Wade’s predictions for 2023

While the years 2020 to 2022 were dominated by black swan events like the Covid pandemic and war in Europe, 2023 will be associated with grey rhinos. Unlike black swans, that are rare and hard to predict, grey rhinos are in plain view. The fact that they are easy to see, however, doesn’t make them any more manageable or less devastating.

One significant grey rhino will be recession. In 2023, we will see more evidence of inflation across the world. Central banks will try to reduce it by raising interest rates, which they will inevitably take too far. This over-correction will lead to recession, which in turn will be associated with significant social and political upheaval. 2023 will be a tough year for many, but it will also be tinged with opportunities.

Here’s what I foresee in 2023.

*** The tech reckoning is not over ***

In 2022, we witnessed a brutal tech beatdown which, in my view, was long overdue. The market caps of many tech darlings were pummelled: Amazon (-$785B), Microsoft (-$709B), Tesla (-$675B), Alphabet (-$685B), Meta (-$650B), Apple (-$632B), Netflix (-$132B). These are incredible numbers if you consider that we didn’t see the first trillion-dollar company until 2018 (Apple); the tech giants collectively lost more than $4T in 2022 alone.

Many of these companies, like Tesla and Apple, are still overpriced and will continue to fall, but this is not the case for all of them. In the past decade, the valuations of tech companies have largely risen and fallen as a group, like boats on the tide. 2023 will be much more selective, meaning that investors (and financial advisors) will have to show some savvy stock picking skills. I foresee a decent year for tech giants with relatively diversified revenue portfolios, like MSFT and Amazon (neither has a single business line that accounts for more than 40% of revenue), but continued struggles for those that don’t, like Meta (>95% of revenue advertising) and Alphabet (78% of revenue from advertising). Chinese digital giants, which dropped further than their Western counterparts, will see a resurgence in 2023 as China emerges from its Covid winter.

Ironically, the core financial performance of many tech giants will improve in 2023. This will not happen due of strategic brilliance, but because of improved efficiencies. Much of this efficiency will come thanks to lower employment costs – cutting 100,000s of workers is sure to have a positive impact on profitability. ?

And, thousands of tech workers hitting the job market is good news for companies outside of tech that have long struggled to build digital capabilities. This talent shift leads us towards an interesting conclusion for 2023…

*** 2023: An exciting year to be boring ***

As the magic veil around tech companies was lifted in 2022, we saw them for what they really are – vulnerable and fallible giants that look a lot more like the rest of us than we imagined. While 2023 will not be boring, many of its main beneficiaries will be. In fact, I predict that 2023 will be the year when boring becomes cool: boring companies, boring functions, and boring technologies.

*** Boring companies ***

The best performing companies in 2023 will be the ones left behind during the tech boom - consumer goods firms, healthcare providers, manufacturers. Boring but well-run companies that resisted the sexy technology and management innovations fuelled by the tech boom will benefit, not only from new pools of digital talent, but also from finely tuned operating models. In a recessionary period that favours tangible results, those organizations that worked hard during the boom years to boost productivity and efficiency will outperform those that focused on top line growth at any cost.

*** Boring functions ***

Back-office functions have taken a lot of flak in recent years. They are seen as unsexy backwaters, lacking in excitement or innovation. However, in 2023, the most successful firms will be the ones that are able to balance efficiency (keeping costs down), delivery (getting products and services to customers quickly and cheaply), and robustness (absorbing market shocks). All these capabilities are built on steady, solid, but unsexy foundations. Get ready to step up in 2023 if you are in supply chain, manufacturing, risk management, finance, IT, or procurement - your time to shine has finally arrived! Strategy, R&D, and marketing… take a seat.

*** Boring technologies ***

There will always be hype around new technologies, and 2023 will be no exception. However, the biggest impacts will not come from the coolest tech. Metaverses will fizzle, augmented reality will continue to disappoint, and blockchains, crypto and NFTs will remain niche, fringe technologies. The issue is that these technologies add zest, but do not materially change behaviour. Mobile phones completely changed not just what we did, but how we did it, both personally and professionally. Metaverses, blockchain, and A/R tech just allow us to do what we already do in a slightly cooler way. How much will 3D really add to your browsing, shopping, social, or gaming experience? In many cases, it’s actually better to do what you need to do with current technology.

However, tech that changes behaviour will make major gains in 2023. Generative AI will lead the way. Generative AI allows us not just to create value from existing data, but to create new data. Many of us have been impressed with generative AI images (Dall-E, Wombo) and text (Chat GPT, Stable Diffusion), but these are just the beginning. In 2023, generative AI will not replace us, but it will augment us. It will allow us to replace creative activity (cool, but time consuming) with improvement activity (less creative, but faster and often with better outcomes). We will no longer need to start a drawing, an article, or an email with a blank page. Generative AI technologies will provide us with a first draft of whatever we want to create, that we will edit to fit our needs. Like spelling and grammar checking, it will not be perfect, but it will make us a lot more efficient.

It will also change our behaviour. Just as we no longer need to remember phone numbers, we will no longer need to write first drafts. For better or worse, we will become editors rather than creators.

*** The year where sustainability is taken seriously ***

Another grey rhino, mother nature, is going to continue to hit us hard in 2023. We should expect a series of natural disasters that will cost many lives and countless livelihoods. As part of the great global Covid reset, a corporate focus on sustainability will take off. In its 2023 Global Outlook, ?Blackrock projects that spending on green initiatives will double to $2T globally by 2030, split 50/50 between developed and developing worlds. Green washing will continue, but most organizations will adopt a legitimate and concerted effort to improve their social and sustainability impacts. Sustainability tech will lead the way by providing assessment, measurement, transparency, analysis, and proactive improvements across value chains.

*** Back to the European future ***

The burdens of Europe – fragmented markets, heterogenous politics, cultural diversity, and linguistic differences – that hurt it in expansionary times, will help it in 2023. Fragmentation can be re-cast as diversification, and differences can become sources of innovation. The large, single markets of the U.S. and China may grow faster in times of expansion, but they shrink faster as well. I see 2023 as a year where Europe outperforms the rest of the world in economic performance. While some countries may suffer, others will surge. Europe leads the world in sustainability, and is home to many of the steady, slightly boring firms that are well placed to weather an economic storm. While the U.S. and China continue to focus inwards, Europe should become more open to capture global markets.

Grey rhinos may be easy to predict, but you still don’t want to be hit by one. There will be a recession in 2023, particularly the first half, but I see the world economy opening up towards the end of the year, leading to many opportunities. Like in a bush fire, many over-hyped and over-priced companies will be burned, but their embers will feed new shoots and deep roots. The 3 Es of 2023 will be efficiency, empowerment, and the environment. I am not looking forward to the turmoil of 2023, but I am excited about the new opportunities that it will create.

Happy to read your thoughts and reflections, even if you disagree!

I wish you all a healthy and prosperous 2023.