Heading into 2019, midsize companies are facing an uncertain and unpredictable landscape. The global economic outlook continues to shift, with some research experts expecting a slowdown in 2019. Multiple forces are impacting the business environment—from stock market volatility to rising geopolitical and policy uncertainties to increasing natural disasters.
Against the backdrop of all of this change, what is top of mind for leaders of midsize companies this year?
We asked industry experts for their take on the biggest trends and issues impacting the middle market in 2019—and how companies in this category can better adapt and grow during uncertain times.
While midsize companies are focused on multiple priorities, two big focus areas stood out: technology and talent. Here is a look at what experts had to say:
Increasing Adoption of Digital Technologies, Especially Cloud
In the mid-market, technology spending is rising. According to the 2018 report “Technology in the Mid-Market: Embracing Disruption” from Deloitte Consulting LLP, 57 percent of mid-market survey respondents say they’re spending more on technology this year than a year ago, with 33 percent reporting that their company spends at least five percent of their revenue on technology.
This number will continue to grow, according to Chris Jackson, Deloitte Private Technology Leader at Deloitte Consulting LLP, who says that many midsize companies are doubling down on investments in new technologies after seeing significant returns on investments they’ve already made. “While the catalyst to adopting digital technologies is often costs needs alone, organizations are seeing these investments transform and impact the business, from greater operational efficiencies to insights that are enabling them to innovate and capture market opportunities more quickly,” he says.
According to IDC’s “FutureScape: Worldwide SMB 2019 Predictions”1 report, digital transformation will become an increasing priority for small and midsize businesses (SMBs) over the next five years, stating that “Two-thirds of SMBs will have digital transformation (DX) as a key part of their IT strategies by the end of 2023.”
Adopting cloud technologies will continue to be a priority for many midsize companies, especially those wanting to scale and expand globally.
In the report, IDC states that the goals of digital transformation are to “innovate new business models, products, and services that blend digital and physical and business and customer experiences while improving business performance.” Digital technologies will help midsize companies operate with predictability as they weather change on all fronts. According to the report, “Disruptive pressures from start-ups and growing businesses in your industry will make digital transformation essential for survival.”
Cloud Levels Playing Field
Adopting cloud technologies will continue to be a priority for many midsize companies, especially those wanting to scale and expand globally. “As technology has changed and advanced, more small and midsized organizations are becoming global organizations,” says Colin Brennan, executive vice president of cloud HCM and financial solutions at Alight Solutions. “In order to scale, these organizations are relying on technology like cloud solutions to provide the infrastructure they need to operate in markets around the world. With varying legal, tax, HR, and payroll regulations from country-to-country, cloud systems allow midsize organizations to navigate the complexity without having to make large people investments in the countries in which they operate.”
The IDC report2 also predicts that cloud-based capabilities will continue to transform how SMBs deploy technology, highlighting that organizations will continue to add new cloud applications even while they are in the process of upgrading internal on-premises infrastructure.
When it comes to cloud, Jackson says that it’s important for companies to consider what areas of the business can benefit the most. According to the Deloitte report, when it comes to digital transformation, three areas of the business are expected to see the most workforce-related changes: operations (54 percent), customer service (46 percent), and marketing (41 percent).
Chris Michalak, CEO at Alight Solutions, points to cloud momentum in HR and finance, highlighting that over 50 percent of companies will rely on cloud-based solutions for their HR applications by 2020, according to Information Services Group. “In Alight’s own business, by the end of 2019, 75 percent of our clients will have moved from standard, hosted platforms to cloud-based HCM,” he says. “We expect this shift to cloud to really pick up for midsized companies as they realize how these solutions can support their HR and financial infrastructures and provide an incredible amount of data and insights to better inform their business decisions.”
AI and Automation on the Rise
In the coming year, midsize companies will increase their use of cognitive technologies and artificial intelligence (AI). According to IDC,3 “By the end of 2019, the majority of medium-sized businesses in developed countries will have implemented cognitive/AI software.”
This is due in part to greater accessibility and affordability of the technology. “Large companies have long taken the lead in developing and implementing AI,” says Brennan. “As this technology becomes more efficient in terms of cost and capacity, we are seeing it trickle down to smaller organizations. Midsize companies are able to advance and grow much more rapidly than they may have ten years ago.”
Brennan describes how midsize companies are using automation to consolidate their financial and HR shared services to reduce costs and increase efficiency. “This will allow for more customized services such as off cycle check payments and access to data and analytics on the fly,” he says.
According to the Deloitte report, more than half of the respondents (57 percent) say they are using machine learning for predictive analysis of business outcomes, while 41 percent use it to read and encode human communication for data processing. Two-thirds of respondents say they are focusing their use of robotic process automation (RPA) on high-volume, labor-intensive tasks.
As the mid-market increasingly adopts digital technologies across their organizations, Jackson suggests that leaders use it as an opportunity to reevaluate processes and change the way they work to their advantage. “We advise companies that are adopting new software to not try and make the software fit how they work—instead, adapt to how the technology works,” he says. “Most software companies have best practices in their systems, which allow customers to work in a much more expedient manner. It can improve your business.”
Adapting to the Changing Nature of Work
The second big area of focus for midsize companies this year is the changing nature of work, and how companies will approach attracting and retaining talent in a tightening labor market. “It’s important that midsize companies recognize that the nature of the work we are doing is changing and the nature of workers is changing,” says Jackson.
Advances in technology continue to have a major impact on jobs today—and is changing the talent needs of employers. Jobs are being redesigned and companies are having to consider what skills they need both today and in the future.
As the nature of work changes, companies will also change the way they source and develop talent.
While many have feared that technology will replace jobs and shrink the workforce, Jackson says the opposite is true. According to the Deloitte report, 46 percent of executives of mid-market companies plan to hire more people than before emerging technologies came on the scene. “Our survey indicates that technology is not taking away jobs,” says Jackson. “Companies are seeing that when they use technology to augment administrative and rote tasks, it frees their people up for more creativity and strategic work. The return on investment is leading companies to hire more people.”
As the nature of work changes, companies will also change the way they source and develop talent. IDC4 predicts that, “By 2023, half of SMBs will respond to the changing nature of the work, leveraging new talent and sourcing models.”
One way midsize companies can compete for talent is by offering benefits such as greater flexibility and development opportunities. “With unemployment at record-low levels, organizations of all sizes are grappling with attracting and retaining the best talent,” says Michalak. “All companies will need to be aggressive about differentiating themselves from the competition and this is particularly true of midsize companies that may not have the capital to invest in higher wages. Our own data shows that employees very much value a great employee experience, which can include low-cost benefits like greater flexibility.”
The ability to reskill and retrain employees will also be important within organizations, especially to keep pace with organizational and technology changes. The Deloitte report reveals that 61 percent of mid-market and private companies surveyed are reskilling employees, and 57 percent are redesigning jobs to seamlessly integrate people and machines.
Midsize companies are also increasingly hiring gig workers to support talent needs. According to the Deloitte report, sixty-two percent of respondents say the gig economy has allowed their companies to become even more agile in product and service development, while half of companies surveyed are leveraging gig workers to develop entire new lines of business.
Organizations of all sizes will be contending with many uncertainties in 2019. For midsize companies, technology and talent will play very important roles in helping them prepare for and navigate all of this change—while also creating opportunities to strengthen and grow their businesses.