The CEO of Rio Tinto, Jakob Stausholm, made headlines recently by saying "We're a tech company". It's a sentiment that sums up the thinking of many business leaders in 2023. Rio Tinto is at the forefront of advanced technology with its driverless trucks and ever-increasing use of automation in its mining operations.
But to me, that's like calling a florist a logistics company because they deliver flowers using cars and trucks. It's important that businesses don't lose sight of their customers' needs. The customer of the florist wants flowers at a certain time and place. They don't care how they get there.
Similarly, China and other countries want the iron ore Rio Tinto mines. They don't care how good the technology is or how it's extracted from the ground. Depending on the business's product, how good the technology is has nothing to do with the end product the customer wants.
These days, every company wants to be a tech company when it sounds cool. Whether it's for recruiting or stock market valuation purposes, being seen as a tech company is popular. Often though, it signals to me that a business has lost its way and has become distracted from their core business when they start making such grandiose declarations.
So, is Rio Tinto really a tech company?
To be fair, you can make the case that every company these days has technology at its core. Indeed, to avoid being the next Blockbuster or Kodak, it's critical for companies to continue to innovate and reinvent themselves before they are disrupted.
However, if I am a carpenter who uses a hammer and nail, and the other carpenters start using nail guns and get more work done, did they surpass me because they were a tech company? No, they are still in the carpentry business, they just used the latest tools to become more productive.
It doesn't matter if you are a tech company or not. What matters is that businesses embrace innovation in such a way that they either grow productivity or create efficiencies that enable them to continue to serve their customers ahead of their competitors. If Blockbuster thought like this, they'd have understood they weren't just in the video rental business, and they'd be where Netflix is right now.
Where do you draw the line?
The flip side of this argument is a company such as Amazon. Is Amazon a tech company or a retailer? Most consider them one of the big tech companies. But at their core, they are really a retailer. They have utilised technology to create an incredible business model that serves their customers extremely well. From using ecommerce during the early the internet to warehouse robots and Ai more recently.
True innovation is not only about technology, it's about the way you use technology to better serve your customers. It's about knowing what your customers really want and being prepared to adopt technology to change your business model ahead of your competitors. The very best and most enduring businesses are not technology businesses, they are simply the ones that embrace technology to continuously innovate. That's the most important aspect of business.
It's worth thinking about as we make decisions about where to invest. It's easy for investors to be captivated by the story around a company that wants to appear more cutting-edge than it may really be. Successful pure technology companies are relatively rare and very high-risk investments.
But there are many great businesses that are utilising technology and innovation to deliver great outcomes for shareholders. They may not be technology companies, but they are certainly at the cutting edge of innovation. From computers and the internet in the 80's and 90's to automation and ai more recently, the very best companies are obsessed with how technology lets them deliver better outcomes for their customers. Technology is the tool that allows them to evolve and even revolutionise their business model. That's more important and at the core of every great business. These are the type of companies we want to have in our portfolios.
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