Disruption Has Cut Company Life-Span By 66%
Disruption is nothing new, with nearly 80% of industries that existed in the U.S. in 1900 no longer existing or being quite small today. However, the pace of disruptive forces may be accelerating, as the average age of a company listed on the S&P 500 has dropped substantially from almost 60 years old in the 1950s to now less than 20 years, according to Credit Suisse.
In their August 24 research note titled “Disruptive forces in Europe: A Primer,” Eugene Klerk and team highlight what they perceive as the key disruptive forces in various industries and identify companies or sub-sectors with the greatest sensitivity to disruption.
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Multiple disruptive forces impact several sectors
The analysts focused on the disruption risk posed to several prevailing business models and its specific relevance for stock performance. Klerk and colleagues point out that presently, several disruptive drivers impact various sectors simultaneously, with significant consequences. Noting that disruption is not new, the analysts then trace back the effects of disruption to the 1820s when railroads disrupted canal stocks:
The CS analysts highlight several disruptive forces witnessed by each of the major industries. However, the analysts argue that common themes of disruption around several industries are technological innovation, rising competition, new energy and regulation. For instance, the analysts note that the speed and complexity of technological progress are accelerating, implying a heightened risk of labor displacement.
The following table sets forth which of the factors impact various sectors, including those sectors which are highly impacted by disruption:
The CS analysts note that several disruptive themes have played out across inter-sector relationships too, as entire supply chains are impacted. For instance, the analysts point out that electrification of vehicles applies tremendous pressure on auto OEMs with follow-through pressure on traditional internal combustion engine-focused suppliers.
“Disruption won’t impact incumbents who diversify”: CS
Providing some degree of comfort amid their all-around negativity regarding disruption, Klerk and colleagues note that “all is not lost for incumbents,” particularly for those who have the means to provide diversified offerings. For example, the CS analysts cite M&A activity just before some of the European oil majors decided to rapidly expand their “renewable” offerings.
Briefing the impact of disruption on various sectors, the CS analysts point out that regulation and competition from non-bank financial and retail companies act as key disruptive elements for banks. The CS analysts believe that the insurance industry could witness technological disruption through driverless cars, since motor premiums could drop to 10% of total Life and Non-Life insurance revenues, as automated cars are expected to lead to fewer accidents and fewer aggregate claims.