By Stuart van der Veen; Head of Disruption & Innovation: Nedbank CIB and Janade du Plessis; Head of Principal & Alternative Investment: Nedbank CIB
While the initial response by large corporations to innovative and technological disruption largely focused on the wholesale acquisition of new industry entrants, this is not a sustainable approach. As new entrants into markets and industries become bigger and more influential, large and established participants in those industries are having to find more efficient ways of harnessing or leveraging the technology, expertise, innovation and customer appeal that these disruptors bring.
This has resulted in a global approach to disruption integration into mainstream business via the three possible routes: build, buy, or invest to partner. While the approach chosen by established organisations will depend on a variety of factors, each has its own unique success requirements.
Those organisations that elect to follow the ‘build’ approach to disruption are required to make significant infrastructure investments that have to be backed by very strong leadership that fully understands the risks and commitments involved in building and growing your own disruption position. Interestingly, recent research points to a clear preference for this approach by most financial services companies. The particular challenge with this approach, however, is avoiding the trap of believing that your organisation is being innovative or disruptive when, in reality, it is achieving little more than replacing legacy infrastructure with better functioning, and vastly more expensive systems and technology.
To enable banks to realistically achieve true disruption leadership status through a ‘build it ourselves’ approach, they will need to demonstrate a lot more foresight and differentiated thinking in terms of what they are wanting to achieve in the long-term. Then, to achieve this vision in the relatively short timespans that typically characterise a disrupted industry, these large incumbents must be willing to invest massively in terms of capital, talent and leadership development. It’s a complex approach that, if successful, allows the bank concerned to benefit more than it would have if it had followed the buy or partner approach. However, attracting the talent required is likely to prove challenging, as is being realistic in terms of what can be ‘built’ in-house, in a relatively short space of time, before what you’re building essentially becomes obsolete.
Of course, these challenges by no means imply that a ‘build’ approach to disruption is not viable. It may just not currently be as effective as those following it exclusively may have liked it to be.
The second approach is for incumbents to ‘buy’ the disruption technology by acquiring innovation start-ups or new participants, and incorporating their solutions and talent into their organisations in an effort to gain a competitive edge. This approach has shown a measure of global success, particularly where the organisations involved in the transaction have clear synergies in terms of the services they deliver, making the integration of these services relatively straightforward. The main challenge with this approach however, particularly for financial services, is that Silicone Valley best practices can’t always easily be reconciled to stringent banking regulations. This invariably results in many more, very diverse, challenges than a M&A team may have anticipated when initially structuring the deal from a strategic perspective. As a result, many fintech acquisitions are focused more on bringing talent into the organisation than they necessarily are on integrating disruptive technology or systems.
The third approach is one of investment and partnership, and while this means that the parties involved may have to share the financial and market share ‘spoils’ in the long-term, the potentially massive positive impact of also sharing resources and talent means there may well be a significantly larger amount of these spoils to go around. More importantly, the advantage of an ‘invest and partner’ approach is that it allows for accurate identification and assessment of technological innovation that aligns with the corporate’s strategic objectives. It then also facilitates far more rapid adaptation and commercialisation of that disruptive technology for the ultimate benefit of the organisation’s customers.
Ultimately, what may work best for many organisations is a combination of these three approaches. But irrespective of the approach selected, for it to deliver the success outcomes the business requires, the focus needs to be less on putting an innovation skin over what it has done previously and more on harnessing disruptive technologies to fundamentally transform the way it does business and serves its clients.
If approached from this viewpoint, the successful integration of disruptive technology can be an unparalleled source of comprehensive transformation for any business and offers incredible opportunities to achieve a sustainable competitive advantage. So, while deciding on the most appropriate approach to integrating disruptive technology into an existing organisation can be more than a little intimidating, there is no escaping the fact that it is absolutely imperative to do so; because the one sure way for any business to lose out in this leadership race is to allow its uncertainty in terms of how to approach disruption to cause it to end up doing nothing.
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