The Great Divide

In a recent interview at the Economic Club of New York, investor Stanley Druckenmiller addressed a number of topics related to the COVID pandemic. He was asked questions about the rebound of the economy, unprecedented liquidity and debt flushed into the system by the Federal Reserve,  the Government and several other investment-related topics. The Fed has expanded its balance sheet by $4 trillion in the last several months! It took my breath away. But this is not the topic I took away from the interview.  For those of you who don’t know of Stanley Druckenmiller, he founded Duquesne Capital Management in 1981, and until he closed his fund in 2010, he delivered a 30% year over year return to his clients without a single losing year. That really took my breath away!  Whenever I get a chance to listen to this man talk, I listen.  My takeaway occurred during a brief but obscure discussion about Amazon. 

The Amazon Effect

Love them or hate them, Amazon has made the last several months of the pandemic lockdown tolerable. I’ve also leveraged Home Depot and Walmart during this time at home.  Remember a few years back when the financial news was using Amazon as a verb?  Walmart got “Amazoned,” and so did Home Depot.  The news media declared Walmart over, but did they die?  No, they purchased jet.com and invested heavily in their eCommerce infrastructure to make their stores “weapons” and extend the value of their supply chains.  The Home Depot mobile application is a beauty.  Easy to use and easy to declare a “home store.” One can choose pick-up for those items available and shipping to my home for those not in your store. As I sit in my front room working, I notice my neighbor never leaves her house.  They recently had twins in the last year, and all sorts of trucks – grocery, meat, FedEx, and UPS move seamlessly to and from her front door.  The quote from the Druckenmiller interview was this, “imagine what it would be like if the pandemic happened four years ago, and Amazon was not at scale?”

So, I imagined, and read.  When Ken Langone, founder of Home Depot, was interviewed recently, he spoke about how Amazon made them better.  Doug McMillon, CEO of Walmart since 2014, frequently talks about how they are investing in technology to make things better.  The list goes on.  Kroger, Starbucks, Microsoft, Netflix, and Google.  Invest they do!  They made these investments because “creative destruction” is real, and they needed to get moving quickly! It’s not about transformation; it is about survival. So, what’s the point?

Transform to Survive

I have listened over and over to the rhetoric about it not being “anyone’s fault” that the pandemic has crippled their businesses.  This is true.  It is also true that 1,900 companies fail every month in the U.S. when things are fine.  We call that “creative destruction” because the invisible hand of the market is always moving things to get better.  What Amazon really accomplished over the years was a change in customer expectations.  All of a sudden, they became the gold standard for customer satisfaction. It is capitalism at its best. Saurajit Kanungo, President of CG Infinity , penned a blog a few weeks ago, poking holes in the term “digital transformation.”  The gist was that we are not transforming; we are surviving.  COVID just accelerated everything.  We have gone from the haves to the have nots. Those companies who are thinking ahead, close to their clients, leveraging technology for everything from order management to the four P’s of marketing – product, price, place, and promotion are winning.  I recently looked at an apartment complex that had different rent rolls based upon the month you want an apartment and the length of stay.  Want to bet that they are using deep learning to forecast demand and pricing?

The Two Sides of the Great Divide

Some companies are thinking ahead and building nimble people, processes, and technology.  Others are woefully behind because they cannot change or refuse to change.  The great divide is moving to corporate America.  Those who continuously invest and those who are trying to nail jello to the wall.  Boardrooms across America should be forcing CAPEX and OPEX spending because many will not survive if they don’t.  Investing consistently over time is important because organizations must come down the learning curve before they can truly understand how to leverage technology as a competitive advantage. It is not the technology, but rather the innovation that humans apply to what the technology tells them and allows them to accomplish.  In his book Zero to One, Pay Pal Founder, Peter Theil, discusses how credit card fraud was rampant in the early days at Pay Pal.  While the geniuses thought technology and AI were the answer, it wasn’t until humans interpreted the data that they eliminated the fraud.

Be on the Right Side

Whether investing in customer portals, eCommerce, big data, integration architectures, or re-writing old and antiquated technology, now is the time to invest.  There is no tomorrow.  COVID exposed the weakness in many of our companies’ defenses.  Some will lick their wounds and file for loans.  Others will use this time to reassess and reinvent.  Usually, as we head into recession, companies pull in and stop big capital projects.  I would argue that they should be doing just the opposite.  There will be winners and losers in the great divide because those who innovate will spend money to build interesting solutions, which will lead them to better questions, which will lead to better solutions.

Now is the time to innovate!  Do not abdicate lest you go the way of the buggy whip!