By Syed Balkhi, founder and CEO, Awesome Motive
Never underestimate the seismic impact that disruptive technology has on the stock market. That’s a message top investors have been sending out this year.
“Ten years ago, the market underestimated the impact of innovation in two main ways,” wrote John Linehan, chief investment officer, U.S. Equities for T. Rowe Price. “First, it underestimated the longer‑term growth and profitability of the new technologies, and second, it underestimated the residual impact of innovation on incumbent firms.” Now, times are different, he said, cautioning against overestimating the potential of “disruptor firms” but underestimating the innovations under way in “disrupted firms.”
Deloitte, meanwhile, published an analysis saying that “the right combination of digital transformation actions can unlock as much as $1.25 trillion in additional market capitalization across all Fortune 500 companies. But the wrong combinations can erode market value, putting more than $1.5 trillion at risk.”
When trying to determine where to invest, one of the big factors shareholders often look for is technological skill gaps inside corporations. But this can miss out on what is often just as important: a company’s network of third parties that provide technology and expertise.
Especially in the era of the “great resignation,” businesses can’t have all the tech talent they need in house. With the jobs picture still strong, and unemployment just barely above its lowest level since 1969, people with expertise remain in demand — and available to job hop. So there will continue to be important skill gaps, which can be filled through partners.
But this isn’t the only reason that savvy companies are stepping up their partnerships with outside businesses. Enterprises often find that external solutions are their best option for discovering, using and rapidly scaling new technologies. It’s no surprise, for example, that many large companies use WordPress rather than building their own equivalent technologies in house. (In fact, WordPress powers more than 43% of all websites.)
A Deloitte survey found that the tasks companies turn to external providers for most these days include cybersecurity and “app/software development.” Eight in ten companies said they “outsource” these areas. “Rather than leveraging third-party vendors to reduce cost (as was the norm in 2020), organizations are using third parties to tackle their greatest challenges, such as protecting their business and keeping up with rapid technological advances,” the study found.
Beefed up vendors are stronger partners
Another reason this is possible is that small businesses are now in a stronger position to offer a wide array of services. When large, publicly traded corporations need vendors and suppliers, they are able to get more than they used to out of these small businesses.
That’s a key part of the technological disruption underway. The more tools become affordable to small businesses, the more they are able to grow — and the more enticing they are as partners to the big players.
I hear this all the time from small businesses I work with across the country and around the world. And I’m constantly on the lookout for new, affordable tools to help these organizations expand their capacities further.
What investors can do
Investors play a powerful role in making sure enterprises tap into all these opportunities. In earnings calls and conversations with corporate representatives, as well as across social media channels, shareholders should ask about the company’s network of external tech providers. Ask which vendors and small businesses are helping them face disruption, and how they plan to expand that network.
The incentive is clear. Research from Boston Consulting Group finds that “companies built for the future are generating shareholder returns almost three times greater than those of the S&P 1200.” But only 6 percent of companies “are currently future built.” One of the key attributes in determining whether a company is “future built,” BCG says, is whether it has a “data platform and flexible, scalable technology platforms and applications to facilitate data access and support business needs easily and flexibly.”
The more investors look for companies to build networks that provide these platforms and applications, the more “future built” their portfolios will be.
–Syed Balkhi is founder and CEO of Awesome Motive, which provides software used by more than 25 million websites.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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