Beware - Digitalization Now in Overdrive!
The pandemic has accelerated the pace of digitalization across the globe and across all kinds of industries. From online retail to digital finance, from telehealth to education, digital businesses – and those capable of adapting – have been amongst the winners of the coronavirus pandemic. All this comes at a time when the confluence of technology is triggering far-reaching changes in the way we live and work. As investors, we are well advised to be aware of the opportunities and the risks ahead.
This short post is not intended to provide any kind of in-depth analysis or comprehensive summary. Instead, please consider it as an alert to our readers and clients: Things are changing more rapidly than you think or may in fact be able to comprehend. All kinds of technological innovations, converging in a powerful wave of disruption, are reshaping many, if not most, aspects of the life we have become used to. And the COVID-19 pandemic has only added to the momentum.
According to a study conducted by McKinsey & Co in November of last year, in response to the crisis, companies have accelerated the digitalization of their customer interactions, accomplishing three or four years of progress in just seven months!
Source: McKinsey & Co, Survey October 5, 2020, Exhibit 1
North America continues to have the lead in digital customer interactions. However, Europe and Asia are now catching up…and fast. Across Europe, engagement with industries through online channels has increased by 13 percentage points. The Germans’ use of digital channels has jumped 28 percentage points.
The future is sooner than you think...
As noted in an article by Frank Suess, which we posted two weeks ago, titled “From Nightmare to Fairy-Tale? Or, Inflated Expectations for 2021?”, there is a book written by Peter H. Diamandis on this topic, which you should not miss.
It discusses how converging technologies are rapidly transforming business, industries, and our lives. We recommend reading this book to get a good overview of the manifold technological advances and the impact they have (and increasingly will have) on literally everything. A constellation of disruptive technologies – the internet of things, cloud computing, big data, 5G communication and, of course, artificial intelligence – is paving the way for a new form of global economy.
Unless you take note of the (in some cases, exponential) acceleration in technological progress as a result of the confluence of several different innovations, you will have a hard time understanding the power of de-monetization and deflation that the so-called “Fourth Industrial Revolution” (4IR) has. It is a force to be reckoned with in our economic and investment analysis.
Opportunities and risks
As always in history, technological innovation brings with it all kind of new and exciting opportunities. However, it also entails an element of risk, uncertainty, and the discomfort of the unknown. In advance, it is impossible to determine whether the net impact will be positive or negative in the decade ahead. Nevertheless, it is undeniable the technological advances are arriving at lightning speed. And our current societal systems – and most of all, our governments – are not ready to cope efficiently and effectively with them. Therefore, while much good can come from all of this, we are also facing some formidable challenges.
A recent study by The Economist Intelligence Unit identified and discussed the following areas of opportunity: online retail (expected to double in size over the next 3 years), telehealth, digital finance (payments, crypto currencies, new forms of safe custody and brokerage, etc.), remote working, online entertainment and gaming, education, and data analytics. And more can be added to that list: autonomous driving, home automation & robotics, longevity, etc.
The possibilities that technology can unlock in the coming years are fascinating, albeit often mind-boggling. Innovation is accelerated and augmented further by the rapidly increasing speed of computing (including quantum computing), the building of 5G infrastructure, 3D printing, inter-connectivity, and more.
On the risk side, the following can be listed: US-China tech wars, telecoms infrastructure and energy (will we be able to meet our capacity needs?), regulatory risks (including bad and slow regulation), cyber security, and so much more. And of course, there are serious concerns around the possibility that artificial intelligence, particularly general AI, could overtake human capabilities before we have defined and implemented the means to control it.
This is a quick and dirty high-level overview. At BFI, we are studying and discussing these developments actively. As always, the more we know and learn, the more we understand the complexity of future challenges and opportunities. We recommend you adopt this approach of constant learning and exploring, as it can really help you anticipate and manage the important shifts that lie ahead or have possibly already arrived.