# Enterprise Software: An Investment in Disruption-Magazine
Author:  Pal Sinha, Barnali 
Author URL: https://financedigest.com/author/pal-sinha-barnali
Published: 2017-06-02
Category: TECHNOLOGY
Category URL: https://financedigest.com/category/technology
Meta Title: The Importance of Enterprise Software in Business Innovation
Meta Description: Learn why companies are increasingly turning to enterprise software to stay ahead of the competition and adapt to the needs of their customers. Find out how ES
URL: https://financedigest.com/magazine-enterprise-software-an-investment-in-disruptionhtml

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_By_ **_Alex Barr,_** _Senior Investment Manager, Alternatives, Aberdeen Asset Management_

![Alex Barr](https://prod.superblogcdn.com/site_cuid_cm5qst7v3003gwirgwqtxn8i8/images/alex-barr-256x300-1736843786681-compressed.jpg)

Alex Barr

Inertia is a powerful thing. Most people prefer the status quo and innately resist disruptive change. It explains why [moving house](https://www.financedigest.com/how-to-move-house-when-youre-on-a-tight-budget-5-key-tips.html "How to move house when you’re on a tight budget? 5 Key tips") or changing jobs can be such a mental challenge.

Companies are no different. The cost and emotional distress of making wholesale changes to business [systems](https://www.financedigest.com/interoperability-of-data-to-accelerate-the-whole-slide-imaging-systems-market.html "Interoperability of data to accelerate the Whole Slide Imaging Systems Market") regularly can challenge even the most successful firms. Yet, those that don’t evolve and adapt to the needs of their customers usually flounder.

Today, even young companies hold legacy assets that have become outdated or obsolete. In many industries, investing in new infrastructure is essential to [stay ahead](https://www.financedigest.com/staying-ahead-in-the-digital-era-a-cfos-roadmap-to-future-proof-solutions.html "Staying Ahead in the Digital Era: a CFO’s Roadmap to Future-Proof Solutions") of the competition.

Increasingly, that means tapping into enterprise software. ESis computer software used by governments, large companies, universities and charities, rather than individual users. It allows companies to display, manipulate and store large amounts of data and support business processes with that data.

If you’ve ever purchased goods on Amazon or eBay, you’ll have interacted with ES. It drives the back end [technology behind](https://www.financedigest.com/what-is-generative-ai-the-technology-behind-openais-chatgpt.html "What is Generative AI, the technology behind OpenAI’s ChatGPT?") the intuitive customer experience. And ifyou use a computer in your job, you may appreciate the role ES plays in [supporting your productivity](https://www.financedigest.com/the-cancer-supportive-care-products-market-to-stay-innovatively-persistent.html "The Cancer Supportive Care Products Market to stay innovatively persistent").

[**Industry trends**](https://www.financedigest.com/ma-in-the-healthcare-industry-trends-opportunities-and-regulatory-considerations.html "M&A in the Healthcare Industry: Trends, Opportunities, and Regulatory Considerations")

ES has been one of the [key drivers](https://www.financedigest.com/increasing-demand-for-high-speed-motors-key-driver-of-switched-reluctance-motor-market-finds-tmr.html "Increasing Demand for High-Speed Motors: Key Driver of Switched Reluctance Motor Market, Finds TMR") of innovation and productivity increases for decades. Many companies wouldn’t exist without the software that keep their operations ticking on a day-to-day basis. Gartner has [forecast that total spending on it will reach $201 billion](https://www.financedigest.com/automotive-body-in-white-sales-at-3-4-cagr-over-the-forecast-period-from-2021-to-2031-reaching-us-59-7-billion-in-2021.html "Automotive Body in White sales at 3.4% CAGR over the forecast period from 2021 to 2031, reaching US$ 59.7 billion in 2021") by 2019.

Smartphone banking is a rapidly growing area. A Federal Reserve survey found that 43% of mobile phone owners with a bank account had used mobile banking in the previous 12 months up 4% from 2014 and 10% from 2013. Looking ahead, mobile and cashless payments are [expected to grow 81%](https://www.financedigest.com/sheet-face-masks-market-is-expected-to-grow-at-a-cagr-of-8-1-during-2019-2027-says-tmr.html "Sheet Face Masks Market is expected to grow at a CAGR of 8.1% during 2019 – 2027, Says TMR") annually to 2020 in the US alone, according to Statista. This will require [future investment in tech](https://www.financedigest.com/should-you-invest-in-nfts-or-their-future-practical-uses-in-tech.html "Should You Invest in NFTs, or Their Future Practical Uses in Tech?") infrastructure, underpinned by ES.

Several high profile corporate security breaches and a subsequent wave of new regulations have ramped ES up the corporate agenda. Gartner and Cybersecurity Ventures estimate that over 75% of US Fortune 500 companies have been breached by cybercriminals. The proliferation of mobile devices will only accelerate matters, with companies seeking out more efficient and transparent [security solutions](https://www.financedigest.com/securing-financial-institutions-with-the-help-of-pam-solutions.html "Securing financial institutions with the help of PAM solutions").

There is also a clear [move toward](https://www.financedigest.com/the-frozen-fruits-market-to-move-towards-digital-health.html "The Frozen Fruits Market To Move Towards Digital Health") the ‘cloud’, and service-based solutions that surround it. Known as “software-as-a-service” or “SaaS”, marketing, e-commerce and advanced analytics software are the [areas expected](https://www.financedigest.com/demand-for-fast-transit-of-logged-woods-from-forests-to-stock-areas-is-expected-to-result-in-higher-demand-for-forwarders.html "Demand for Fast Transit of Logged Woods From Forests to Stock Areas Is Expected To Result In Higher Demand For Forwarders") to see the fastest growth.

Cloud-based business applications are being used in recruitment in areas like applicant tracking systems and interviewing and assessment techniques. Businesses are also increasingly using cloud-based applications in areas like price optimisation, procurement and financial planning.

The value in SaaS, and ES companies in general, stems from continuing renewals of the existing subscriber base, which ensures long-term predictable revenues. But this cash-flow [sustainability is not without risk and therefore ESfirms must invest](https://www.financedigest.com/where-next-for-sustainable-investing.html "Where next for sustainable investing?") for the future.

Perhaps the area most set to benefit from investment in ES is [artificial intelligence](https://www.financedigest.com/types-of-artificial-intelligence.html "artificial intelligence") (AI). Bank of America [expects global](https://www.financedigest.com/polyurethane-dispersion-market-globally-expected-to-drive-growth-through-2031.html "Polyurethane Dispersion Market Globally Expected to Drive Growth through 2031") spending on AI to reach $37 billion by 2025, driven by the growth of mobile devices, social media and the Internet of Things, the inter networking of devices and other items.The rapid expansion of data production has also boosted investment in AI. This will increasingly require new ES [solutions and a workforce with specialised knowledge to handle](https://www.financedigest.com/automated-intralogistics-material-handling-solutions-market-estimates-the-market-to-expand-at-14-cagr-through-2031.html "Automated Intralogistics Material Handling Solutions Market Estimates The Market to Expand at 14% CAGR through 2031") it.

AI is already creating seismic shifts in healthcare and [drug development](https://www.financedigest.com/the-anticancer-drugs-market-to-be-on-an-auto-development-mode-with-digitization.html "The Anticancer Drugs Market to be on an auto-development mode with digitization").IBM Watson has designed a program that analyses clinical data and [reports to provide optimal treatments for patients with cancer](https://www.financedigest.com/pmrs-report-on-global-triple-negative-breast-cancer-treatment-market.html "PMR’s Report on Global Triple Negative Breast Cancer Treatment Market"). Elsewhere, Atomwise, an AI company has [developed technology](https://www.financedigest.com/research-and-technological-innovations-to-bolster-developments-in-polycarbonate-resins-market.html "Research and Technological Innovations to Bolster Developments in Polycarbonate Resins Market") that analyses billions of molecular structures in the search for new drugs.It found two drugs that significantly reduced infectivity of the Ebola virus. Such progress used to take months or even years. It took Atomwise one day.

In areas like these, the growth of [technology is literally changing people’s lives](https://www.financedigest.com/how-technology-has-changed-our-lives.html "How Technology has Changed Our Lives") and we are only at the start of the journey.

**Financing** [future growth](https://www.financedigest.com/plug-in-hybrid-electric-vehicles-phev-market-trends-growth-future-demand-analysis-and-forecast-by-2026.html "Plug-in Hybrid Electric Vehicles (PHEV) Market Trends, Growth, Future Demand, Analysis and Forecast by 2026")

ES’ ascendance has been aided by the [structure of the software industry](https://www.financedigest.com/structured-cabling-market-growth-of-it-telecommunication-industry-to-boost-market.html "Structured Cabling Market – Growth of IT & telecommunication industry to boost market"). Smaller players with unique expertise are able to cater to a variety of clients are in plentiful supply. Young and fragmented, this part of the industry is ripe for consolidation.

At the other end of the scale, some well-established companies are divesting divisions to refocus their business. For example, Hewlett Packard, a global technology company is in talks with [private equity](https://www.financedigest.com/can-private-equity-do-for-africas-manufacturers-what-its-done-for-f1-and-rugby.html "Can private equity do for Africa’s manufacturers what it’s done for F1 and rugby?") buyers to sell its software business for $10 billion. In June 2016, US computer giant Dell (now Dell Technologies) divested part of its software business to two [private equity](https://www.financedigest.com/private-equity-resilience-leads-to-opportunity.html "Private Equity – Resilience Leads to Opportunity") buyers for $2bn with the aim of repositioning as an enterprise hardware business.

A core skill that private equity management can provide is supplementing the founding management [team as the seed of an idea grows](https://www.financedigest.com/the-digital-voice-adtech-pr-agency-grows-team-by-eight.html "The Digital Voice Adtech PR Agency Grows Team By Eight"). The founders of a business then have access to experienced executives who can help identify a [long-term strategy and provide capital for investment](https://www.financedigest.com/the-10-year-model-and-beyond-why-you-should-take-a-long-term-outlook-to-investment-strategy.html "The 10-year model and beyond – why you should take a long-term outlook to investment strategy") in areas like customer service, product development and innovation, and branding.

[Venture capital](https://www.financedigest.com/breaking-down-venture-capitals-gender-and-diversity-barriers.html "Breaking down Venture Capital’s gender and diversity barriers") (VC) firms are also taking a strong interest in the technology start-ups, in areas like information security, storage and SaaS.In particular, they can [target smaller attractively priced](https://www.financedigest.com/hsbc-ups-price-targets-on-greek-banks-with-eurobank-piraeus-top-picks.html "HSBC ups price targets on Greek banks, with Eurobank, Piraeus top picks") investment opportunities where there is less competition for deals.

The unique challenges for VC investors are judging how far to fund a new ES business before meaningful revenues accrue, and which [portfolio investments](https://www.financedigest.com/investment-portfolio-diversification-why-its-important-and-how-to-do-it.html "Investment Portfolio Diversification: Why It’s Important and How to Do It") to nurture and which to let go. Significant equity is often required before these businesses turn a profit.

So where’s the catch? Well, as with other [private market](https://www.financedigest.com/the-uk-private-healthcare-market-is-expected-to-witness-an-escalation-going-forward.html "The UK Private Healthcare Market is expected to witness an escalation going forward") sectors, valuations are high. However, there are many attractive companies in need of funding. In-depth research can uncover such opportunities.

Technology and software are evolving at mind-boggling speed. Companies that fail to adapt to social and technological progress will eventually lose out, both financially and reputationally. In business as in life, change should always be anticipated and embraced, rather than avoided.

Diligent investors who recognise this – and the importance of ESin helping companies adapt to change– are able to reap the rewards.

**About the Author**

Alex Barr is a Senior Investment Manager in the Aberdeen [Private Equity](https://www.financedigest.com/private-equity-so-much-more-than-just-money.html "Private equity – so much more than just money") team. He joined the company in 2005. Previously, he worked at Morgan Grenfell (subsequently Deutsche Asset Management), Henderson Investors and Templeton. He co-heads the Investment and Product Management team with responsibility for the management of all private equity products and portfolios, and has been the [lead portfolio manager since 2009 for the London-listed investment company](https://www.financedigest.com/passendo-partners-with-leading-media-company-audienzz-to-revolutionise-its-ad-offer-in-a-portfolio-of-over-70-premium-newsletters.html "Passendo partners with leading media company, audienzz, to revolutionise its ad offer in a portfolio of over 70 premium newsletters"), Aberdeen Private Equity Fund Ltd. Alex founded and [led Aberdeen’s Alternatives and Private Equity Funds businesses, and in 2013, led the latter into the Aberdeen SVG joint venture](https://www.financedigest.com/the-window-blinds-market-to-be-led-by-constructive-joint-ventures.html "The Window Blinds Market To Be Led By Constructive Joint Ventures") (ended 2015). He has an MA in Economics and Accountancy from Aberdeen University and is an Associate of the Chartered Institute of Securities and Investment. Alex sits on the advisory boards of a range of Private Equity funds, and is also a non-executive Director of a number of Guernsey-based investment companies.

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“Original publication in Finance Digest Issue 1 https://www.financedigest.com/finance-digest-print-magazine/”
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