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TMT recovery from pandemic rests on capital investment, yet companies struggle to meet capex objectives

Never has capital investment been more top of mind for technology, media and entertainment and telecommunications (TMT) companies, according to the EY Global Capital Operations and Innovation Study (COInS). The new survey of 500 global TMT executives reveals that 87% of respondents identified as “leaders”1 believe recovery from the COVID-19 pandemic rests on maintaining levels of capital investment. This is a matter for concern given that 82% of all survey respondents are unclear who is accountable for delivering results relating to capital investment projects, throwing into question governance practices.

The survey also finds that TMT companies are struggling to meet capital investment objectives. Sixty-three percent of all respondents fail to achieve forecast returns, while 66% agree that costs of their capital programs escalate as timeframes lapse. When it comes to measuring success, 70% of “laggard” respondents (58% of “leaders”) struggle to demonstrate the value their capital investments bring to the business – in large part due to data maturity limitations.

Daniel Theander, EY Global Capital Operations and Innovation Suite – Solution Leader, says:

“The hyper scaling of content streaming services, the rollout of 5G and the ubiquity of the internet of things [IoT] all give rise to new business models, customers and revenue streams for TMT companies. Taking advantage of these opportunities in a post-pandemic world will be defined by well-executed capital investments, yet the survey unearths a spectrum of shortcomings across the capital life cycle. To recover and thrive, businesses must embed agility into the way they manage capital – driven by trusted data to enable predictability, and active governance to improve accountability through transparent communication.”

Agility is a top priority
Eighty-three percent of all respondents say the COVID-19 pandemic has highlighted the imperative to establish more agile mechanisms for allocating capital. Yet, a third (33%) believe they are still unable to flex to changing market conditions – including major events like the COVID-19 pandemic.

Telecoms companies have the biggest opportunity to improve agility, with 42% of telcos admitting that their approach to capital investment planning is too static and rigid (compared to 38% for media and entertainment companies and just 25% of tech companies). However, at the same time, telcos are the least likely to regularly review and adjust investments (16% compared to 26% of tech and 31% of media and entertainment companies). Furthermore, 38% of telcos struggle to find sufficient data to add credibility to the decision-making process – notably higher than media and entertainment (30%) and tech (28%) respondents.

Talent agenda must keep pace with tech transformation
The survey impresses the importance of cultivating the right skill sets to optimize capital investment, beyond tools and processes alone. Eighty-nine percent of “leaders” (67% of “laggards”) believe they will derive a competitive advantage by maintaining a highly skilled workforce that can manage capital projects.

But as the landscape shifts at pace, a skills gap is emerging as companies rollout new technologies without providing sufficient training to utilize them. According to the survey the top barrier to the adoption of artificial intelligence (AI) analytics is the lack of AI skill sets, while two-thirds (66%) of all respondents say it is difficult to find the necessary skill sets within their organization today.

Ludvic Baquié, EY Global Capital Operations and Innovation Suite – Solution Architect and Operations Leader, says:

“The role of talent in TMT capital projects is changing, driven by remote monitoring and automated response, which is shifting part of the workforce from the field to a virtualized environment. This evolution of skill sets has risen to the top of the board agenda, with an emphasis on AI, analytics and remote working. Pivoting the workforce to use emerging tech and become more efficient is mission critical, and companies need to act now to re-skill talent.”

Spotlight on the ESG agenda
As TMT companies look to bolster governance and transparency processes, the survey outlines the importance of including environmental, social and governance (ESG) KPIs to facilitate holistic investments that deliver a more balanced set of objectives. The findings indicate that this should now be a key area of focus for TMT executives, with 62% of all respondents stating that not enough capital investment projects are assessed based on their contribution to environmental or sustainability goals.

Ben Hoban, EY Global Capital Operations and Innovation Suite – Capital Allocation Leader, says:

“TMT companies increasingly have unique ESG considerations that will drive change across the industry in terms of capital investments. As the ESG agenda evolves and intensifies, finding the right balance among all stakeholders – including shareholders – will continue to be a success driver for businesses across the industry.” EY

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