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Digital transformation still has a long way to go

04062020_digital transformation

Digital transformation still has a long way to go

Everywhere we turn today we see digital technology has exploded. From simple tasks in our daily lives to complex processes in the world’s largest companies, digitization has taken over and seemingly become the norm. But there is still so much more to come.

A report published last year by the Organisation for Economic Co-operation and Development (OECD) found that even though enterprises in wealthy countries were using information and communications technology much more now than they were a decade ago, the collective use of digital tools and activities was still quite low.

The blue bars in the chart below from the report show the average penetration of different digital technologies among enterprises in OECD between, typically, 2010 and 2018. Broadband internet usage is the only digital technology where usage is highly mature and has been for some time now. Yet while almost all large businesses in all rich countries use the Internet, high-speed broadband is still only being used by around 20 per cent of enterprises.

Percentage of enterprises in OECD countries using selected ICT tool and activities (2010 to 2018)

Screen Shot 2020-06-03 at 12.09.55 pm

Outside of standard broadband access, all other digital technologies remain less than 50 per cent penetrated by enterprises notwithstanding some large jumps in usage over the past decade or so. Take cloud computing as an example. Companies like Microsoft, Amazon and Alphabet’s Google have revolutionized the cloud computing industry over this period and their cloud infrastructure, platform and application businesses continue to grow from 30 per cent to 60 per cent or more. This has enabled more big businesses in OECD countries to rely on cloud computing, increasing from 20 per cent to 30 per cent of enterprises between 2014 and 2018. That means that 70 per cent of enterprises are yet to adopt the cloud in any meaningful way which represents significant growth potential for cloud technology providers like those mentioned above in the years and decades ahead.

While digital might seem ubiquitous, there is still tremendous uptake to come. In the Montaka and Montgomery Global funds we are already invested in the winners in some of these industries. And we spend all day every day scouring the globe for more.

The Montgomery Global Funds and Montaka own shares in Alphabet and Microsoft. This article was prepared 03 June with the information we have today, and our view may change. It does not constitute formal advice or professional investment advice. If you wish to trade these companies you should seek financial advice.

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Christopher is a Portfolio Manager for the Montaka funds and the Montgomery Global funds. He joined MGIM at establishment in 2015.

This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.

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4 Comments

  1. Hi Chris,

    Good insights and information. Thanks.

    However, MGIM is always quite vocal on Amazon, Google and Microsoft. But what is the stance on Salesforce?

    This is a company that I have not heard MGIM mention. However, when it comes to cloud computing, digital transformation or digitization of business, Salesforce is a powerhouse.

    It is arguably a leader in most of the ICT tools you mention above such as CRM, e-sales, cloud computing (No. 3 or 4 in this) and big data, where there is comparably low penetration. The recent acquisition of Tableau and development of Einstein AI gives the company a distinct competitive advantage in data capture and storage, analysis, visualization and analytical prediction through AI.

    Regards,
    Pascal.

  2. Hi Christopher ,

    Thanks for the article, I played around the report on OECD website. When I filter to only view stats from large businesses (250 employees and more), I notice a jump in a lot of the stats. It makes sense that usually the big businesses are the ones who can afford ERP and Big Data investments.

    Also, I believe there is an even larger market for digital transformation in the countries that are not part of this report. I believe those countries have lower adoption numbers yet have bigger markets.

    Regards,
    Jack

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