Investing in the Digital Transformation Gives These 3 Firms an Edge
I’ve touched briefly on the digital transformation recently. It’s the biggest disruptor since the invention of the computer. And it will impact how businesses and consumers interact.
And I’m not just referring to how it will propel Accenture (ACN) into unforeseen profits, as I’ve mentioned before. The digital transformation is bigger than one company.
It is the collision of electronic data, artificial intelligence software and inexpensive computer processing. Dell Technologies says that 91% of businesses struggle with it.
Savvy investors should already be prepping their portfolios. The firms that have a solid plan forward into this new digital age are blazing a path for the rest. And this is a powerful wave that any serious technology investor should start riding immediately.
Take a look at these examples …
No. 1: McDonald’s — Redesigning the Drive-thru.
Fast-food giant McDonald’s (MCD) makes 70% of its sales from customers who prefer not to get out of the car. The problem is the company has no idea what the customer is going to order when they pull up. A complicated choice can back up the whole line.
To speed things up and boost sales, McDonald’s executives began working with Dynamic Yield, a company that makes personalization software based on artificial intelligence.
The code allows McDonald’s to dynamically change drive-thru order menus. Let’s say the customer selects a Big Mac. The system might then automatically suggest a combo package, or perhaps an Oreo McFlurry if it’s hot outside.
During peak hours, hard-to-prepare items like scrambled eggs might get eliminated entirely. Shrinking drive-thru lines come with the added benefit of influencing what customers order, in real-time, across the entire network of stores.
The digital transformation will allow smart programming to influence your decision-making as a consumer. Meanwhile, McDonald’s maximizes efficiency and their bottom line.
No. 2: Caterpillar — Mining Gold in Hell.
Caterpillar (CAT) is building custom electric loaders, excavators and other robotic gear for a new mining project. Partners Rio Tinto (RIO) and BHP Billiton (BHP) are building a new mine in the middle of hell. The Superior, Ariz., project is nearly 7,000 feet below the Earth’s surface. There, temperatures routinely hit 175 degrees. Warm water falls from overhead rocks like rain.
It’s a project that never would have been approved in the past. Beyond the danger to the miners on the ground, the technological difficulties of the environment boggle the mind.
But with CAT’s new sensors, the equipment will be able to achieve full automation. Its distinctive yellow machines will find the ore, mine it and transport it to the surface … all under the watchful eye of technicians hundreds of miles away.
Geopolitical volatility is pushing gold higher. Back in January, it hit a new six-year high before pulling back slightly. And if my colleague Sean Brodrick is right, it’ll keep going higher.
But easy-to-mine sites have been mined dry already. As overall supply decreases, tough-to-mine sites like this will become the norm. And CAT’s sensors will ready.
No. 3: Callaway Golf — Breaking through convention
Callaway Golf’s (ELY) new line of Mavrik drivers bear little resemblance to
the cookie-cutter golf clubs of the past, and for good reason.
Mavrik wasn’t designed with human eyes. Instead, Callaway tapped a supercomputer and AI software to shape the metal in ways that surprised
For four weeks, 24/7, a supercomputer crunched through algorithms and simulations. After each iteration, the computer made subtle changes and diligently moved on. In the end, the club face it designed was noticeably thinner in the middle. But the biggest difference was on the backside.
While normal clubface backs are smoother than the greens at Augusta, Mavrik features swirls and seemingly random lines. Some parts are thin, other parts are thick. Alan Hocknell, Callaway’s senior vice president of research and development, says “the computer stretched our way of thinking” about the research and design of their product.
Data and new digital tools helped solve a design problem that would have been impossible if company engineers were left to traditional devices.
Smart investors should take note of the trend here. The best companies are using data analytics and artificial intelligence to deliver better products to customers, faster.
For a long time, product development was essentially a high-stakes game of hit and miss. Companies came up with good ideas; then they ran focus groups and assembled prototype teams. They put together marketing squads to gussy up the end product. Then they sold it … or tried to.
Digital transformation tools are removing a good portion of hit and miss. They’re minimizing investments into growth while maximizing profits.
Growth investors should keep an eye on the companies leading this charge. They’re the ones who will pull ahead and stay ahead when the digital transformation goes into full swing.
Jon D. Markman