They may be sharks but they are also krill. While technology companies are transforming and reinventing global markets, they are also among the biggest victims of digital disruption according to Bain & Co.
It is tempting to assume that technology businesses have a natural advantage in the world of transformation, but when Bain & Co looked at the financial performance of the tech sector between 1996 and 2018, it found that the majority of companies in the industry saw their annual market capitalisation growth underperform their peers by two percentage points or more.
In fact, by this metric, technology was the second-worst performing sector of those the researchers analysed, trailing only advanced manufacturing services.
One of the more counterintuitve insights is that technology companies are 12 per cent more likely to be disrupted than retail companies, and 25 per cent more likely to be disrupted than financial services companies — ironically two industries that have been most significantly transformed by technology.
The researchers said technology businesses also find it harder to come back, with Bain’s analysis revealing that 56 per cent of technology companies were unable to recover their performance after three years of underperformance.
Compare that to one of the most disrupted sectors of the internet age: Media. Sixty-seven per cent of media companies were able to resume at least comparable performance to their peers after three years.
The highly disrupted nature of the technology sector is reflected in the huge turnover among the biggest companies in terms of their relative standing.
According to Bain & Co, in its inaugural global Technology Report, “In 1999, the list of the 15 highest-valued technology companies worldwide was populated by mainframe legacy companies such as IBM; enterprise resource planning (ERP) darlings such as Oracle; and the winners of the PC/workgroup computing phenomenon: Microsoft, Intel, Cisco, Dell, and HP.”
Within ten years half of the list had been replaced as companies such as Google, Apple, Qualcomm, and Samsung became ascendant. German software maker SAP also benefitted from consolidation in the ERP markets.
According to the report, “By 2019, 40 per cent of the top 15 had turned over again. The newcomers illustrate the importance of social media (Facebook) and the growing influence of China (Tencent, Alibaba). But the decade’s most transformative trend was the massive global success of Cloud technology. It enabled the growth of other newcomers to the list (Amazon, Netflix, Adobe), and stalwarts from 2009 (Microsoft, Apple, Alphabet) rode the wave to massive valuations ten years later.”
Only four companies from the 1999 leadership board remain: Microsoft, Intel, Cisco, and Oracle.