PPB July 2018

PPAI Exclusive Research | FEATURE V irtually every sector of the modern economy relies upon technology to improve quality, productivity and profitability—including the promotional products industry. In 2017 alone, 23.2 percent of distributor sales were conducted online, accounting for more than $5.4 billion in technology-driven spending, according to PPAI’s most recent Sales Volume Study. Over the past 25 years, the promotional products industry has become increasingly digital. In fact, 99 percent of industry companies have a website, according to the latest 2018 PPAI Business Study, “Technology Report”, conducted this spring, which surveyed more than 500 technology decision makers. The Association first conducted the study in 2011 and last updated it in 2015. This year’s study included a quantitative survey of PPAI members and nonmembers to assess the evolving role of tech in promotional products businesses. Today, technology is firmly integrated within the business enterprise, and it is a growing part of business expenditures. In general, the role of IT can be classified into four major activities: 1) enterprise 2) embedded 3) customer and 4) process. Each activity fulfills a different objective within the company. Enterprise activities provide IT services across the company and manage the IT unit and vendors; embedded activities involve work with non-IT peers that focuses on strategy, business process, execution and innovation, new product development and compliance; customer activities involve work with external customers or partners to sell and provide IT-enabled products and services; and process activities manage non-IT tasks such as sourcing, facilities, operations and shared services. This year’s survey asked budget-related questions of respondents who identified themselves as decisionmakers in the technology buying process. Results reveal comparable spending trends between supplier and distributor companies, with the average company investing approximately nine percent of its total revenue on technology each year. Companies with less than $1million in total sales revenue spent 10 percent, or upwards of $100,000, on technology (Millennial-owned companies with less than $1million in total sales revenue spent 21 percent). Companies with total sales revenue between $1million and $500million spent six percent, or up to $30 million, on technology, and companies with total sales revenue at $500million or more on average spent two percent, or more than $20million, on technology. Industry budget benchmarks are useful for understanding the impact of market conditions on spending trends; however, as technology investments continue to grow, today’s rapidly evolving, competitive business landscape demands that companies realign budget allocations across business functions, business strategy and incremental business change. Unraveling the distribution of technology by identifying categories of expenditures provides a more comprehensive framework that can be used to streamline business operations and ultimately enable top-line growth. Analyses in a 2017 report, “Connected Small Businesses U.S.,” by management and consulting company Deloitte, show significant dividends can be gained from a sophisticated technology strategy. Technologically advanced small businesses earned twice as much revenue per employee as non-tech companies; experienced nearly four times the revenue growth over the previous year; and, had six times the average employment growth rate. Companies with greater engagement were also more likely to innovate through new product offerings, have more diversified customer bases and experience increased inquiries and customers across the sales funnel. Where Are The Dollars Spent? Technology is no longer isolated in siloed parts of the business—it spans a wide range of internal and external touchpoints. However, within the broader world of tech, technology investments generally fall into one of three categories: hardware, software and services. On average, supplier and distributor companies spend 33 percent on hardware, 43 percent on software and 24 percent on services (Figure 1) . The job of the technology professional is growing more and more complex, and both suppliers and distributors are adjusting the role of technology services in their business. Whether full operational responsibility is completely handed over to a third-party service provider or assumed by IT personnel within the enterprise, technology services expenditures cover both direct and indirect costs needed to support business operations and initiatives. This may include employee costs such as salary, benefits and training, or contract labor costs through third-party services. The latest study findings indicate a growing IT presence at both supplier and distributor companies. In fact, 83 percent of suppliers and 70 percent of distributors invest in some form of service, whether it is employee or third-party driven. Since 2011, IT services have increased by 18 percent for supplier companies, and an astounding 141 percent for distributor companies (Figure 2) . Rapid developments in the IT space also imply relatively quick shifts in the demand for skills and, as a result, 24 percent of supplier companies and 34 percent of Source: PPAI 2018 Business Study (n=440) Figure 1: Asset-Based Technology Spending HARDWARE 33% SERVICES 24% SOFTWARE 43% | JULY 2018 | 27