Companies taking advantage of the “digital metasystem” are creating tremendous returns, while weak performers have collectively destroyed hundreds of billions of dollars of shareholder value, according to a report by The Boston Consulting Group (BCG).
The report, The Great Software Transformation: How to Win as Technology Changes the World, examines total shareholder return (TSR) performance of technology, media, and telecommunications (TMT) companies for the five-year period from 2008 through 2012.
TMT companies are at the vanguard of creating products and services that will drive the digital metasystem—the new digital environment that allows companies to mine big data and engage with customers anytime and anywhere. The Great Software Transformation argues that all companies—but TMT companies in particular—need to understand and embrace this new world and the role that software plays within it.
Software, for example, enables Google’s driverless car to negotiate San Francisco’s famously crooked and steep Lombard Street. Vehicles such as these will change the nature of driving, transform adjacent industries such as insurance, and create new opportunities in, for example, in-car entertainment and commerce.
To adapt to the new environment of blurring industry boundaries, companies will need to make speculative bets on new technologies and markets while managing their mature businesses. The Great Software Transformation predicts that winning companies will be engaged in the following: partnerships and alliances, consolidation, lean organizational structures, adaptive strategies, an infusion of digital talent, and the use of digital and mobile channels and big data to improve customer service and engagement.
Several of the top-performing TMT companies have already made these moves, according to The Great Software Transformation.
Tencent, a Chinese Internet company, for example, took advantage of the connectivity and ubiquity of the digital metasystem to become the top value creator among large companies (greater than $50 billion market capitalisation) across all industries, with an annual TSR of 33.8 percent.
Samsung and Apple have parlayed their understanding of the mobile requirements of the digital metasystem and have become the fourth- and sixth-best value creators among large-cap companies, with an annual TSR of 23.4 and 22.1 percent, respectively.
With its tablet and cloud business, Amazon.com is a technology company masquerading as a retailer. With an annual TSR of 22.0 percent, it came in seventh overall among all large-cap companies.
“The tech, media, and telecom industries have been the sources of tremendous value creation and destruction in recent years. Companies that have moved out of their comfort zone and into new digital areas have been winners, while many of those that have clung to what has worked in the past have suffered,” says David Dean, a BCG senior partner and coauthor of the report.
In particular, the telecom sector generated a –2 percent annual TSR between 2008 and 2012. Its performance would have been much worse without the contribution of dividends payments.
The media industry, which was the first industry disrupted by the Internet, generated a 7 percent annual TSR from 2008 to 2012. This performance was powered by several emerging-market companies—including Tencent, Naspers, and Baidu—but also by traditional companies such as Time Warner Cable and U.S. cable channel Starz.
The tech industry generated a 4 percent annual TSR between 2008 and 2012. While consumer electronics companies performed well, companies that have failed to adapt to the post-PC environment lagged behind. Computer hardware companies, for example, generated a –7 percent annual TSR.