Why Investors Need a Technology Scorecard for Companies

BRUCE NOLOP: “We are now a technology company” is often proclaimed by CEOs in a variety of industries, with the implication that their companies deserve higher valuations from the investment community.

However, being characterized as a technology company is becoming less the exception and more the rule; it’s hard to think of any industries or companies whose fortunes are not indelibly interwoven with technology. Therefore, rather than classifying some companies as technology-driven and others not, we should assume that virtually every company is profoundly affected by technology–for better or worse–and to assess whether its technology capabilities and strategies are a net plus or a net minus.

To that end, a technology scorecard could be instructive for investors, who would benefit from an objective, knowledgeable analysis of a company’s technological strengths and weaknesses–akin to the scorecards that are currently being used to evaluate companies’ corporate citizenship and sustainability programs.

The scorecards should incorporate a broad definition of technology and focus qualitatively, as well as quantitatively, on the opportunities and risks from an investor’s perspective—emphasizing high level assessments rather than detailed operational metrics.

Here are five categories of questions that might be included:

1. Investments: How much is the company investing in technologies that improve its infrastructure, create new products, enhance the customer experience, expand the customer base, lower labor costs, or increase production? To what extent does the company rely on its in-house technology organization versus outsourcing or the cloud?

2. Competition: How do the company’s technology strategies compare with its peer group? Does it obtain sustainable competitive advantages from existing or projected technologies? Is the company vulnerable to disruptive technologies and does the management team have the mind-set and capabilities to adapt its strategies– including a willingness to cannibalize its current business model?

3. Information: Is the company employing data mining and other analytics to tailor its marketing strategies? Does it have the systems and skill sets to compile and communicate valuable management information throughout the company? Does it possess sophisticated processes for managing its supply chain and vendors on a global basis?

4. Track Record: Does the company have a history of successfully implementing new technologies – such as adding software systems, introducing enhanced products, retrofitting production facilities, or altering go-to-market strategies? Is its corporate culture conducive to adaptation and continuous change? Has the company experienced material write-offs of technology assets?

5. Security: Does the company have adequate safeguards to protect its sensitive and proprietary information, especially against cyberthreats? Does it encrypt all personally identifiable information? Has the company been victim to a material data breach? Does it have robust contingency plans for potential incidents?

By systematically answering these types of questions, technology scorecards from a credible third party could serve as helpful building blocks for investors–much as credit ratings provide snapshots of a company’s financial strength. Moreover, they could further incentivize companies to adopt best practices and execute long-term technology plans.