A Real Economy publication

Business services industry outlook

Aug 09, 2023

Business services outlook key takeaways

Field service companies must balance keeping their staff utilized while increasing efficiencies.

Middle market advertising firms need to invest in technology to position themselves for success.

Generative AI may change the way business service companies operate in the near future.

Business services trend #1: Advertising firms and the rise of digital

Connected TV on the rise

Middle market companies in the advertising sector need to invest in technology, including artificial intelligence (AI), to position themselves for success as ad spend continues to shift, primarily in the streaming space.

According to eMarketer, connected TV (CTV) is projected to become the fastest-growing digital channel, with an anticipated increase in advertising spend of 21% in 2023. This is after CTV advertising spend accounted for 18% of video advertising expenditure in 2022, a percentage that has more than doubled since 2020. 

Challenges ahead

The increase in technology-led advertising campaigns also comes with challenges. Not only will agencies compete with industry peers, but large technology companies may step in to overtake revenue from middle market firms.

AI in advertising

Artificial intelligence (AI) continues to make headlines and remains a hot topic across several ecosystems, including advertising. As organizations move through their digital and AI journeys, the following will be key elements to success:

  • Selecting the proper tools to solve specific business needs
  • Having the right infrastructure in place
  • Supporting technologies and people
  • Mitigating risks

All things digital

We’re in a digital age in which business is conducted digitally, data is collected digitally, and most advertising is done digitally. Companies are reaching the masses digitally. How can a firm be a major player in the space without embracing digital solutions?

Business services trend #2: Field services companies embrace technology

Labor challenges

Businesses with a field service component are highly labor driven. Companies that offer commercial cleaning, security, waste management, facilities maintenance or similar services must balance keeping their staff utilized while increasing efficiencies. The goal is to not only maintain or increase the top line, but also decrease operating costs while retaining the staff who were internally trained and cultivated. This is increasingly important as job openings continue to outpace the number of people seeking employment. 

Technological solutions

After Microsoft’s release of the Office suite in the early 1990s and the iPhone’s debut in 2007, we may now be entering the third secular economic change of the past 30 years with generative artificial intelligence (AI). We believe that generative AI will become as widespread as Microsoft tools and the iPhone in the near future, changing the way people think and work.

Business services trend #3: Lowering operating costs

Business services firms face challenges in lowering operating costs—especially labor costs. Most important is that firms have a solid plan going forward. Some firms pass increased operating and labor costs on to their customers, some automate processes, and others outsource operational functions. There is no one-size-fits-all solution, but implementing a sound plan based on specific business needs and opportunities will increase the likelihood of future success.

Labor update

Employee productivity is top of mind for executives in business services, which is a labor-intensive sector. In an environment where employee costs continue to rise, the only ways to maintain margins are to increase labor productivity or raise prices.

Private equity

While private equity activity cooled off a bit in 2022 compared to 2021, the business services sector remained strong.

RSM contributors

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