Posts Tagged ‘Digital Transformation’

Part 2: How Can Incumbents Respond to Disruption?

Monday, August 8th, 2016

3 Questions to Ask!

By Dawood Khan

When it comes to disruption and the introduction of disruptive practices in a particular market, we should keep in mind what renowned Canadian communication and media theorist Marshal McLuhan said in 1964 about the heavy reliance of newspapers on classified ads and stock-market quotes. McLuhan said that “should an alternative source of easy access to such diverse daily information be found, the press will fold.” But as we all know, the demise of classifieds in print media did not happen until just a few years ago. And even more than a decade after the advent of the internet, many print publications did not care to invest in digital technology and transition to online publications. As a result, many of them suffered royally at the hands of startups and a few incumbents that had the foresight to make the transition and disrupt themselves.

Netflix’s transition in 2011 from DVDs to streaming is well documented. The company suffered 80% drop in its stock price as it transitioned to online streaming, but it eventually paid off as evidenced by a 134% spike in its stock price over the last 12 months, causing the cable industry to lose more than 6.7 million subscribers over the last five years[1], and driving BlockBuster, its arch-rival at the time, out of business. Another testament to Netflix’s success: the number of hours many of us spend on weekends, binge-watching our favorite shows.

” The challenge for incumbents is the task of preparing for the day when their cost structure won’t be aligned with alternatives in the market. The preparation can entail taking measures against some of their current operations with subsequent hits to their profitability. But those measures may eventually pay off handsomely. The challenge is that it’s difficult to predict accurately what may and may not work.”

The questions then are:

  • What is an incumbent to do as it prepares for emerging disruption – Is there a way to know what will work and what may not?
  • When should it act – while timing is important, is it possible to get the timing mostly right with a high degree of certainty? and
  • How it should bring its new approach to the market?

As no one really knows what approach would work best, or how to predict market reaction, prudent organizations are tackling disruption as a transformative journey rather than a discrete action at a point in time or the proverbial “destination.”

A Digital transformation journey means that these organizations are continuously experimenting with new business models, emerging technologies and ways in which to engage and interact with their customers.

As part of this journey, organizations are increasingly looking at determining how an approach may be desirable (do people want it?), design thinking - ideoviable (is there a business case/model that will work?), and feasible (is there a technical solution?). These three elements form the foundation of design thinking, as illustrated in the image courtesy of IDEO. Which, when used as part of an organization’s digital transformation journey, allows an organization to rapidly identify opportunities, test them through quick and iterative proof-of-concepts, refine the approach or move forward.

For anyone, and especially incumbents, it is important to accept market realities. Disruption is inevitable. In order to survive, organizations have to be prepared, and the way to do this is via a journey towards transformation. While many call this “digital transformation,” people (customers and organizational culture) form the core of any successful transformation. An innovation-focused culture that is open to employing a human-centric approach to solutions, rapid prototyping, and experiencing failure, is the corner-stone of success in addressing the ongoing disruption in the market.

[1] “Can Netflix Survive in the New World It Created?”, New York Times, June 15, 2016

How Can Incumbents Respond to Disruption?

Thursday, August 4th, 2016

Part 1: Start by Accepting that Disruption will Happen!

By Dawood Khan

It is well-known that incumbents in any industry seldom feel the impact of an early-stage disruption on their core business for many years or even decades. This is even truer for those industries that are heaviCryptocurrencyly regulated, as regulation creates a barrier to new entrants. Hence, in such situations, incumbents are typically highly profitable and may not feel threatened. They may prefer to remain on the sidelines for an extended period of time, often somewhat skeptical of the degree to which the disruption may impact their business. In this period, they may experiment with new technologies and business models, or hedge via investments in emerging start-ups. In some cases, they may take a wait-and-see approach. The question is at what cost?

As an example, one could say that FinTech is another oft-hyped, early-stage technology. But a look at alliances, investments, FinTech-focused technology accelerators, and the growing number of Fintech Unicorns suggest otherwise. Exponential growth in global FinTech investments attests to the industry’s path toward acceptance. Over a span of five years (2010-2015), global investment in FinTech reached $49.7 billion. In the U.S alone FinTech investment doubled from $4.05 billion in 2013 to nearly $10 billion in 2014 and by June 2015 it skyrocketed to $31.6 billion[1].

Today a new breed of FinTechs is focusing on crypto-currency, which are powered by blockchain technology.  Crypto-currency is a blockchain technology that involves financial transactions based on encryption technology. Blockchain is on its way to disrupt a wide range of transactions in the financial industry such as stocks, bonds, loans, and payments with a subsequent transformative impact on the banking ecosystem.

From a financial perspective, blockchain technology keeps all transaction records permanently on thousands of computers from various networks distributed around the world. Each of these computers attests to the authenticity of transactions with no single entity controlling them as they all run on open-source collaboration. Hence the arrival of frictionless transactions and possible disappearance of intermediaries. Blockchains can be used to record transactions of asset exchanges (or “value”) among owners. Transfer of assets, buying and selling of stocks and properties, private banking, and lending will all be disrupted. These are what blockchain FinTechs are focusing on. 2015 U.S investments in blockchain-focused FinTechs stood at $400 million and over $150 million in Q1 2016[2].

The global FinTech Unicorns (20 and rising) are bound to make their impact felt at the corporate boardrooms of incumbent banks. However, it may appear that there is a lack of urgency among incumbents, this is because their market share has not, and may not be impacted for some time to come.

By now, you may have already asked the proverbial $64,000 question: How will the incumbents react?

Part 2 of this piece looks at this question and provides an approach to addressing on-going disruption.

[1] The State of Fintech Industry as We Know It Infographic:    http://www.fintech.finance/news/the-state-of-fintech-industry-as-we-know-it-infographic/

[2] Quartz, “Money keeps pouring into blockchain startups”, April 19, 2016   http://qz.com/662596/startups-are-raising-huge-rounds-to-feed-wall-streets-fascination-with-blockchain/

How Different Sectors Adopt Digital Transformation?

Thursday, June 2nd, 2016

Digital transformation (“DX”) is inevitable!

According to a McKinsey & Co. finding, 40% of Fortune 500 companies will not exist in 10 years, if they fail to transform. However, there are vast opportunities for those who take action!

The first Canadian Digital Transformation (“DX”) Think Tank session was led by RedMobile Consulting in Toronto on May 25, Dx Journey Pic2016. Select business leaders from a diverse cross-section representing public and private sector organizations participated. The participants examined various aspects of digital transformation and underlined the significance of anticipating and embracing disruption, and the threats posed if digital transformation was ignored.

>> Contact us for more information

Are FinTechs making Banks Endangered Species?

Thursday, May 5th, 2016

By Dawood Khan

Taking on water

I recently bumped into an old friend – a respected financial industry leader whom I had worked with on mobile payment initiatives almost a decade ago. She asked me something quite interesting. “We all hear that FinTechs are disrupting the financial industry, that this is forcing established banks to rethink the way they do business. These institutions are revamping their services, pricing Image1models, and trying to embrace digital channels, but I wonder if you think this will be enough? I mean, with a changing customer demographic – do all the positives traditionally associated with incumbents just become an ever-tightening noose around their necks? Do you think incumbents can successfully compete?”

The glass can actually be half-empty!

Her questions made me think of what we associate with an incumbent financial institution (FI). An established FI has well engrained processes, tested business models, an experienced workforce, a history of compliance with regulations and policies, infrastructure, and we are familiar with their services. But are all these legacy capabilities holding them back?

As an example, over-the-top players are offering digital wallets (e.g., Google wallet, Apple Pay) that are starting to result in incumbent FIs losing margins in some of their most profitable products. According to a McKinsey & Co study[1], by 2025 – FIs could lose up to 35% in profits from payments alone, Canadian banks can lose up to 70% of their margins in traditional retail banking, and wealth management can lose up to 35% of profits.

While a recent report by PWC[1] concurs and states that by 2020 consumer banking, transfer/payments, and private wealth management will be the sectors most impacted by FinTech.

But all that water’s got to go somewhere!

McKinsey & Co.[2] has reported that global investment in FinTech surged from $2.6 billion in 2012 to $12.2 billion in 2014, a whopping sixfold increase. As if it wasn’t a big enough surge in investment, 2015 finished with global investment in FinTech companies totaling $19.1 billion, with $13.8 billion invested into VC-backed FinTechs[3].

A recent report by KPMG and CB Insights[1] also shows that nearly 20 FinTech Unicorn companies globally are taking on two of the most lucrative segments of the industry: payments and lending. (Unicorns are startups with a market valuation of over $1 billion).

Clearly incumbent FIs have their work cut out for them – both organizationally and operationally. Among other things, incumbent FIs need to:

  • Innovate services and business models or at least react quickly when they trickle down the financial services food chain;
  • Evolve from legacy technology and infrastructure, practices, organizational capabilities, to meet evolving customer needs;
  • Secure significant corporate buy-in from key decision makers to support transformation.

Water – what water? Just drink the kool aid!

To stem the rising tide against them, many incumbents are investing in promising FinTech startups, setting up corporate venture capital (CVC) arms in search of startups whose products and services are in line with theirs.

But is this sufficient to reverse the tide? Yes and no!

With rising pressure on margins, the loss of market share, and the prospect of customers migrating to FinTech-based services, incumbents have no option but to invest in FinTech. However, for most this will not be enough.

These are dramatic shifts in the FI fabric, and incumbents must prepare to make monumental changes, they have no option but to transform on multiple fronts –business, customer and technology.

 

Twitter: @redmobileconsul             Facebool: facebook.com/RedMobileCo

[1] Fintech funding hits all-time high in 2015, despite pullback in Q4, KPMG and CB Insights, March 2016

[2] Blurred Lines: How FinTech is Shaping Financial Services, PWC Global FinTech Report March 2016

[3] Cutting Through the FinTech Noise: Markers of Success, Imperatives for Banks, McKinsey & Company Global        Banking Practice, December 2015

[4] The Pulse of Fintech, 2015 in Review, KPMG, March 9, 2016

Digital Transformation – Getting Lost is Easy!

Tuesday, April 19th, 2016

By Dawood Khandx5

Digital Transformation – Mobile, Cloud, them Things, and that really Big Data

We’ve all heard that the Internet of Things (IoT) and data analytics are essential to future success of organizations. Almost every day, like me, I am sure you’re bombarded with a new event on the topic. Having spent a long time in the emerging technology and innovation area, I thought I’d attend one of the more established IoT conferences and see what all the fuss is about. I inherently dislike paying good money and spending valuable time at an event to hear nicely concealed sales pitches. But at this IoT event, to add insult to injury, I actually found myself lost half-way through the event. I thought I was alone in this, so I casually broached the topic at lunch with several other people. It turned out that they were in the same boat. The conversations over breaks, evening networking sessions, and hallway chats only reaffirmed the general sense of bewilderment. And this audience was mainly people in the tech-innovation space.

After hearing from 250+ different IoT platform vendors, half a dozen different interoperability/ standardization bodies, and many dozens of vendors who made sensor chipsets, “things”, radio networks, gateways, and analytics engines – one realizes the problem. It’s a classic tale of technology hype and lofty promises of what “can be” on one side and the reality (some may call these shackles) of legacy business. Between the two sides, you’ll find confused decision makers.

Where do you start? A rooftop patio is a great place

Over dinner on a rooftop patio on one of our warm winter evenings, I had an eye opening moment with a client who manages a large number of complex and diverse infrastructure assets. We were discussing the value of data analytics and the role IoT could play. His view was that before his organization could think of big data, they had to get credible, reliable and usable data first. They had no shortage of data – it’s just that the data they had was inconsistent, in different formats, and resided in disparate systems. Hence the level of confidence they had in its efficacy for decision making was questionable, especially in a highly regulated industry. I asked him why? He explained that they couldn’t even consistently identify an asset because they used stick-on bar codes that would peel off, wash off, or just get scratched. So, in such cases, the maintenance staff would write the information on a paper and enter it into their system at a later time. Most of the time they could identify the assets correctly, but a large number of times they couldn’t. As a result, their degree of confidence in the large amount of data they had was limited.

Digital Transformation – Failure isn’t an option, it’s a requirement!

To me, the fore-mentioned discussion, illustrates a classic challenge organizations face. Their line of business operations folks have business problems, but don’t necessarily understand where to start their Digital Transformation (DX) journey or how to go about IoT and analytics. This is because, these things seem too far a stretch from the reality of where they are today.

The examples illustrate major barriers to adoption of IoT and analytics, and corporate-wide success of Digital Transformation. In addition, the absence of a return on investment (RoI), justifying implementation costs, and an inability to visualize tangible results, have also been cited as main challenges for adoption.

While the majority of large enterprises claim to be in the midst of Digital Transformation, the fact is that many of the same organizations, when asked to define Digital Transformation, couldn’t do so.

As an example, we can see the fore-mentioned dynamics at play in the banking sector. Financial institutions (FI) are generally encumbered with bureaucracy, legacy systems, and regulatory burdens. At the same time, they are faced with the onslaught of web and mobile-based offerings from a growing pool of financial technology (FinTech) startups. These over-the-top players are disrupting the traditional business of FIs.

As the business of FI’s is disrupted, much like Uber disrupted the taxi industry, the overarching question for the banks is whether or not there are compelling drivers to embrace DX. Justifying implementation costs and quantifying RoI may provide insight for decision making. However, becoming sidelined in your own industry, or being rendered obsolete, are business outcomes that can never be undone.

So, the risks are high – but where does one start? How does one really plan a viable DX journey? And how does one’s mindset and approach have to evolve to be successful?

You may never have all the answers, so start, start small, be open to failing, learn quickly, refine your approach, and iterate! That’s the “fail fast” approach in a nutshell, you go from concept to proof-of-concept in several rapid iterations.

What people may not tell you is that, this requires a certain degree of discipline, and an appreciation for the art and science of “Design Thinking.” While organizations are starting to rapidly prototype and willing to fail fast – it’s no fun if you fail fast, fail everywhere, and just keep on failing.

A disciplined approach using “Design Thinking” that accords the latitude to experiment, learn, refine, and improve through discrete iterations is an art and a science.

Fail fast and succeed fast by learning from everyone’s mistakes

So, a select group of business, operations and innovation leaders are invited to participate in a hands-on “Design Thinking”-based, Digital Transformation Thinktank and Workshop. Roundtable discussions with early-adopters who have already undertaken the Digital Transformation journey successfully, will provide insights from first hand experiences. The goal is that we will be able to identify opportunities to derive business value from Digital Transformation, and to identify specific use cases for proof-of-concepts (PoC).

 

Tesla: Driving Digital Transformation & Disrupting the Ecosystem

Monday, April 11th, 2016

By Dawood Khan

As organizations explore digital transformation (DX) and determine business value in light of the buzz around Internet of Things (IoT) and Big Data, it is essential to remember that DX is more than just a technology overhaul, DX is a journey that can transform business models, processes, and customer engagement, and can even impact unrelated industry verticals. The recent launch of the Tesla #Model3 illustrates this perfectly.

DX can have implications on different levels, from company-level impact, to impacting the sector, and even an entire ecosystem. Take Telsa as an example. Everyone knows that it revolutionized the way we look at electric cars, but until the recent launch of the Tesla Model 3, few could have imagined the frenzy of consumer buying. People lined up to buy the vehicle like they would buy a hot new consumer electronics product. Within 48 hours of its launch, the car had 276,000 pre-orders totaling $10B in potential sales, and $276M in deposits. Tesla has in fact revolutionized the business model in its sector. It has crowd-funded the partial cost of manufacturing the Model 3. While the actual process to reserve a Telsa Model 3 took all of 2 minutes on average, consumers who signed up are willing to wait a year and a half or more to receive their vehicles.

Image - DX.1

Not only is Tesla disrupting the auto sector, it either has already or will soon impact a range of other sectors. As a connected car – updates are done via software upgrades, “over the air”, using wireless carrier networks or WiFi, thereby creating revenue streams for an ecosystem of carriers, electronic SIM manufacturers, etc. And generally, the expected entry of self-driving vehicles will certainly impact how smart cities plan transportation systems, roads, traffic flow, etc. The insurance industry is already looking to assess the impact of such vehicles on policies, and one can imagine that changes to driving regulations are in order.

So, digital transformation is about more than harnessing a new technology to improve, revamp, and overhaul processes and operations; it is about identifying and creating new value propositions. And as we have seen with the likes of Tesla, Uber, and other disruptors, entire industry sectors and business models have been disrupted, in some cases, traditional ways of doing business have been rendered obsolete.

While most organization realize that it is imperative for them to assess and respond to changes that digital technologies bring in order to remain viable, the challenge many organizations face, however, is that with the rapid changes in technologies and the plethora of vendor solutions for the “Internet of Things” and “Big Data Analytics” – figuring out where to start the DX journey and navigate the landmines along the way is a challenge in and of itself. Starting and planning the DX journey the right way are essential to success.