Season 3, Post 18: Innovation matters - Heptagon Capital – Production

Sometimes it’s best to keep things simple: if you believe in the future, then you need to innovate. To regular followers of our Blog and other Future Trends…

Season 3, Post 18: Innovation matters

Sometimes it’s best to keep things simple: if you believe in the future, then you need to innovate. To regular followers of our Blog and other Future Trends commentaries, this should be a familiar message. It was therefore pleasing to read a recent report from the Boston Consulting Group (BCG) that supports this view. Not only does it stress the importance of innovation but is also highlights how the companies it defines as most innovative outperformed over 2020.

The most important take-away which we drew from the report is that while three-quarters of companies say that innovation is a priority, only 20% of businesses are ready and equipped to innovate. In our regular discussions with corporate management teams and their investor relations officers we devote much of our conversation to this topic, or specifically, what they are doing to continue innovating. We have participated in over 40 online meetings of this nature year-to-date.

It’s, of course, possible to try and measure innovation quantitively. The good news is that on one metric – absolute dollars spent on research and development by businesses in our universe – innovation is going up. Despite the pandemic, we estimate that the companies we follow increased their aggregate R&D spend by at least 5% year-on-year in 2020, with some businesses growing their spend by much larger percentages. Take PayPal as a great example. R&D spend rose ~27% year-on-year and CEO Dan Schulman said emphatically on yesterday’s earnings call that PayPal will “accelerate [its] customers’ digital engagement” through increased ongoing investment. Viewed from another perspective – patents – the news is again encouraging. Not all businesses disclose this information, but we note that IBM received more patents (9,130) than any other US company in 2020. The business also ranks seventh on BCG’s list of most innovative companies. 

“Investing for growth” is a consistent message we hear repeatedly. Nearly every management team continues to highlight how the digitalisation of everything is creating new opportunities, particularly in areas such as data analytics and corresponding cybersecurity imperatives. Zebra Technologies, a market leader in enterprise asset intelligence (or automatic data capture and analysis; think barcodes and QR codes) said, for example, earlier this week that it had seen an increase in demand for its services across every geography and industry vertical where it operates regardless of customer size. Healthcare constitutes a particularly promising end-market, according to Zebra. There has been strong apparent interest in solutions that can track patient data or the precise location of medics across a busy hospital among others. Expect only more innovation.

6 May 2021

The above does not constitute investment advice and is the sole opinion of the author at the time of publication. Heptagon Capital is an investor in IBM, PayPal and Zebra Technologies. The author of this piece has no personal direct investment in the business. Past performance is no guide to future performance and the value of investments and income from them can fall as well as rise.

Disclaimers

The document is provided for information purposes only and does not constitute investment advice or any recommendation to buy, or sell or otherwise transact in any investments. The document is not intended to be construed as investment research. The contents of this document are based upon sources of information which Heptagon Capital believes to be reliable. However, except to the extent required by applicable law or regulations, no guarantee, warranty or representation (express or implied) is given as to the accuracy or completeness of this document or its contents and, Heptagon Capital, its affiliate companies and its members, officers, employees, agents and advisors do not accept any liability or responsibility in respect of the information or any views expressed herein. Opinions expressed whether in general or in both on the performance of individual investments and in a wider economic context represent the views of the contributor at the time of preparation. Where this document provides forward-looking statements which are based on relevant reports, current opinions, expectations and projections, actual results could differ materially from those anticipated in such statements. All opinions and estimates included in the document are subject to change without notice and Heptagon Capital is under no obligation to update or revise information contained in the document. Furthermore, Heptagon Capital disclaims any liability for any loss, damage, costs or expenses (including direct, indirect, special and consequential) howsoever arising which any person may suffer or incur as a result of viewing or utilising any information included in this document. 

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