation AI: Ready or not, here we come!” has been jointly developed by Deloitte Access Economics and the Deloitte AI Institute.
The report provided valuable insights to Australian C-suite executives regarding Generation AI (Gen AI) and its growing popularity among students and employees.
In addition to economic research, the study involved surveys of 2,550 individuals, comprising 2,000 current employees spanning 18 different industries, and 550 students.
- Generative artificial intelligence (AI)
Although generative artificial intelligence (AI) is a prominent topic of discussion among business and IT leaders, it has not yet had a substantial impact on IT expenditure. Over the long run, generative AI is expected to be primarily integrated into enterprises within the framework of their existing spending
Tech Spending Report Summary
Tech spending is increasing significantly, as reported in Deloitte Private’s “2023 Mid-market technology trends report.” The noted upward trend is the highest since the start of the pandemic, with 53% of respondents revealing that their organisations spent over 5% of their revenue on technology.
These statistics mark a notable increase from the 2019 peak of 43% and a significant recovery from the low point of 20% during the mid-pandemic year of 2021.
Additionally, Gartner’s latest forecast indicates that worldwide IT spending is projected to reach $4.7 trillion in 2023, reflecting a 4.3% increase from the previous year suggesting a growing emphasis on technology investments in the business world.
