Tech CFOs Counter Cybersecurity Threats – BDO Survey

March 2015

Amanda Chun
Bliss Integrated Communication
(212) 584-5482
amanda@blissintegrated.com

Chicago – March 4, 2015 – In the last year many well-known organizations had to deal with cyberattacks and other data security issues, leaving many executives concerned about their own IT infrastructures and contingency plans. According to BDO USA, LLP's annual survey of 100 U.S. technology CFOs, 67 percent have increased their spending on cybersecurity measures during the past year. Of those who have taken action, a vast majority (90 percent) has implemented new software security tools, 72 percent created a formal response plan for security breaches, 48 percent turned to an external security consultant and 30 percent hired a chief security officer. On the heels of recent security risks, companies are also on edge when it comes to protecting their intellectual property (IP). Forty-seven percent say foreign IP infringements has had the greatest impact on their IP security, followed by changes in patent law (24 percent) and patent trolls (20 percent).  

Online security challenges could also stem from geopolitical issues as countries, including the U.S., are prioritizing cybersecurity efforts to combat potential domestic and foreign hacking. In fact, 14 percent of CFOs believe global political issues will be the leading barrier to industry growth in 2015. Recent cyberattacks have even grabbed the attention of the White House with President Obama proposing a budget that would increase cybersecurity spending to $14 billion.
 
"The threat assessments of likely cyberthreats from unknown entities is causing the tech industry to be on high alert," said Aftab Jamil, partner and leader of the Technology and Life Sciences Practice at BDO USA, LLP. "In addition to navigating every day business challenges—both domestically and internationally, managing operations and maintaining compliance with regulatory requirements, U.S. companies will also need to implement or enhance their data privacy initiatives to mitigate any risks or vulnerabilities to their IT infrastructures, particularly with cyber capabilities evolving at rapid speed."  
 
Additional findings from the 2015 BDO Technology Outlook Survey include:
 
Technology companies unprepared for new revenue recognition rules. On May 28, 2014, the Financial Accounting Standards Board and the International Accounting Standards Board announced a new revenue recognition standard that take effect in 2017, replacing existing U.S. generally accepted accounting principles (GAAP). Although, the new standards may significantly impact the way tech companies recognize revenue, BDO's survey found that more than half of tech finance chiefs (57 percent) have not yet familiarized themselves with the changes.
 
"Although the new revenue recognition standard's effective date might be delayed, companies should be proactive about understanding the impact the new rules will have on their business," said Ken Gee, assurance partner at BDO and member of AICPA's Revenue Recognition Working Group. "Companies can take specific steps now to prepare by analyzing current revenue streams and understanding where there are potential differences between current practice and the new standard.”
 
Of those who are familiar with the new rules, the majority (52 percent) are still analyzing the impact, 20 percent are ready to implement the new standard and 18 percent say they are looking for guidance on various implementation issues. Eighty-six percent of CFOs are most likely to implement the new rules under the prospective approach and apply the new revenue standard to transactions initiated after the implementation date instead of restating their prior periods financial results.
 
More CFOs cite international expansion as driver of industry growth in 2015. Despite concerns about global economic growth and other challenges associated with international operations, 20 percent of CFOs expect international expansion will be the key driver of industry growth in 2015, a significant increase in number of CFOs expressing similar sentiment last year (eight percent). Meanwhile, 38 percent say consumer demand for innovative personal technology will be the leading factor to industry growth, followed by economic rebound in the U.S. (25 percent).
 
Executives increase research and development (R&D) efforts. With 41 percent of CFOs citing competition as the top business challenge in 2015, they are taking strides to improve their service offerings by enhancing their product development efforts as well as research and development activities to maintain their competitive edge and launch new products and services. Among the CFOs who offshore or outsource services (20 percent), 74 percent are currently outsourcing or offshoring their R&D services, up from 54 percent last year. In addition to leveraging external resources, 29 percent of companies plan to invest the most in the R&D department with new hires up from 21 percent in 2014.
 
Meanwhile, 70 percent of the same group of CFOs who outsource or offshore, currently outsource or offshore their IT services and programming, a significant increase from 2014 (41 percent). On top of R&D and IT services, 50 percent say they outsource manufacturing, 32 percent outsource distribution and 15 percent outsource call or help centers.

Policy and tax concerns persist. Finance chiefs remain wary of the uncertainties surrounding recent tax proposals. In fact, 24 percent of CFOs cite policy and tax changes as the top factor inhibiting overall business growth, on trend with 2014 (26 percent). With pending tax proposals in Washington, a majority of CFOs (50 percent) cite U.S. corporate tax rates as the leading tax issue this year, a 35 percent increase from 2014. Amid increased scrutiny on tax inversions and debate over repatriation, 14 percent of companies say they are most concerned about taxation of overseas activities, a significant increase from last year, when only eight percent expressed the same sentiment. Moreover, as U.S. companies expand their international footprint to remain competitive, 41 percent of CFOs believe the domestic tax system hinders their ability to effectively compete in the global marketplace.
 
Tech companies to increase headcount. In response to industry growth and bullish forecasts for 2015, companies plan to boost their workforce for the fifth consecutive year. Ninety-six percent of finance chiefs expect the number of employees to increase or remain the same in 2015, consistent with last year's finding of 91 percent. In order to drive business, sales and marketing continue to be the key area for employment growth among tech companies with 49 percent planning to hire the most new employees in this department. But access to a skilled workforce remains a key challenge. Twenty-seven percent of tech CFOs say the ability to attract and retain qualified labor as their greatest business challenge in 2015. In addition, 23 percent of CFOs say a lack of skilled labor will be the biggest barrier to overall industry growth.    
 
These findings are from the eighth annual 2015 BDO Technology Outlook Survey, a national telephone survey conducted by Market Measurement, Inc., an independent market research consulting firm, whose executive interviewers spoke directly to 100 chief financial officers at leading technology companies throughout the United States. The survey was conducted from December 2014 to January 2015.
 
About the Technology & Life Sciences Practice at BDO USA, LLP
BDO has been a valued business advisor to technology and life sciences companies for over 100 years. The firm works with a wide variety of technology clients, ranging from multinational Fortune 500 corporations to more entrepreneurial businesses, on myriad accounting, tax and other financial issues.
 
About BDO USA
BDO is the brand name for BDO USA, LLP, a U.S. professional services firm providing assurance, tax, financial advisory and consulting services to a wide range of publicly traded and privately held companies. For more than 100 years, BDO has provided quality service through the active involvement of experienced and committed professionals. The firm serves clients through 58 offices and more than 400 independent alliance firm locations nationwide. As an independent Member Firm of BDO International Limited, BDO serves multi-national clients through a global network of 1,328 offices in 151 countries.
 
BDO USA, LLP, a Delaware limited liability partnership, is the U.S. member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms. BDO is the brand name for the BDO network and for each of the BDO Member Firms. For more information please visit: www.bdo.com.