CIO Concerns – July 2020

Boardroom Insiders CEO Sharon Gillenwater discussed the top of mind issues for CIOs due to the pandemic.  Initially, the CIOs’ focus was on transitioning to work from home along with tightened security.  There were also “stepped up initiatives around cloud, automation, and e-commerce in order to keep the business running.  In fact, COVID-19 did more to speed up their digital transformation plans than anything else in recent history.”

“You can’t speed up the culture of an organization. You can roll out technology maybe faster… You have to be careful about speed over perfection. Speed is one thing, but you have to make sure that you don’t introduce any security risks, so it’s sort of combining those two things together [that] I think is extremely important at this time.”

Box CIO Paul Chapman

The Boardroom Insiders research team spent two weeks reviewing recent CIO interviews and identified five positive by-products of the pandemic that are improving the resiliency and capabilities of the enterprise.  First off, tech leaders have emphasized upskilling and reskilling their teams to address skills gaps.  Tech vendors have rolled out “a whole host of free training and education programs.”  As these programs are virtual, CIOs are encouraging their staff to attend these sessions with zero travel costs and registration fees.

Likewise, CIOs are using the time at home to hone their leadership, communication, and team engagement skills.  CIOs have found their teams to be more productive, collaborative, and agile, with rising morale.

The third silver lining is the acceptance and integration of new tools into business workflows.  Many of these changes were a necessity due to operational dislocations, but these new tools are “driving new levels of productivity and employee self-service across the enterprise.”

The work from home experience has also served as a “future of work lab” which forced executives and managers to “rethink business processes.”  This rethinking has “driven a wave of innovation internally” and let management observe how a remote workforce behaves.  This forced experiment has helped CIOs “map out a vision of what the future of work should really look like at their companies.”

Finally, the pandemic has encouraged CIOs to test and revise their business continuity plans and enhance security tools and protocols, readying the firm for the next crisis.

Gillenwater described the current situation as a balance between navigating COVID and growth-focused initiatives:

  • Evolving work-from-home into a long-term roadmap for the future-of-work
  • Enabling security everywhere and agile/mobile/digital/cloud everything
  • Scenario and business continuity planning, in an attempt to plan for future changes and challenges
  • Accelerating digital initiatives, at a pace that many say they’ve never seen before 
  • Cost cuts/expense management, an inevitability in an economically trying time 
  • Reprioritization and refocusing of IT investments and projects
  • eCommerce, as part of the rush to digitize
  • Innovation, to identify and capitalize on future opportunities 

Microsoft Global Skills Initiative

Microsoft launched a global skills initiative to provide digital training to 25 million global workers.  The online courses will be delivered through Microsoft, LinkedIn, and GitHub.  

A new “System of Learning” app will be released later this year on Microsoft Teams.

“Increasingly, one of the key steps needed to foster a safe and successful economic recovery is expanded access to the digital skills needed to fill new jobs.  And one of the keys to a genuinely inclusive recovery are programs to provide easier access to digital skills for people hardest hit by job losses, including those with lower incomes, women, and underrepresented minorities.”

Microsoft President Brad Smith

The Microsoft Data Science team leveraged the LinkedIn Economic Graph to estimate global digital job growth over the next half-decade.  Microsoft estimates that by 2025, there will be 100 million new software development positions, 20 million cloud and data roles, 20 million data analysis, machine learning, and AI jobs, and 10 million cybersecurity, privacy, and trust roles.

LinkedIn has already setup digital training tracks for ten of these key positions: Software Developer, Sales Rep, Project Manager, IT Administrator, Customer Service Specialist, Digital Marketing Specialist, IT Support / Help Desk, Data Analyst, Financial Analyst, and Graphic Designer.  These roles were selected as they have “the greatest number of job openings, have had steady growth over the past four years, pay a livable wage, and require skills that can be learned online.”

Microsoft noted that investment in employee training has declined over the past few decades, leaving fewer employees with on-the-job or employer paid training benefits. Since 2008, investment has remained flat.

“Exacerbating the challenge is the fact that existing training is not reaching the populations who need it most. On-the-job training far outpaces distance learning and other alternative modes, limiting options for prospective employees. Perhaps more significantly, on-the-job training is more than two times as prevalent among workers who are already in higher-skilled roles, leaving those in more automatable positions even more vulnerable to displacement.”

Microsoft President Brad Smith

Emphasis on Virtual Training

The availability of low cost or free training tools is one of the silver linings from the pandemic. Boardroom Insiders, a profiler of C-level biographies and executive concerns, spent two weeks reviewing recent CIO interviews. They observed that technology leaders have emphasized upskilling and reskilling their teams to address skills gaps while working from home.  Tech vendors have rolled out “a whole host of free training and education programs.”  As these programs are virtual, CIOs are encouraging their staff to attend these sessions with zero travel costs and reduced or waived registration fees.

Likewise, CIOs are using the time at home to hone their leadership, communication, and team engagement skills.  CIOs have found their teams to be more productive, collaborative, and agile, with rising morale.

Marketing Technology Landscape

Scott Brinker and ChiefMartec published their annual eye chart of MarTech companies.  The list grew another 13.6% to 8,000 companies.  However, the attrition rate was 8.7% as one in twelve companies on last year’s list were either acquired or folded.

The Data category grew by 25.5% to 1,258 companies.  Within the data grouping, Governance, Compliance, and Privacy rose 68%.  Other sub-segments with rapid growth include Conversational Marketing and Chat (up 70%), Projects and Workflow (up 41%), Print Advertising and Promotion (up 35%), and Video Marketing (up 26%).

While MarTech continues to expand, Brinker contends that the industry has a long-tail with one to two dozen platforms that “dominate global market share.”  These are followed by a few hundred category leaders, each with tens or hundreds of millions of dollars in revenue.

Brinker argues that MarTech has evolved from suites to platform ecosystems that look to leverage the capabilities of long-tail builders and entrepreneurs, providing niche solutions integrated into their platforms.  “The stability of a major platform as the backbone of a marketing stack augmented with a set of specialized apps designed to plug deeply into that platform is a powerful combination.  A “point solution” — which used to be a negative label — isn’t a point solution any more when it seamlessly integrates into your primary platform.  It becomes part of the fabric of your stack.  Literally: it’s a feature, not a bug.”

“At the same time, these characteristics give long-tail Martech businesses a certain degree of robustness,” continued Brinker.  “By integrating deeply with a major platform, they overcome buyer objections to unintegrated software.  They tap network effects with other integrated apps that can benefit from each other’s data and services.  And they can focus their marketing and sales energies toward a well-defined target audience — customers of that platform — often through online marketplaces run expressly for that purpose.”

This logic is being replicated in newer categories such as Sales Engagement.  Outreach and SalesLoft have offered partner ecosystems for several years that augment their capabilities and provide flexibility to their offerings.  Just as Salesforce has acquired companies to extend its capabilities, SalesLoft has acquired partners (NoteNinja and Costello) to extend core capabilities.  Smaller vendors may not offer formal app directories, but usually partner with a few best-of-breed vendors in various categories (e.g. LinkedIn SNAP, Vidyard, Drift, Zoominfo).

Now, this year’s data was collected before the coronavirus pandemic exploded globally in March 2020.  The elephant-in-the-room question, of course, is what impact will this crisis have on the Martech industry?  What will the Martech landscape look like in 2021?

Scott Brinker, ChiefMartec

Brinker sees the pandemic as “more of a short-term hit than a long-term death” as “it’s going to be a tough time for their customers,” resulting in a culling of weaker vendors.  Certainly, business spending will be reduced due to economic uncertainty.  Brinker also cautions that marketing operations will be stretched thin, dealing with crisis operations, and a reduction in VC funding will increase the perceived vendor risk for startups.

But the pandemic is not entirely negative for MarTech companies.  On the positive side, businesses will “lean in to digital engagement / transformation,” focus on performance marketing, and benefit lower-priced products tied to platform ecosystems.

“The world is going to continue to become more digital.  If anything, this crisis will accelerate the motivation for firms to embrace digital operations and digital customer experience.  And that’s where MarTech thrives.”

Finally, Brinker noted market analysis conducted by Luma Partners.  While the S&P 500 was down 25% in Q1, MarTech public companies were down only 8%.  This mild decline is an indicator that MarTech is viewed more favorably by the market than other categories (and far better than AdTech, which declined 32%).


Signs of a Market Slowdown

There are a number of indicators signaling a slowdown in both the general economy and technology products and services:

  • The Gartner CMO Spend Survey showed a drop in marketing spend as a percentage of overall spend from 11.2% in 2018 to 10.5% this year.  The peak in marketing spend was in 2016 (12.1%).  The data is based upon a survey of 340 North American and UK marketing leaders.  However, 61% of marketers anticipate a rebound in 2020.  “While we’re not yet witnessing a precipitous drop in budgets, this year’s downtick presents a counterintuitive scenario,” commented Gartner’s VP of the Marketing practice, Ewan McIntyre.  “You could call this confidence in the face of adversity.  Or you could call it hubris.”

    MarTech budgets fell 3% to 26% this year.
  • The Gartner 2Q19 Global Talent Monitor indicated growing concern about the job market with fewer employees looking to change jobs.  53% of US employees are intending to stay put and only 12.5% are actively looking for other positions.  The US actively looking rate dropped in half in Q2 and the percent looking to stay put rose ten points.  “Over the previous several years, the clear story within the U.S. has been a robust economy, tight labor market and plenty of opportunities for growth and improvement from the employee perspective,” said Brian Kropp, chief of research for the Gartner HR practice. “With this quarter-over-quarter increase in intent to stay, we are now seeing a shift as employees hunker down, indicating concerns around available job opportunities and potential weakness in the labor market.”

    Gartner also noted a 2.4% decrease in global business confidence amongst employees and an increasing willingness of US employees to go “above and beyond the call of duty at their jobs.”  According to Kropp, “Workers appear to be putting more time and effort into their current positions with the hopes of solidifying their roles in case of a change in the economy.  This situation creates an opportunity for organizations to invest in internal training programs that capture this employee commitment to build a stronger, more productive workforce.”
  • Trump’s Tariff War is proving more difficult to win than he anticipated, resulting in inflationary pressures in the US alongside harm to the industrial and agricultural sectors.  Tariff rates are expected to increase at the end of the year.
  • Brexit remains a big question mark with dates, agreements, and new UK elections changing almost every day.
  • The US and UK governments are both very unpopular with Trump facing Impeachment hearings and Boris Johnson preparing for an election.
  • While the US unemployment rate is at a historical low point (3.6%), the economy only added 128,000 non-farm jobs last month and 130,000 per month this year, well below the 223,000 jobs added each month in 2018.
  • The preliminary US GDP Q3 growth rate came in at 1.9% compared to 2.9% in 2018.
  • US Hiring has slowed to its lowest rate in seven years.  A survey of economists by the National Association of Business Economists found that only one in five of their firms grew their headcount in Q3 down from one in three in Q2.  Capital equipment purchasing is at a five-year low and fewer firms are offering pay raises.  “The U.S. economy appears to be slowing, and respondents expect still slower growth over the next 12 months,” said Constance Hunter, NABE president and chief economist at KPMG.

    The NABE also reported slowing sales with only 39% reporting sales growth in Q3 compared to 61% a year ago.

If the US economy tips into a recession, there is little room for fiscal or monetary policy to slow a recession.  The Federal Funds rate (1.75% following three cuts this year) is historically low for an economy at 3.6% unemployment and the Federal deficit provides little room for expansionary fiscal policy.  Trump lowered personal and corporate tax rates when the economy was strong instead of waiting for a recession.

SalesTech Spend Continues to Increase

SalesTech adoption rates and spend continue to increase according to a recent SalesTech study of 268 B2B sales and marketing managers conducted by Smart Selling Tools.  Only 3% of respondents are planning on reducing their SalesTech spend in 2020 while 6% plan to spend significantly more in 2020 and 41% slightly more.  Expanded spending will be focused on the top and middle of the funnel followed by management and reporting.  Skills Development, Onboarding, and Bottom of the Funnel expenditures have a lower priority.

Over the past year, SalesTech spend per user has increased significantly.  In 2017, only one-third of respondents spent in excess of $150 per user, but two years later, 65% spend more than $150 per user.  As the average number of sales tools in use rose only modestly from 4.5 to 4.9 over the past two years, the spend per product has likely increased.  The number of applications that are used by a majority of respondents trebled to six (CRM, Online Meetings, Lead List/Database, Social Selling, Account Targeting, and Skills Training & Reinforcement) with an additional four at 47% or higher.  CRMs are used by 75% of respondents, lead/list databases by 65%, and social selling by 60%.  The one category that dropped in usage was online meetings.

Adoption rates of technologies were fairly even by company size with large firm (500+) employees more likely to have adopted Sales Enablement, Skills Training & Reinforcement, and Sales Performance & Compensation.  Conversely, firms with fewer than 500 employees were more likely to have adopted Prospect Engagement (Sales Engagement) solutions.

Account targeting tools for ideal customer prospecting grew from 4% to 51% over the past year, a clear indication that ABM strategies have been adopted.  Lead Engagement (communicating at scale with early-stage, unqualified leads) grew from 11% to 49%, while social selling grew from 10% to 60%.

“The significant increase in usage of sales tools across the board indicates a trend (likely irreversible).  If your organization is slow to take up the use of sales tools, you could get left behind. Even so, we don’t recommend adding new sales tools without considering what’s required to keep them up to date and who will be responsible, having a plan for measuring success (what does “Good” look like?), and deciding what’s required to establish and grow user adoption.”

Smart Selling Tools founder Nancy Nardin.

The top three industries represented in the study were technology (42%), Financial Services (9.3%), and Manufacturing (8.7%).

Gartner IT Spend Forecast

Gartner forecasted 3.2% growth in global IT spend in 2019, with turnover hitting $3.8 trillion.  Growth will be driven by Enterprise Software (up 8.5% this year and 8.2% next year) and IT Services (up 4.7% this year and 4.8% next year).  Slower growth segments include Devices (1.6% growth in 2019), Communications Services (up 1.3% in 2019), and Data Center Systems (growing in 2019 but retreating in 2020).

“Despite uncertainty fueled by recession rumors, Brexit, and trade wars and tariffs, the likely scenario for IT spending in 2019 is growth,” said John-David Lovelock, research VP at Gartner.  “However, there are a lot of dynamic changes happening in regards to which segments will be driving growth in the future.  Spending is moving from saturated segments such as mobile phones, PCs and on-premises data center infrastructure to cloud services and Internet of Things (IoT) devices.  IoT devices, in particular, are starting to pick up the slack from devices.  Where the devices segment is saturated, IoT is not.”

“IT is no longer just a platform that enables organizations to run their business on.  It is becoming the engine that moves the business.  As digital business and digital business ecosystems move forward, IT will be the thing that binds the business together.”

David Lovelock, Gartner Research VP

The shift to the cloud and SaaS will continue to benefit Enterprise Software spend with global expenditures hitting $466 billion in 2020.

“Cloud shift is not just about cloud.  As organizations pursue new IT architectures and operating philosophies, they put in place a foundation for new opportunities in digital business, including next-generation IT solutions such as the Internet of Things (IoT),” said VP Ed Anderson earlier this year.  “Organizations embracing dynamic, cloud-based operating models position themselves for cost optimization and increased competitiveness.”

Lovelock warned that companies are failing to upskill their internal staff quickly enough to support newer technologies such as IoT, AI, machine learning, data science, APIs and services platform design.  Gartner was concerned that “nearly half” of the IT workforce is in “urgent need” of upskilling to “support their digital business initiatives.”  The risk for businesses is that emerging technologies “are changing faster than we’ve ever seen before.”