Monday, 29 June 2015

Corporate Giants and the fear of the digital age

"Digital disruption now has the potential to overturn incumbents and reshape markets faster than perhaps any force in history," Photo: Xinhua

A new survey finds business leaders believe four out of 10 top-ranked companies in their industries worldwide won’t survive the next five years.

According to South China Morning Post, The survey was conducted by a research centre at top-ranked Swiss business school IMD, the International Institute for Management Development, with backing from Internet equipment maker Cisco, where Macaulay works as a consultant.

They blame the accelerating change in technology, shifting business models and a need to merge to cut costs in order to ensure they don’t become footnotes in someone else’s corporate history.

Industries with the highest number of top-rated companies at risk were hospitality/travel, media and entertainment, retail, financial services and consumer goods/manufacturing, in that order, the survey showed.
Meanwhile, industries which still largely deliver physical products or services such as pharmaceuticals, utilities and the oil and gas sectors were rated the least likely to be disrupted.
Michael Wade, another co-author of the survey, said there were some things software could not replace. "Consumers are still unlikely to take an app if they get a headache," joked Wade, a professor of strategy at the Lausanne-based IMD business school.
But even for industries such as pharmaceuticals, where regulatory protections, high capital costs and complex production processes still rule, Wade said new threats are coming from start-ups analysing "big data" to offer a personalised approach to medicine, for example.
Meanwhile in travel e-commerce aggregators have taken millions of customers from direct bookings with hotels and airlines already struggling with a decade of decline in business travel amid the economic and structural challenges.
"Disruptive players are coming from out of nowhere," says Macaulay. "Now it’s individuals who want to rent their homes and vehicles," he said, referring to home rental service Airbnb, office-sharing firm LiquidSpace and similar "sharing economy" start-ups.
Karl Ulrich Garnadt, chief executive of the German Airlines division of Deutsche Lufthansa AG, told venture investors in Berlin this month that his industry still spends too much time worrying about direct competitors in Asia or the Mideast.
He noted how the industry missed the rise of mobile travel apps, the top dozen of which now collectively have a valuation around ¤88 billion euros, while the market capitalisation of Lufthansa, Europe’s largest airline group, has shrunk to 5.5 billion euros from double that a decade ago.
"Today we are too limited in our thinking. We need to widen our horizon, we need to think like the customer," the airline industry veteran said.

The top executives of many a corporate giant must feel like the fictional character Gulliver, waking up to find themselves under attack from modern-day Lilliputians, small start-up companies which overwhelm their established rivals with new technologies.
The old powers of market incumbents – massive scale, control over distribution, brand power, millions of customer relationships – are no longer seen as the obstacles they once were to agile rivals with innovative business models.
"Not just lone companies, but entire industries are being side-swiped by these effects," said James Macaulay, co-author of the study, which polled 941 business leaders from a dozen industries in the world’s 13 biggest economies.

Source: South China Morning Post. Link:

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