Disruption is something we talk about a lot at Permira and how it impacts our sector focus areas - what’s coming next, where we should be moving to, and how we can help our funds’ portfolio companies stay on the right side of the curve. We spoke with Phil Guinand to find out more.
Disruption is inevitable, but how much does culture feed into staying on the right side of the disruption curve?
Huge. The culture of a company plays directly into its ability to see disruption as a threat or an opportunity. Disruption can be particularly challenging to long-established companies where the people and board have been in place for a long time, contrasted with newer start-ups built to answer changing market dynamics. But it’s not an insurmountable challenge. If you build your company to adapt to change then you are going to be in a position to benefit from disruption. Take a look at Schustermann & Borenstein, a leading off-price, high-end fashion retailer. This was a traditional bricks and mortar business and because of its openness to embracing new technology and market changes, mainly offline to online shifts, it pivoted to an omni-channel selling model ahead of other competitors. In less than one decade S&B’s business revenue from online sales has grown to over 80% of total revenue. The company embraced the market shift and leveraged its culture of innovation to change how it does business.
Internet was disruptive and then came data; how big is big data?
Yes, the internet has and continues to have a transformative effect, and the internet’s ubiquity has created massive amounts of data across all dimensions that companies are trying to leverage and ultimately monetise. “Big Data” is very buzzwordy at the moment but rightly so. The amount of data available on an individual customer is growing by the minute/hour/day – on average, the US alone creates 2.7 million gigabytes of new internet data every minute and 90% of the data in the world today has been created in the last two years. The big challenge for companies is what to do with all of that data, how they can use it to better serve their customers and, ultimately, improve profit margins. Almost every company that our funds consider for an investment talks about their use of “Big Data” and the potential it creates, but few have figured out how to monetise this asset. Permira portfolio company Informatica, an enterprise cloud data management company, helps companies leverage information and create insights out of their data. It’s allowing companies to become smarter, give better customer experiences, and create new products and services.
Ultimately, those who rise to this big data challenge will survive and thrive. Those who don’t will be left behind.
What’s the next big trend?
One of the next big trends is AI (attributing human cognition capabilities to a machine). While the math and algorithms that enable AI have been around for a long time, what has changed is the computing power available and the data to enable it. We are at the beginning of what could be the perfect storm for AI mass adoption and usage and companies are starting to realise the need for AI talent as the share of jobs requiring AI skills has grown 450% since 2013.
There was a MIT survey last year that hammers home the point that AI is in its infancy - 95% of c-level execs believe that AI is going to be a key source of competitive advantage for them….but only 5% have actually done something about it...5%!
AI, amongst other trends we see in Technology, are once-in-a-lifetime changes, and they are happening right now and in parallel. The components of the entire technology stack are turning over, and turning over at the same time. This is presenting a huge degree of disruption which in turn is providing great opportunities for companies and investors who embrace and understand the change.
Outside of Technology what other industries and sectors are likely to be affected?
We don’t see disruption being limited to just Technology. Technology is becoming the foundation for many sectors – Financial Services, Retail, Healthcare.. For example, industrial robots have helped push American manufacturing to nearly all-time highs, with US manufacturers producing nearly 50% more than they did 20 years ago…while employing 30% fewer people. And as technology disrupts so do the markets and sectors with foundations that are increasingly relying on technology and software to improve and optimise their business. So I guess the answer is all industries. Or maybe our assumption is all industries are impacted until we find a market, sector, or company that proves otherwise.