The world is constantly evolving, and nowadays this change is a catalyst for unprecedented technological innovation. When there is so much potential for disruption, should investors embrace the revolution?
Panta rei, ‘everything flows’, said the Greek philosopher Heraclitus, eternalising the concept of a fundamental need of change that applies to anything. Change allows survival, evolution, progress – for the smallest living being on earth as well as for any country, economy or company.
Transformation is inevitable. It’s human nature to look ahead, and the demand for better, more efficient, affordable and reliable goods or services leads companies to improve what exists already and invent what doesn’t. Change is where fortunes are made and lost (as it’s quite unpredictable). So, especially in the era of The Great Instability, when political, economic and social variables are interconnected as never before, how can investors successfully approach an ever-changing world?
STEPS AND MILESTONES
Fifty years ago, man first landed on the moon – a physical and technological step unthinkable until then. Today, our smartphone processors are stronger than the systems that made that historic event possible. The rate of innovation led by technology has been broad and relentless, and the world looks very different from even just a decade ago. As hardware and software evolve, so does our ability to harness their potential to improve more aspects of our lives.
Furthermore, many companies don’t just stop at exceeding consumer expectations, but keep researching to inspire a whole new generation of advancements. In areas such as transport, energy and healthcare, innovation and AI are enabling previously unimaginable developments that are ground-breaking for our society.
SHAPING THE NEW NORMAL
The climate crisis was already calling for significant transformation when COVID-19 made its appearance. Following the pandemic and the related response, many sectors are determining what the new normal means for them and how to adapt to new rules and behaviours. Transport, leisure, healthcare, energy, education, and even finance and investing, all face the prospect of disruptive change as people adjust and recovery takes shape.
Therefore, the next few months could be crucial for the future for many and create an opportunity for innovators to capitalise on evolving demands. On the other hand, as Newton taught us, ‘every action has an equal and opposite reaction’. When change creates room for innovation, those that don’t move in that direction will undoubtedly be left behind.
A TEMPTING GAME…
Change isn’t always good or bad. But, aligning a company’s offer to what consumers want and need is not easy. Innovation is not for the faint-hearted and it’s not always clear what it takes in terms of investment and risk. For those who succeed, the rewards are high but often short-lived, as people are continuously looking for ‘version 2.0’. Remember Blackberry, Blockbuster and Kodak? Once giants and innovators in their respective fields, they saw their fortunes change as others disrupted sectors that they once dominated.
…WITH UNCERTAIN WINNERS
So, innovation is becoming a key competitive battleground in nearly every sector, with many companies risking going backwards or potentially becoming obsolete. But it’s also this fear that pushes many others to embrace significant changes and play the game.
Loyalty is harder to achieve these days and consumers have more tools to be vocal when disappointed. Therefore, significant focus is being driven towards customer data.
This is a time-consuming and expensive luxury that not all companies can afford. So, accessing and understanding trends and opinion from various sources, not just in-house customer feedback, is the fuel for innovation in any sector. But it’s not always the biggest or best-financed firms that make crucial breakthroughs. A small company might see an opportunity and act on it, letting them grow at significant speed (zoom for example).
SOME LIKELY SCORES
Despite ongoing change, it’s still possible to make some reasonable assumptions – especially due to the impact of the recent pandemic.
Consumers have been forced to abandon or reduce their habits of shopping, eating out or travelling. Most of the spending has shifted online, as proven by the fact that, in April and May, e-commerce grew by 60% compared to the same period in 2019. Even if lockdown measures are easing in many countries, the pandemic has accelerated e-commerce penetration by two years, and the new habits could cause a permanent shift towards online markets.
The increasingly influential millennials (and tech-comfortable consumers in general) are becoming ever more demanding of a tailored online experience. So, any company attempting to succeed in this new, socially-distanced reality will have to offer contactless, uncrowded shopping options and leisure opportunities, and blend physical and digital experiences in original and personalised ways.
INSTABILITY PRODUCES OPPORTUNITY
As usual, the picture is one of dizzying complexity. The pace of change and the breadth of sectors to cover can offer opportunities and risks, temporary springboards or long-lasting successes. The developments that can revolutionise a sector for good aren’t always easy to spot, let alone to spot before they are yesterday’s news.
As investing in innovation takes dedication and understanding of the dynamics involved, never has the BNP Paribas Asset Management ethos of investigating before investing been so suited to the purpose.
Our team of experts has created two funds to invest specifically in Disruptive Technology and Consumer Innovation, with concentrated portfolios that can help you benefit from the massive shift in the landscape for global consumer stocks. We can help investors through the haze of uncertainty and instability we find ourselves in today and identify those leading lights that will shine brightly tomorrow.
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