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Technology Stocks : Investing in Exponential Growth

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From: Paul H. Christiansen8/8/2017 2:10:47 PM
   of 496
 
The Most Digital Companies Are Leaving All the Rest Behind\



Harvard Business Review

January 21, 2016

The United States takes pride in being on the cutting edge of all things digital, and rightly so: American innovations and innovators have led the way. Yet according to recent research from the McKinsey Global Institute, the U.S. economy operates at only 18% of its digital potential, and the sort of productivity gains that digital technologies should be enabling are not showing up in the broader economy. Why is that?

The answer is that a new digital divide has opened up in America. Just about every individual, company and sector of the economy now has access to digital technologies — there are hardly any “have nots” anymore. But a widening gap exists between the “haves” and a group we call the “have-mores”: companies and sectors that are using their digital capabilities far more than the rest to innovate and transform how they operate.

We compiled a digitization index using dozens of indicators to show where and how companies are building digital assets, expanding digital usage, and creating a more digital workforce. The 18% figure is based on comparing how the economy as a whole stacks up against the performance of the have-mores. The latter are not just coming out on top; they are maintaining a wide and persistent gap. At the sector level, the index shows that the leading sectors have increased their digital intensity four-fold since 1997, with the greatest gains coming in the past decade. Other sectors are barely keeping pace.

At the sector level, the technology sector itself ranks with the have-mores, of course, as do media, financial services, and professional services, which are surging ahead of the rest of the economy. This does not mean every technology company is leading; there are plenty of tech companies falling behind, too. Laggard sectors in general include government, health care, local services, hospitality, and construction — but again, even within each of these sectors, there are bright-spark companies that are innovating and in some cases disrupting others.

These sector- and company-level divides have a broader economic significance because the most digitally advanced parts of the economy have increased their productivity and boosted profit margins by two to three times the average rate in other sectors over the past 20 years. Sectors that lag in measures of digitization also post lower productivity performance, and since this group includes some of the heavyweights in terms of GDP contribution and employment, this creates a drag on the broader economy. We calculate that if the U.S. were to capture the full potential of digitization, rather than just 18% of it, this could be worth at least $2 trillion to the economy.

https://hbr.org/2016/01/the-most-digital-companies-are-leaving-all-the-rest-behind

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