Disruption is a great term, as long as it’s being applied to your competitors and not your firm. When blockchain began to show tremendous promise, from trustless transactions to making data more secure, startups jumped at the opportunity to use the technology to potentially displace core banking and capital market functions. Blockchain contains the seeds of the destruction for many established players in the financial services industry, since it does everything from allowing parties to draw up secure contracts and storing sensitive information to transferring money safely—all without the aid of an intermediary. There is (understandably) less excitement in the financial industry with businesses like public blockchain-based bitcoins and peer-to-peer lending, which allows users to send money to each other….for free or nearly free. FinTech and the Internet of Things (IoT) are creating disruption in other areas, as well: FinTech is expected to eliminate 2 million bank jobs and the Internet of Things is expected to disrupt almost everything. Current trends in FinTech are being driven by tech startups that aim to disrupt fundraising, mobile payments, money transfers, loans, and resource management. The Internet of Things and artificial intelligence (AI) are forcing leaders to take a hard look at business models and core competencies. FinTech and IoT are threatening to displace “cash cows” and prominent brands. Have you positioned your company to take advantage of the $22.3 billion opportunity that beckons? Or is your business at risk from the advances in technology? If your company is not planning on embracing technological change, it may be in danger of becoming obsolete.
Embrace Innovation or Disappear
40% of companies on the Fortune 500 list are no longer on the list in 10 years.
Kodak, Motorola, and Dell were brand superstars with significant market share and supposedly bright outlooks. Yet these are just a tiny percentage of the businesses that failed to stay relevant in the face of the changing technology environment. Researchers have taken great pains to elucidate the sources of failure for these former winners because finding the keys to their failure is akin to holding the key to success. For example, the oft-cited Vijay Govindarajan, a professor at Dartmouth’s Tuck School of Business, noted that there are three types of “traps” that can undermine the success of a business: physical, psychological, and strategic. In Why Companies Fail, Mark Ingebretsen highlighted a broad range of issues, including ignoring customer needs and worshipping the almighty stock price. Stanford researchers took a stab at why successful companies fail by tapping into the power of organizational ecology to elucidate the reasons behind failure (“inertia reigns”). While there seem to be any number of particularly good reasons why a company fails (or succeeds, for that matter), a foundational issue is that of embracing and innovating with evolving technologies. History is littered with companies that failed to capitalize on advanced technologies. Take Kodak, for example. While best known for its film, the company was actually ahead of the curve in terms of digital technology: a Kodak employee developed the very first digital camera in the 1970s. However, because management feared the destruction of its major revenue-generator (film), the company missed out on the revolution in camera technology. Motorola’s Martin Cooper invented the cell phone, but the company foundered when it came time to innovate, instead allowing itself to be pushed out of the limelight by more tech-savvy competitors. “Dude, did you get a Dell?” Dell’s bouncy hardware strategy worked well in the north American market, and the firm was even lauded as one of the “horsemen of tech”. Dell was on top—until the rise of mobile devices and cloud services made the need for large quantities of on-site hardware systems unnecessary.
Staying Relevant in FinTech and Internet of Things
While corporate boards everywhere may be beginning to feel the cold wind blowing from the startup sector, it is possible for established companies to stay relevant—and even enjoy success—in the arenas of FinTech and the Internet of Things. It begins, of course, with the correct mindset: leadership must be willing to be bold and drive innovation with strategy. For example, Collins and Porras highlighted the importance of the Big Hairy Audacious Goal (BHAG), such as that determined by JFK in his desire to put a man on the moon in less than a decade. A BHAG is vital in the face of such disruptive technological change.
The key to corporate survival in the FinTech and IoT arenas lies in the open-minded approach of embracing innovation and preparing for changing technologies. However, the fact remains that large, mature companies face unique challenges when it comes to innovation. It is easier for small companies to quickly pivot towards fast-moving opportunities, but it is not simple for an established firm to do so. It is, however, not impossible: it simply requires a different approach (or a BHAG). In an article in Harvard Business Review on how large companies can successfully innovate, Clayton Christianson noted that creating a startup-like company within the corporate family, planning for the long-term success of the independent unit without corporate backing, testing products and offerings early and often to save cash and time, and exercising leadership can all give large companies a significant edge in the marketplace. A number of companies are testing this approach. For example, CitiGroup is adopting FinTech with open arms and strong leadership. The company decided to develop a smaller, autonomous organization, Citi FinTech, with key employees from CitiGroup and a few others recruited from other companies. Citi FinTech is agile enough to quickly address changes in the evolving FinTech technologies while enjoying the support of the established company. Citi FinTech’s mobile app boasts an open architecture and can add additional features as needed. The company also enjoys the network effect from being related to CitiGroup. CitiGroup has not only recognized the potential challenges and opportunities of FinTech, but is taking concrete steps to realize its goals. Its proactive approach to innovation is keeping the company relevant.
Vision and Execution
In order to stay relevant in the face of changing tech, companies need to harness the power of BHAGs and embrace innovation. Regardless of the strength of your current brand, technology is quickly changing the marketplace and disrupting even the most consistent performers. However, without a strong background in innovation or solid understanding of technology trends, many companies find that they are lagging behind more nimble competitors and startups. It is at this pivotal moment when strong leadership is most needed. Leaders who embrace cutting-edge technologies will be able to capture some of the billions of dollars on the table, strategically moving their company and brand into a position of strength—and tremendous growth.