Frugal companies always spend a lot on technology
One of the results of the coronavirus pandemic has been that the global health crisis has forced businesses at all levels to emphasize fiscal prudence.
From energy companies limiting exploration and production budgets, to retailers closing stores and many, many others cutting staff, cutting expenses was the name of the game for a substantial part of the year. 2020.
A recent survey from consulting giant McKinsey indicates that 43% have cut fixed costs and 29% have reduced physical locations.
While some businesses remain cautious about spending, one area they can’t afford to be too frugal with is technology.
“One obvious area where companies resisted the cautious approach to spending was in technology. The increase in working from home, along with renewed concerns about cybercrime and a continued shift towards online shopping, has resulted in a sharp increase in technology investments ”, writes Mark Hackett of Nationwide. “Almost two-thirds of those polled in the McKinsey survey noted an increase in funding for technology initiatives, while only 7% cut technology spending. Likewise, 44% of companies increased their tech-focused workforce, compared to 11% that cut technical staff. “
Due to a wave of recent cyber attacks, it’s reasonable to expect more businesses to increase their cybersecurity spending. In addition, the growth of remote working fueled by the pandemic is expected to lead to increased spending in the already booming cloud computing arena.
For investors, these points are relevant because, for example, cloud computing and cybersecurity are not areas that companies can afford to be cheap. A series of recent lessons prove that being careful can actually be stupid.
“While the unusual nature of the past year has significantly influenced this data, there are clear signals as to the direction of the economy and potential beneficiaries in the stock market,” Hackett adds. “The tech sector has proven to be critically important to the economy in times of stress, and spending in this area has been mostly sustainable in recessionary environments. Since the financial crisis, the tech sector has outperformed the S&P 500® Index at large by almost 500% cumulative (1,020% vs. 530%).
To learn more about income strategies, visit our Retirement Income Channel.