Industry executives and experts share their predictions for 2022.  Read them in this 14th annual VMblog.com series exclusive.

Seven enterprise technology trends to watch in 2022

By Ken Englund, Americas Technology Leader, Ernst & Young LLP

By any measure, the roaring success that enterprise technology companies have enjoyed over the last two years has been extraordinary. Fueled by almost insatiable, pandemic-driven demand, 2020-2021 accelerated the long-awaited digital transformation journey across all industries. With 2022 in our sights, here are the biggest trends and innovations that are on track to drive sector opportunities and growth in the year ahead.

1.  The metaverse is here.

The metaverse - a collective, shared, virtual space - is not just within our grasp, it's already here. The videogame industry has been at the forefront of the evolution, but more recently, other major industries and brands have converged, adopting aspects of the metaverse to create new business and monetization models, and new paths to customer engagement. Whether it's a streaming service creating digital "watch parties," consumer products companies delivering augmented reality-enabled product-trial tools, or cruise ship and theme park operators using artificial intelligence (AI) and the internet of things (IoT) to deliver seamless guest experiences, the metaverse is here.

In 2022, use cases will continue to expand into enterprise businesses and manufacturing domains. Consumer expectations will increase, and as democratized content becomes more accessible, the metaverse will become a means for customer personas beyond gamers to socialize, transact and live. Over time, constant improvements to infrastructure and integration will enable a more seamless and realistic experience across activities and transactions, making the metaverse a greater emulation of real life.

2.  Blockchain is not just for transactions anymore.

Initially, blockchain was about transaction integrity and security. That use case is still important and evolving, but singular blockchains will become less relevant and distributed ledgers will grow significantly in the next three to five years, introducing exciting opportunities for businesses beyond cryptocurrency. Payments and settlements, which particularly lend themselves to the automation that distributed ledgers provide (e.g., Microsoft's blockchain solution for tracking video game residuals and royalties) will continue to be front-runners, but not the only viable, scalable use cases. IoT "transactions" are prime candidates, too, where identities and accuracy need to be managed at scale and monetized.

The next important evolution of blockchain will be around customer experience. Decentralized finance will come into prominence, and ease of use will become of primary importance for adoption. Think banking services without banks, title companies without paper titles, electronic wallets used for more than cryptocurrency (loyalty points, property titles and almost anything that can be "digitized" will go into your electronic wallet). Watch the regulatory environment, which will soon take center stage in this arena.

3.  Hybrid work will expand zero trust.

The EY Work Reimagined study found that over half of the workforce would consider leaving their jobs if remote work options were not available. With an increasingly widespread and remote work force, organizations will continue to refine the trust-based architectural paradigms needed to secure hybrid work environments. Many organizations are shifting from traditional network and perimeter-based defenses to substantiated, real-time validation of trust across identities, data, applications and implementing "zero trust" architectures. Implementation of zero trust security principles, which dictate that trust is explicitly verified regardless of network location, will expand in 2022, bringing organizations a greater level of cybersecurity and resiliency.

Zero trust will provide the flexibility, visibility and control needed to enable broader digital transformation aspirations. While implementation approaches vary, it would be prudent for organizations to actively outline multiyear strategies that not only simplify security operating models, but also allow for consistent, automated enforcement that provides a greater level of customer trust, speed to market and improved analytical capabilities.

4.  "Just in case" will trump "Just in time" supply chain priorities. 

The semiconductor shortages being experienced by almost all industries are unprecedented - and will be with us for years. The shortages are based on major, long-term changes in the semiconductor market: ongoing transition to new technology levels, increasing use of semiconductor capacity across industries and products, and geopolitical realities that are distorting short-term supply and informing long-term capacity decisions.

The result is that the semiconductor supply chain will require significantly different management approaches that will stretch the capabilities of large and small organizations. Tactically, this will involve buying and carrying higher inventories of critical components. Strategically, this will require notable changes that we'll see in 2022 and beyond, including the redesign of products using alternate components and increased commonality across product families; the redesign of custom chips still based on old semiconductor technology; and the management of product life cycles with in-depth knowledge of the life cycle of critical semiconductor parts to better navigate future product impacts.

As an example, an electronic health products maker solved its supply chain challenge in three phases. First, the company determined that protecting its revenue was worth the incremental cost of spot-buying key components, allocating the purchased parts to critical production. Second, other products were redesigned to use available, standardized parts. Third, the company moved to contract manufacturers who had more market leverage and who helped with product redesign.

5.  Consumption business model adoption will continue to accelerate.

The transition to subscription and consumption-based business models will accelerate even faster in the year ahead. According to an EY global study of 700 tech companies, more than 90% of enterprise technology companies are embracing subscription/consumption-based business models, driven by market trends and the prospect of more predictable revenue streams, leading to higher valuations. Although consumption (or "by the drink") models are still in their early stages, there is surging demand for these models from customers who increasingly expect transparent pricing that reflects their organization's actual consumption.

As cloud marketplaces become increasingly prevalent in driving sales of enterprise applications, there is a growing pressure for enterprise technology companies to harmonize their business models with the usage-based approach of cloud service providers. This shift requires organizations to make wholesale transformations to their sales organizations, moving from point-in-time sales and/or renewals to driving customer success and usage, developing accurate and real-time reporting on usage, and integrating their billing with cloud providers. This is a fundamental shift in how management thinks, operates and compensates. As we look ahead, everyone from sales and marketing to operations and finance will be tasked with rowing the boat in the same direction.

6.  Direct-to-consumer sales will continue to grow - and evolve.

With the success of direct-to-consumer (D2C) business models, we expect to see a continued increase of these selling approaches, as well as incorporating D2C characteristics into traditional technology, media and telecommunications (TMT) enterprise strategies. Social media will move from brand and market elevation to supporting commerce and business transactions. We expect overall e-commerce to expand capabilities for not just the frictionless selling of products, but also financing, logistics, warranty and post-sales support for larger enterprise technology buyers. However, building and maintaining brand loyalty will necessitate continuously improving last-mile delivery, which is both the most inefficient process in the supply chain and the part most visible to buyers.

This additional intimacy of customer information will enable enterprise sellers to provide clearer incremental value propositions and self-defined fit-for-purpose solution buying scenarios, which will lead to uplifted pricing margins. We anticipate the blending of channels and marketplaces for additional buying flexibility for both large and small companies. All of this should drive automated up-sell/cross-sell event-based recommendations. Given the momentum, look for "sellers" to take on a decidedly less human element as enterprise takes on even more attributes learned from the consumer D2C successes.

7.  The decision criteria for cloud migration will shift.

Cloud migration will continue to evolve, helping organizations reduce cost and deploy operations faster than ever before. What was once an as-fast-as-possible "lift and shift" to the cloud has now become a methodical and strategic modernization to a holistic, upgraded system. This mind shift is largely due to an abundance of lessons learned involving 1) end-state value misses, 2) unoptimized workloads, 3) operation model inefficiencies and 4) an increasingly growing skills gap.

According to the EY Global Information Security Survey, 14% of IT spending is forecasted to be allocated to cloud technologies by 2023, as enterprises focus on customer experience and operational-led digital transformation initiatives. As the journey to the cloud continues, holistic business strategies for the modernization and workload placement will be top of mind for companies. For companies looking to modernize in 2022, prioritizing automation, reduction (removing application waste through retirement and refactoring) and abstraction will be critical. Flexible technologies and a "cloud-first" mentality will be essential for companies that aim to remain agile and innovative in 2022.

With heightened customer expectations, lower levels of trust and the complexity of a growing number of regulations, responding to market demands has never been more challenging. Increasing focus on these seven trends can help enterprise tech companies build a successful strategic road map for 2022 and beyond.

##

The views reflected in this article are those of the author and do not necessarily reflect the views of Ernst & Young LLP or other members of the global EY organization.

ABOUT THE AUTHOR

Ken is a Principal with EY Consulting and leads the Technology sector for North America. He and his team lead global technology companies through major business transformation programs, including the development of growth strategies as well as operational cost improvement initiatives.

In his previous roles, Ken transformed a consulting offering portfolio toward cloud solutions, advanced analytics and digital solutions, including IoT offerings for the technology industry. Additionally, he developed new markets and solutions for strategic shifts, with a focus on business and industry advisory services. His responsibilities also involved PMO management, business process design, technical development, system integration and change management for several companies in the semiconductor, electronics manufacturing services and technology OEM segments.

Ken holds a BS in Mechanical Engineering from the University of California at Davis.