As economic turbulence unnerves confidence, business leaders are re-evaluating their investment strategies. What are the areas of investment that are being prioritized in 2023 to make organizations more resilient to the prevailing trading headwinds? Digital commerce is a top contender. Read on to learn why and how.
Is business confidence wavering?
The war in Ukraine, escalating political uncertainties and the lingering pandemic have brought economic turmoil on a global scale. With climate change and sustainability to contend with, it’s hardly surprising that in 2022 the UK FTSE 250 went down by 18.6%, the US S&P 500 declined by 18.6% and Nasdaq plunged by 28.7%. The sharp declines in stock markets, plus two-quarters of negative GDP EU growth, have led the European Commission to expect a “technical recession” during 2023.
Outside the EU, the International Monetary Fund forecasts global growth to slow to 2.7% in 2023, the weakest growth in two decades, barring the 2008 financial crisis. Optimism in the US economy was down to 57.2 (out of 100) according to the CMO Survey, not far from its lowest level of 47.7 during the 2008/9 financial crisis. To top it off, the consumer confidence index reported by the Organisation for Economic Co-operation and Development (OECD) has reached its lowest since records began in the 1970s.
Given these ominous headwinds, it’s no wonder that confidence has plunged in the business sector amid high production costs, supply chain bottlenecks and tighter financing..The decline in business confidence is resulting in diverse and cautious attitudes to investment in 2023.
Mixed investment strategies
Marketing budgets, a litmus test for investment confidence, have seen a mixed response to the economy in 2022. According to the CMO Survey , 42% of CMOs have decreased marketing spending and 41% have kept budgets flat while conversely, 16.7% of CMOs report that inflationary pressures have increased marketing spending.
The primary area in which investment has increased is digital marketing, with funds being diverted from other budgets and representing a high of 13.8% of overall company budgets. VR/AR (virtual/augmented reality), AI chatbots, livestream video and mobile commerce are the main contenders for additional funds but only where there is a clear ROI. However, marketing budgets for advertising on social media channels are being reduced partly due to the lower consumer confidence indices, as well as managing data privacy and the resulting iOS updates by Apple that block the ability to track user behavior and measure advertising attribution.
IT investment continues to build. Worldwide IT spending is projected to total $4.6 trillion in 2023, an increase of 5.1% from 2022, according to the latest forecast by Gartner, Inc. The analyst also reports that “demand for IT in 2023 is expected to be strong as enterprises push forward with digital business initiatives in response to economic turmoil”, and 69% of 200 CFOs plan to increase their spending on digital technologies and accelerate their time to value. Investments in business software and associated services are top of mind, with forecasted growth of 11.3% in 2023, although this is less than in 2021, at 14.8%.
Consequently, organizations intent on building a more resilient, recession-proof, and smarter business to come through these headwinds are re-evaluating their investment priorities going into 2023.
Invest in certainties
The pandemic has proven yet again that adverse trading conditions expose weaknesses, weeding out less resilient businesses while accelerating emerging developments, in particular digital commerce. Agile and flexible companies have seized this opportunity by investing in and rapidly deploying new digital services, putting the less able on the back foot.
Nevertheless, when finances are tight, every dollar invested needs to count. Boardrooms are therefore scrutinizing expenditures rigorously and raising even more searching questions. Investment proposals will hit the buffers unless they can prove predictable benefits within definite and short timescales.
Therefore, in uncertain times, it’s more prudent to bet on certainties. Rather than spending money on experimenting with new radical ideas with unproven business cases or undertaking a risky digital transformation, improving what is known to work is a sure-fire way of delivering a definite ROI and making a business more resilient. Modernizing and re-automating ineffectual systems and processes is a prime way of doing this.
For example, cost savings and operational efficiencies generated by cloud hosting services will see more spending diverted toward new technologies such as data analytics, AI, robotics, AR/VR, and blockchain. Next-generation security related to these newer technologies will also continue to drive significant growth.
Manufacturing, wholesale, distribution, and logistics industries are planning to invest in the Internet of Things (IoT) to automate further and streamline warehousing, logistics, and supply chain management operations. These market sectors also stand to gain the most from advancing their digital commerce strategies. That’s not to say pure innovation isn’t important; after all, there will undoubtedly be business areas with the potential to innovate and yield obvious benefits.
However, in the short to medium term, benefits can be realized from re-automating existing systems. Driving out operational overheads, reducing complexity, and increasing agility while ramping up cross-sale and up-sale capabilities with existing customers and improving customer retention, are all targets for replacing outdated technologies. But how?
Time to re-automate (and innovate)
Through reiterations of old technologies from mergers and acquisitions, organizations have found themselves coping with a plethora of scrappy, incompatible, disjointed, and clunky systems built on architectures that emerged in the 1990s. These systems once helped to automate many processes. But today, their many limitations mount technical debt, holding back the scope to innovate, stifling operational efficiency, and increasing maintenance and running costs. This all-too-common situation results in poor customer experiences and lost sales.
Historically, the approach to resolving such legacies has been for the boardroom to take a deep collective breath and embark on an enterprise digital transformation (DX) project. This trend is still sluggishly rolling with global spending on DX forecasted to reach $2.3 trillion in 2023. These large-scale, organizationally-wide projects sound extraordinary and keep the shareholders impressed, at least for a time.
However, most broad-sweeping DX initiatives fail. They falter due to the many unforeseen complexities of unraveling disparate systems and attempting to migrate them to one-size-fits-all platforms, plus a lack of specialist technical skills, subsequent creeping inertia due to missed deadlines, poor user adoption, the blurring of alignment between technology and business objectives, and a looming sense of throwing good money away.
To make matters more challenging, digital transformation is touted as ‘business transformation’. This means companies are not only ripping out their systems but also restructuring an entire organization. This is a strategy fraught with risk and trauma but nonetheless taken because there was only one alternative: deliver DX piecemeal with disparate applications. This approach inherently creates even more issues, such as incompatibility and inoperability of processes, leading to siloed and inefficient business operations.
Frustrated with having to wrestle with old tech and living through the failures of digital transformation projects, a new generation of enterprising technologists has emerged over the last decade. Fuelled by a combination of developments, such as the dramatic increases in computer and network performance and the advent of significant advances in cloud computing, data analytics, AI and IoT, these new tech mavens have reinvented enterprise software.
Underpinning this game-changing paradigm is an architecture called MACH, pioneered by commercetools.
The technology shift to MACH™
It’s not the objective of this article to go deep into technology. Still, it’s worth it for all business leaders and board directors to gain a basic understanding of MACH.
The term is a combination of Microservices-based, API-first, Cloud-native and Headless capabilities. MACH™ is a modern composable software architecture based on smaller self-contained, more manageable business services that seamlessly integrate with one another. It is designed for the demands of a modern composable enterprise in which every digital component is pluggable, scalable, replaceable, and can be continuously improved.
These reinvented principles have been used to develop more cost-effective and productive digital applications and services. They eliminate the frustrations of legacy systems, enabling businesses to be more agile, reduce overheads, streamline operations, and rapidly innovate with much less dependency on specialist IT resources.
Moreover, modern modular and composable architecture means organizations don’t have to undertake drastic and linear DX projects. They can focus on the business areas with the highest priority to re-automate and innovate with predictable returns on investment and timescales.
Once the value is realized, along with organizational alignment, further services can be integrated and improved, with the knowledge that they will readily dovetail into each other.
That said, the days of risky, unpredictable and painful wholesale digital transformation projects are over with MACH because it’s possible to transform in a step-by-step and risk-free way, with fewer specialist technical resources and lower, predictable costs with less impact on cash flows. This capability helps a business become resilient and considerably more adaptable when making both big and small changes, from merging an acquisition to adjusting to market fluctuations.
Re-inventing your digital B2B commerce business
According to Forrester, 74% of B2B buyers research online and 67% purchase online, and spending on US B2B eCommerce platforms is expected to hit $1.8 trillion by 2023, growing at 10% CAGR over the next five years.
These numbers have increased notably due to the pandemic, as digital commerce has become the primary B2B channel for researching products throughout the purchase journey through to procurement. But that’s not to say that email, telephone, store visits and account representative channels don’t remain important; these all need to be integrated as part of an omnichannel experience.
However, manufacturers, distributors and wholesalers have complex products and customer contractual, ordering, and logistics operations. All-in-one monolithic digital commerce systems cannot handle B2B requirements without considerably expensive bespoke development.
One thing is certain: trading via digital commerce plays an ever-increasing role in orchestrating how customers engage with a supplier and the supplier's supply chain, distribution, and fulfillment operations. And, as a massive 94% of B2B buyers encounter poor experiences online, the motivation for B2B companies to bet on composable commerce is an obvious one in order to automate processes and deliver the online experiences buyers now demand.
If your business has not yet embarked upon a digital commerce strategy with composable commerce, you have a great deal to gain especially in reducing costs: Gartner predicts that by 2024 the IT costs of managing software operations will be halved as a result of the adoption of composable application architectures.
While cost reduction is the mantra during recessionary times, there’s also the potential to improve customer retention and lifetime value without incurring prohibitive costs and long timelines. This is done by making it easier for customers to:
Buy according to their profile and get the right real-time information in the context of their business, contracts, role and product needs.
Provide online self-service assistance with product selections and recommendations.
Personalize experiences according to where they are, what device they are using, and their preferred contact and ordering methods.
Optimize internal order-to-cash processes.
But where to start?
Aligned to your digital commerce strategy, set out a prioritized roadmap of those business processes that are not seamlessly working as part of a networked integrated business, including the friction points in the customer journey across all digital and physical touchpoints, and the benefits you expect.
Next, invest in what is certain to bring results, like automating your processes as much as possible; after all, the beauty of any digital process is that it’s trackable and measurable, so re-automating and re-innovating each digital service is a great investment for turbulent times ahead.
The underlying technology — MACH — is key to providing the flexibility to make these investments a reality. A digital service can be developed without being encumbered by its interdependencies on the coding of other interrelated services. This eliminates the domino effect of changing one application only to find that many other applications also need to be modified, so they keep working with each other, plus avoiding this major barrier that has stifled agility and innovation for B2B firms.
In 2023 and beyond, businesses can invest in MACH-based architectures, sure that their organizations will not only become more efficient and recession-proof but more competitive and profitable.
Start by working with leaders in modern commerce systems to identify areas of your business that will yield the most value. With commercetools, you can define use cases, create a business case, build a proof-of-concept, implement, and iterate — all in a matter of weeks. Learn how B2B businesses can invest in MACH with commercetools Composable Commerce for B2B.