Business Model & Innovation

  • Product Design & Lifecycle Management
  • Business Model Resilience
  • Supply Chain Management
  • Materials Sourcing & Efficiency
  • Physical Impacts of Climate Change
General Issue Category
(industry agnostic)

Disclosure Topics (industry specific) for:
Software & IT Services

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Energy Management

Environmental Footprint of Hardware Infrastructure

With the growth of cloud-based service offerings, companies in this industry own, operate, or rent increasingly more data centers and other hardware; thus, managing the energy and water use associated with IT hardware infrastructure is important to shareholder value. Data centers need to be powered continuously, and disruptions to the energy supply can have a material impact on operations, depending on the magnitude and timing of the disruption. Companies face a tradeoff between energy and water consumption due to data center cooling needs; cooling data centers with water instead of chillers is a means of improving energy efficiency, but it can lead to dependence on significant local water resources. Decisions about data center specifications are important for managing costs, obtaining a reliable supply of energy and water, and lowering reputational risks, particularly as there is an increasing global regulatory focus on climate change and as opportunities arise from innovations in energy efficiency and renewable energy.

Customer Privacy

Data Privacy & Freedom of Expression

As software and IT services companies increasingly deliver products and services over the Internet and through mobile devices, they must carefully manage two separate and often conflicting priorities. On the one hand, companies use customer data to innovate and provide customers with new products and services and to generate revenues. On the other hand, there are privacy concerns associated with companies having access to a wide range of customer data, such as personal, demographic, content, and behavioral data. This dynamic is leading to increased regulatory scrutiny in many countries around the world. The delivery of cloud-based software and IT services also raises concerns about potential access to user data by governments that may use it to limit the freedoms of citizens. Effective management in this area is important to reduce regulatory and reputational risks that can lead to decreased revenues, lower market share, and regulatory actions involving potential fines and other legal costs.

Data Security

Data Security

Software & IT services companies are targets of growing data security threats from cyber attacks and social engineering, which puts their own data and their customers’ data at risk. Inadequate prevention, detection, and remediation of data security threats can influence customer acquisition and retention and result in decreased market share and lower demand for the company’s products. In addition to reputational damage and customer turnover, data breaches can also result in increased expenses, commonly associated with remediation efforts such as identity protection offerings and employee training on data protection. Meanwhile, new and emerging data security standards and regulations are likely to affect the operating expenses of companies through increased costs of compliance. Additionally, companies in this industry are well-positioned to uncover revenue opportunities by providing secure software and services to meet the demand for ensuring data is kept secure.

Employee Engagement, Diversity & Inclusion

Recruiting & Managing a Global, Diverse & Skilled Workforce

Employees are key contributors to value creation in the Software & IT Services industry. While the number of job openings in the industry continues to grow, companies commonly find it difficult to recruit qualified employees to fill these positions. The shortage in technically skilled domestic employees has created intense competition to acquire highly skilled employees, contributing to high employee turnover rates. To respond to talent shortages, companies often hire foreign nationals and offshore operations, creating employee management and sustainability challenges and related business risks. Some companies contribute to relevant education and training programs to expand the availability of domestic, skilled employees. Companies offer significant monetary and non-monetary benefits to improve employee engagement and therefore retention and productivity. Initiatives to improve employee engagement and work-life balance may influence the recruitment and retention of a diverse workforce. The industry is characterized by relatively low representation from women and minority groups; efforts to recruit from and develop diverse talent pools can serve to address the talent shortage and generally improve the value of company offerings. Greater workforce diversity is important for innovation and helps companies understand the needs of their diverse and global customer base.

Competitive Behavior

Intellectual Property Protection & Competitive Behavior

Companies in the Software & IT Services industry spend a significant proportion of their revenues on IP protection, including acquiring patents and copyrights. While IP protection is inherent to the business model of some companies in the industry and is an important driver of innovation, companies’ IP practices can sometimes be a contentious societal issue. Companies could sometimes acquire patents and other IP protection to restrict competition and access to benefits from innovation, particularly if they are dominant market players. Due to the complexity of software, its abstract nature, and increasing IP rights protection related to software, companies in the industry must navigate overlapping patent claims to be able to operate. As a result, companies in the industry may find themselves constantly in litigation or subject to regulatory scrutiny either due to allegations of patent violations if they engage in unethical business practices, or are perceived as doing so, or because they are suing others for IP infringement. Adverse legal or regulatory rulings related to antitrust and IP can expose companies in the industry to costly and lengthy litigations and potential monetary losses as a result. Such rulings may also affect a company’s market share and pricing power if its patents or dominant position in key markets are legally challenged, with potentially significant impacts on revenue. Therefore, companies that can balance the protection of their IP and its use to spur innovation while ensuring their IP management and other business practices do not unfairly restrict competition, have the potential to lower regulatory scrutiny and legal actions while protecting their market value.

Systemic Risk Management

Managing Systemic Risks from Technology Disruptions

With trends toward increased cloud computing and use of Software as a Service (SaaS), software and IT service providers need to ensure they have robust infrastructure and policies in place to minimize disruptions to their services. Disruptions such as programming errors or server downtime have the potential to generate systemic risks, as computing and data storage functions move from individual company servers in various industries to data centers of cloud-computing service providers. The risks are heightened particularly if the affected customers are in sensitive sectors, such as financial institutions or utilities, which are considered critical national infrastructure. Companies’ investments in improving the reliability and quality of their IT infrastructure and services are likely to affect their ability to attract and retain customers, thereby impacting revenues and opportunities in new markets.

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