February 26, 2018
FTI Consulting has sought the views of global institutional investors to ascertain their views on how businesses should respond to technology-driven disruption to their industry. After publishing initial findings in 2016, based on the views of investors with combined $10 trillion assets under management, in 2018 FTI has once again surveyed institutional investors to compare how views on technology disruption have changed in just two years.
From FTI’s research it is clear to see that investors want to see businesses treating technology-driven change in their industry as an opportunity, not a threat. That view was evident in the 2016 research, and even more pronounced in the 2018 findings with 91% of investors agreeing with this view (up from 85% in 2016). Investors are also of the view that businesses are not acting quick enough to respond to, and benefit from, technology disruption to their industry. This view was held by 83% of investors surveyed in 2018, up from 77% in 2016.
Importantly, FTI’s research over the past two years has found that institutional investors have consistently invested in businesses that show greater preparation for, and understanding of, the impact of technology disruption. That is reflected by the scoring of the businesses invested in by survey respondents, consistently seen as more prepared for technology disruption that the average business. It is also telling that very few investors have taken a position in businesses that are seen as “not at all prepared” for the effects of technology disruption.
The chart above also reveals that businesses, on average, are not keeping up with the pace of technology innovation happening around them. At least, that is the perception of institutional investors.
If businesses have invested in technology-led innovation, and have put into place a strategy to respond to disruptive changes to their industry, then the message has clearly not landed in the media or in the minds of investors.
Financial institutions have consistently invested in business that show greater preparation for the impact of technology disruption.
Investors are now more concerned about businesses not being prepared for technology-driven disruption than they were two years ago. Does this matter? It sure does, as 99% of investors responding to FTI’s research said that it is important for businesses to vigilantly monitor evolving technologies and their potential impact on industry. Ironically, the industry facing the greatest change is the technology sector where with almost three quarters of investors surveyed (72%) identified the risk of a new or next generation of technology disrupting the incumbents. That trend is evident when looking at the most high-profile businesses in the sector. Across the world Lyft is challenging Uber in the on-demand transport market; Snapchat is challenging Facebook for the social media attention of millennials; and new entrants to the devices market, such as OnePlus and HMD are challenging the widespread popularity of Apple and Samsung. If this trend can be found in these large and relatively new tech leaders, then it is certainly more prevalent among legacy technology businesses built through past generations.
The next three sectors that investors see as most likely to be entirely disrupted in the near term (specifically in the next 5 years) are Financial Services (70%), Healthcare (67%) and the Oil & Gas sector (64%). For the technology challengers operating here, these have become known as sectors in their own right – “fintech” and “healthtech” are focal points for innovation, while the renewables or “cleantech” market continues to set the agenda in the energy sector.
While those are the sectors most likely facing disruption in the near term, FTI’s research also identified the sectors facing the fastest pace of change, as measured by the gap in the perception of near-term technology disruption between 2016 and 2018. The past two years has seen some high-profile developments in these sectors as company investment and acquisition strategies adjust to this new, dynamic environment. For example, diversified industrials businesses are moving further into software with deals such as the Schneider-Electric combination with AVEVA and Siemens’s acquisition of Mentor Graphics. In Consumer Goods, large businesses are finding new ways to engage with innovative start-ups in their sphere. For example, the Unilever Foundry programme has been created to make it easier for early-stage innovators and creators to engage and explore business opportunities with Unilever’s 400+ consumer brands. The blurring of lines between technology and other sectors also inevitably leads to additional regulatory scrutiny, be it around personal data or the changing competitive landscape.
Finally, 2018 looks set to see a war for technology talent. If businesses are listening to investor concerns, then they will be radically changing their approach to recruitment to attract the best people. Almost two-thirds (64%) of investors surveyed see technology disruption as a people challenge, and believe recruiting top talent will be the way businesses address technology-driven disruption in their industry.
2018 research was conducted online by FTI Consulting between 12th and 15th January 2018, with n=101 global institutional investors participating, with a sum of assets under management of over $6.8 trillion.
2016 research was conducted online by FT Consulting between 26th September and 4thOctober 2016, with n=154 global institutional investors participating, with a sum of assets under management of over $10 trillion.
Please note that the standard convention for rounding has been applied and consequently some totals do not add up to 100%.