Unless you’re Homer Simpson it’s unlikely that you’ve ever been beaten to a ‘worker of the week’ award by an inanimate carbon rod. Or worse again, had an inanimate carbon rod steal all the glory for saving the space shuttle.
But as we transition from the analog to digital world, physical objects like an inanimate carbon rod may one day become more valuable, capable of transmitting informative data that can be analysed for any number of purposes.
While we all recognise the significant role the large internet giants play in our day to day lives the ability to focus on information content will provide a distinct edge for the many industries that can benefit from the shift to digital technology.
New technologies creating new opportunities
Take the asset heavy aerospace industry as an example where engine manufacturers can use data as a competitive advantage. In turn, engine economics have shifted from ‘Time & Maintenance’ contracts to ‘Rates per Hour’. The differences are depicted in the table below, however the shift is clearly driven by engine sensors and the value of the information they transmit.
Importantly, financial benefits accrue to both airlines and engine manufacturers. Airlines benefit from more reliable and efficient planes (preventative maintenance, fuel consumption, and more hours in the air). They also gain greater visibility on otherwise large and lumpy maintenance costs under the old time & maintenance model.
The engine manufacturers benefit from cash flows that commence at the point of sale. And by gaining a higher market share in the aftermarket, margins are also projected to increase significantly through to 2020 using rates per hour contracts.
The investment opportunity
The technology shift driving efficiency in business models is a source of wealth creation and presents numerous opportunities. Businesses that can adapt stand to benefit from more effective R&D, higher productivity and build deeper customer loyalty. The potential to form long term partnerships and new ecosystems further creates barriers and can reinforce higher market shares.
In so far as equities are concerned it’s therefore apt to finish with a meme inspired by the same Simpson’s episode – I, for one, welcome our new technology overlords…
For more information, Nick Bratt and the team at Lazard Asset Management, who manage the Zurich Investments Global Thematic Share Fund, who know a thing or two about the global themes playing out in the market. In this video, Nick shares his views on the changing global framework as the world shifts from analog to digital. This is an extraordinarily important development – possibly more so than the original industrial revolution. Find out what this means for identifying winners of the future. Click here: http://youtu.be/qEPcrsNzkZg
Patrick Noble is a Senior Investment Strategist at Zurich Financial Services and regular investment market commentator with over 15 years’ experience in financial services. Patrick is responsible for Zurich’s diversified funds including manager selection, asset allocation and chairing the funds’ Tactical Asset Allocation Committee.
