The digital world order
People used to put their name on a waiting list to be the next in line for a mortgage. Clients used to fight to earn the kudos of a gold, or platinum, card. Investors used to be in awe of hallowed fund managers or wealth management gurus.
Those days are going, or gone.
Today, “customers use technology as a lever to exert more and more power over companies”, or at least that’s what James McQuivey claims in his new book, Digital disruption: Unleashing the Next Wave of Innovation.
The Forrester VP and principal analyst on consumer product strategy has written up the results of his in-depth research into the power and impact of digital disruption on traditional businesses.
He explain how digital disruption has lead to “old strategies, such as locking in customers” disappearing. Why? Because those customers can read reviews, ask friends, research competitors and discuss options digitally before using a mobile device to “switch allegiances in an instant.”
“A new breed of competitors has arrived: digital disruptors. These companies and individuals embrace digital tools and platforms to get closer to customers and engage them more deeply.”
It’s a wake up call to big business that starts with McQuivey’s rallying call, “are you ready for this?”
So what? Why does digital disruption matter?
Digital disruption matters because it combines something that new entrants want to produce with something that customers genuinely value… and then makes everything incredibly cheap, accessible and intuitive to use.
This matters because if the market incumbents – global asset managers in our case – don’t act, everyone else will.
As McQuivey shows, “disruption means finding a better way to meet a fundamental need that the customer has, not just replacing an existing process or outcome with something similar but slightly better.”
Ignoring these fundamental needs of your customers is no longer an option because digital disruptors will focus on them instead, delivering everything at a lower cost, faster and with more panache than you can.
Effectively, “the distance between an idea and the digital realization of that idea is now so short – so cheap and so quick – that a bright twelve year old can do it.”
One hundred times the competitive threat
And we’re not talking about competitive threats that lurk around the edge of the sector, taking small niche segments but never quite cracking the mainstream; we’re talking about lots and lots of competitive threats who each choose to focus on niche segments because that allows them to focus on meeting customer needs more effectively… and because technology means that they can come along tomorrow and focus on the next niche segment, and the next, and the next.
McQuivey uses some basic assumptions to show how digital disruption increases the competitive threat to traditional sectors such as fund management:
If we assume that cheap technology that’s freely available for digital disruptors to exploit results in ten time more innovators bringing new ideas into the market and combine that with a drastically lower cost to develop, test and launch their creations, we end up with one hundred times the innovation power – or, in business terms, one hundred times the competitive threat.
As a fund manager, you no longer simply face competition from other fund managers who offer the same basic services to customers give or take a few tweaks here and there.
Instead, you’re competing with new investment models, new apps that let investors monitor funds, new ways to use mobile to share reporting data and new platforms that let clients set their own preferences or self-invest.
Asset managers have got to find a way start levelling the playing field.
You need to find ways to get faster at creating, testing and deploying technology to customers.
You need to get better at using the data clients give you to create niche, targeted client servicing strategies.
You need to start leveraging technology to make marketing campaign more efficient, targeted and immediate.
Ultimately, you need to start behaving like a digital disruptor too – or align yourself with a digital partner who can disrupt the status quo on your behalf.
One hundred times the potential?
Digital disruption isn’t all about competitive threats, however. Returning to McQuivey again,
“The power of digital disruption is that it can disrupt any aspect of any product or service, including processes deep within companies focused on physical things, processes that govern partnerships, data collection, pricing, and the management of labor or capital resources.”
Digital providers can help you use technology to improve virtually every aspect of your business – from enhancing marketing campaigns to creating slick customer reports or accurate archiving for compliance purposes.
What’s more, digital means that you no longer have to prioritize huge IT builds or wait for lengthy implementation programs. Digital providers can link your business to SaaS platforms that let you deliver rapid results, at a far lower cost and in the weeks rather than years.
Big business vs. digital disruptors
So, if digital creates such huge opportunities for traditional businesses, why the slow pace of adoption?
To answer that, return to another great name in the history of innovation, Clay Christensen. He pointed out that established companies also resist investing in disruption.
Maybe the financials don’t add up?
Maybe the compliance team is asking difficult questions?
Maybe IT is worried about platform security?
The argument that quells all of those concerns, thought, is what if your customers are gradually making your business obsolete?
Financials look a whole lot different if you factor in huge competition from digital competitors presenting vastly different ways for customers to fulfill their needs.
The reality is that clients are in control. Clients can get value from technology and increasingly, they don’t care who delivers that value.
Fund managers need to start finding ways to disrupt their own business models – before others come in and steal the show.