Old Dogs, New Tricks: A Deeper Look at Disruptive Innovation.
A few months back, we wrote a piece about today’s age of “disruptive innovation,” which is in the process of reshaping many parts of the global economy. We called it a Fourth Industrial Revolution and outlined how emerging technologies may create new models for success and a whole new crop of winners and losers across various industries.
Here, we take a deeper dive into the topic and outline why some of the leaders of the old economy (old dogs) are leveraging innovation (new tricks) to secure their leadership positions even as their markets see rapid, large-scale change.
- TECH REINVENTION: Some of today’s most prominent tech giants are proving that they can be winners at disruptive innovation. Take Hewlett Packard as an example, which has endured several steep selloffs over the years (e.g., 2012) as it struggled to re-define itself and move away from stagnant legacy businesses like ink-jet printing. However, the company’s stock has been a solid outperformer recently, with advancements in 3D printing solutions, open-source artificial intelligence (AI) and machine learning, and virtual reality. One of the granddaddies of the tech world, Microsoft, is another example. The company is rapidly building its cloud computing business, especially its cloud-based gaming platform. It’s also making acquisitions in AI and ambient intelligence tools (e.g., for use in healthcare settings). It acquired a leader in industrial technology innovation and rapid prototyping. And its augmented-reality capabilities recently won Microsoft a bidding war for a $21.9B, 10-year contract with U.S. Army.
- INDUSTRIAL REMODEL: Is there any company that more screams “old-school” industrial than a company like John Deere? Well, this company is truly advanced in applying AI, robotics, and connectivity to improve its manufacturing processes (e.g., a neural network technology that can diagnose and fix weld defects in real-time). It’s also using satellite-link technology to improve harvesting and deploying drone technology to provide autonomous crop-dusting.
- RETAIL REFASHION: Not to be left behind, retail and service businesses are leading their charge into disruptive innovation. Sports apparel leader Nike uses a range of innovations — like advanced RFID technology, web-based loyalty apps, and predictive analytics — to help optimize inventory, speed up product cycles, and better match consumer demand. Supposedly, stodgy Walmart has been investing for years in supply chain management and automation technology, which powers upgrades to services like rapid in-store pick-up, personal shopping, and even drone delivery. The company is even expanding into consumer finance and money management, as well as autonomous vehicles.
- SERVICE OVERHAUL: JP Morgan is in an all-out battle to fend off competition from fintech and Big Tech competitors: for example, it’s partnering with OpenInvest to facilitate ESG-based (environmental-social-governance) and values-based investing; and it’s rapidly automating the consumer investing market with the use of Robo-advisors. Once just the investment bank of the uber-wealthy, Elite institution Goldman Sachs is building out digital apps, new trading capabilities, new credit building solutions, cryptocurrency management, and a range of related personal financial management tools.
It can be easy to get seduced by the tech angle within the theme of “disruptive innovation,” but technology is merely a means to an end. As these examples show, it’s not just upstarts and start-ups that are changing the game. Today’s old-line industry leaders can also be game-changers, sometimes by strategic partnership or acquisition, but also through old-school R&D investment.
As investors, given just how fast the world is changing, we believe that it’s important to avoid being overly weighted to past successes. Thankfully, there are a lot of big, ostensibly “conventional” benchmark companies that agree.
So, when looking at growth themes for the future, it’s critical that investors not automatically count them out.
Mitch York, CFA®
Concord Asset Management
Disclaimer: Concord Asset Management (“CAM”) is a registered investment advisor. Advisory services are only offered to clients or prospective clients where CAM and its representatives are properly licensed or exempt from licensure.
The information provided in this commentary is for educational and informational purposes only and does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor’s particular investment objectives, strategies, tax status, or investment horizon. You should consult your attorney or tax advisor.
The views expressed in this commentary are subject to change based on the market and other conditions. These documents may contain certain statements that may be deemed forward‐looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. Any projections, market outlooks, or estimates are based upon certain assumptions and should not be construed as indicative of actual events that will occur.
All data is as of the end of April 2021 unless otherwise noted. Data sources include www.morningstar.com. All information has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. There is no representation or warranty as to the current accuracy, reliability, or completeness of, nor liability for, decisions based on such information, and it should not be relied on as such.
Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Concord Wealth Partners, LLC (“IA Firm”), or any non-investment related content, made reference to directly or indirectly in this newsletter will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this newsletter serves as the receipt of, or as a substitute for, personalized investment advice from IA Firm. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. IA Firm is neither a law firm, nor a certified public accounting firm, and no portion of the newsletter content should be construed as legal or accounting advice. A copy of IA Firm’s current written disclosure Brochure discussing our advisory services and fees is available upon request or at https://concordassetmgmt.com/. Please Note: If you are an IA Firm client, please remember to contact IA Firm, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services. IA Firm shall continue to rely on the accuracy of the information that you have provided. Please Note: IF you are an IA Firm client, Please advise us if you have not been receiving account statements (at least quarterly) from the account custodian.
Certain sections of this commentary contain forward-looking statements based on our reasonable expectations, estimates, projections, and assumptions. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. The Nasdaq Composite Index measures the performance of all issues listed in the Nasdaq Stock Market, except for rights, warrants, units, and convertible debentures. You cannot invest directly in an index. Stock markets, and many individual equities, are volatile and can decline significantly in response to adverse issuer, political, regulatory, market, or economic developments.
The price of bitcoin and other digital currencies has fluctuated unpredictably and drastically. You could experience significant and rapid losses. Profits or losses from investing in bitcoin are virtually impossible to predict. Platforms that buy and sell bitcoins may be unregulated, can be hacked, may stop operating, and some have failed. Unlike banking institutions that can provide FDIC insurance, there are no such safeguards provided to digital wallets. Bitcoin payments are irreversible. Once you complete a transaction, it cannot be reversed. Reversing a transaction depends solely on the willingness of the recipient to do so.