Millennial question worries tech CEOs, despite bullish growth expectations

A lack of understanding regarding the ‘needs’ of Millennial consumers is one of the top concerns among CEOs in the technology industry. While tech leaders are bullish about their profitability in the short-term, and are confident that AI will not deplete the workforce, an inability to engage with consumers born after 1980 could be compounding problems relating to rising geopolitical tension, and cybersecurity threats.

KPMG’s global Technology Industry CEO Outlook is an annual report which seeks to provide insights into the opportunities and challenges which businesses in the sector face. The 2018 study saw a sample of KPMG’s 1,000 strong Global CEO Outlook survey quizzed on the areas they were most confident and most concerned about, revealing that, in the short-term at least, the technology industry considers itself to be in rude health.

Of the 104 tech CEOs polled, a majority expect to see their company enjoy top-line revenue growth exceed 2% in the next three years. All those questioned expected to see some level of growth, according to KPMG, and while a large number (48%) confined these estimations to between 0.1% and 1.99% per year, a larger 49% said they expected this figure to rest between 2% and 4.99%, and the remainder anticipate growth to top 5% annually. This suggests that tech CEOs are firmer believers in a bright future than their cross-industry counterparts, with 52% expecting growth of more than 2%, compared to 44% of KPMG’s broader pan-market sample.

These bullish forecasts from tech CEOs are mirrored by a confidence that headcounts across the sector will grow. Only 13% of respondents said their headcount was likely to remain the same, while a collective 44% of CEOs were categorised as being likely see an increase of staff numbers between 6% and 25%. Again, this compared favourably with cross-industry CEOs, just 37% of whom expect to see headcount growth of more than 6%.

Partially this may be because of the technology industry’s heavy ties to the increasingly prevalent trend for Artificial Intelligence. In line with a recent PwC report, which estimated that AI will create a slim net increase in jobs, KPMG found that 60% of CEOs in tech estimate a boost to employment in the sector, rather than a decimation. As a result, over half of those polled said they were already using AI to automate particular processes. Executives seem to feel they can keep and even increase their headcount, while putting their talent pool toward more constructive, value adding tasks, boosting revenues while improving on efficiency and productivity thanks to the heavy lifting done by AI.

This is not a long-term project, either, with some 41% expecting to see a "significant" return on their investment in AI in the next three to five years. When asked what they think will be the biggest benefits AI will offer their companies, the most popular answers the tech CEOs gave were that it would improve the experience they offer customers (42%), better their ability to manage risks (40%), improve their ability to control their data (39%), boost their revenue growth (38%), better their ability to analyse data (37%), and give a jolt to their productivity (37%).

Cliff Justice, a Principal at KPMG US specialising in Innovation & Enterprise Solutions, explained, “By augmenting human decisions, these technologies enable employees to devote more time to higher-value activities and offer profound impacts on how they serve customers and develop products and services. Artificial intelligence and machine learning represent transformational changes that will help companies create more innovation and opportunity.”

However, the respondents also cited a number of key issues facing them in the coming years. In many ways, the things that worry the tech sector are the same as any other. A crunching end to the globalisation project has seen Brexit and the Presidency of Donald Trump usher in a new era of protectionism and talk of trade wars, with cross-border trade now threatened by potentially colossal import/export tariffs, as a number of key economic players attempt to emulate an “America First” mentality.

As a result, 54% of CEOs in tech say a return to territorialism, including the US’ renegotiation of NAFTA and the UK’s withdrawal from the EU present the greatest threat to their organisation’s growth. This is followed by cybersecurity at 45%, which – following a 2017 riddled with stories of top technological and cyber-orientated organisations being stricken by hacks – probably comes as little surprise. However, underwriting these other fears is a concern that technology companies are failing to reach out to Millennials.

The Millennial question

While Millennials include the first generation of “technology natives”, and would therefore would likely be assumed as a key staple of any technology company’s consumer base, tech CEOs stated that they see a multitude of difficulties in trying to reach the generation born between 1980 and 2000. With the developed world currently experiencing a rapidly ageing population, particularly in the consumer economies of the UK, Western Europe and the US, a failure to court this generation of consumer, as trade from the likes of the baby boomers disappears in the next decade, could be a huge problem for even the largest market incumbents.

When asked what their biggest challenges are in reaching these younger consumers, 53% gave the top answer of finding it tough to compete for Millennials' attention against other online sites and services. Certainly, a glut of applications and platforms has meant that the places where Millennials may engage with products is diverse, and permeated by huge levels of competition. Meanwhile, around 44% said they were having trouble meeting Millennials' expectations that they offer an on-demand service – something which is also redrawing the lines of the sports broadcasting industry – and about 43% said they were having difficulties adapting their sales and distribution model for the younger set, while 42% said they were struggling to reposition their brands for them.

In general, however, many firms note that they are simply having a tough time distinguishing the needs of Millennials from other consumers. 40% noted struggling to understand how the younger generation's needs differed from those of older customers. One of the themes which such companies might do well to note is that Millennials’ needs might not explicitly differ from their precursors, but their consumer power might, causing their spending habits to differ. According to recent figures from UK-based think tank Resolution Foundation, Millennials in high-income countries make on average 4% less than people in Generation X did when they were the same age. Britain particularly showed the biggest income drop among Millennials, which when adjusted for inflation saw pay fall 13% from the previous generation.

While the e-commerce boom is partially cited as responsible for the downfall of UK technology retailer Maplin, a decline in disposable income among younger consumers can also be seen at play in a broader consumer crunch across the UK. UK smart-phone maker WileyFox was similarly hit by this before its collapse, suggesting that a crowded market and declining pay for Millennials could see a decline in their spending hit the tech sector in the longer term.

According to Anson Bailey, Head of Consumer and Retail Asia Pacific for KPMG, these pressures are meaning that Millennials are more cost-conscious, and subsequently less trusting of brands when spending money. Bailey concluded, “This generation knows what they want and they want the product now. Millennials research the products they want and the price points. They don’t trust brands so much, but they do trust their fellow consumers and what their key opinion leaders are saying. If they have issues with a product or service, they expect the issue to be resolved in real time.”