Technology Doesn’t Make Money, Business Models Do

Disruption of the financial services sector is unlike anything the market has ever seen. This shift in market forces is being spearheaded by the acceleration of new technology in dramatic and unprecedented ways.  But the real risk of technology is not its proliferation, nor its complexity, nor its uncertainty, but its distraction. It’s easy to get seduced by new technologies; they are bright and shiny and feel like innovative things. When we are distracted by cool tech and ignore the business model implications, we are using technology as an end instead of the means.  It’s important not to lose sight of the fact that technology in and of itself doesn’t make money ­­– business models do.

The challenge of technology, as Brian Arthur of the Santa Fe Institute noted, is that technology begets technology, and like the Internet and platform businesses, it has an exponential impact. First gen typically takes an existing technology and uses it to make a better version of today i.e. making your product or service quicker, cheaper or better. But the real value is found when someone figures out how to leverage that technology to create a different future. Start-up companies who are adept at actually distilling and exploiting the hidden DNA of that new technology, invariably trigger this second wave of tech. Uber is a great example of a company that uses technology to create entirely new models. They’ve managed to unlock new possibilities they can leverage to meet consumers’ unmet needs.

Technology is making business transformation fast, cheap and easier than ever

Start-ups and challengers like Uber are able to make rapid progress because technology has sped up the business model cycle significantly. A hundred years ago, the average lifespan of a company listed in the S&P 500 index was 67 years. Today, it’s less than 15. Historically even if a new technology came along, the cost of setting up a new business would have kept this within known or likely competitors. There were significant barriers (capital, infrastructure, brick and mortar) to setting up a new business. Today, technology is enabling entrepreneurs to set up platforms, customer access, shipments– all for a fraction of the cost and effort. Not only are businesses being threatened by disrupting technologies, but a compressed business model as well. What passes for “business as usual” today will be obsolete and outdated tomorrow.

Business transformation in Financial Services sector

Traditional industries like Finance are feeling the impact of technology. What we are seeing in financial services is the emergence of new players slicing and dicing the market and operating with very different business models. In the UK, Monzo is increasingly becoming a challenger bank. Starting off as a charge card that provided excellent consumer experience, it has recently secured a banking license in an attempt to become a platform service for money management. They also have plans to develop an interface to ensure that you are on the best energy tariff. They see themselves as being your moneywise support, folding in services like TransferWise.

Transferwise has looked at addressing a very particular problem. By managing payments abroad, they are able to offer a service that is 80% cheaper than traditional banking. It is a peer-to-peer model that matches up people with complementary needs to create a cheap transfer service. It is continuing to evolve, recently launching its multicurrency account –and also has a deal in the works with Facebook Messenger to transfer money.

Uber credit card, however, is the most disruptive. They have launched a credit card, not to manage transactions and get a piece of the FS market, but to get access to consumers’ restaurant spend data. Uber is using the card data to find out where and when people spend, and on what, and using this information to build the first data-driven restaurant empire.

People power transformation

After seeing the examples above it might be tempting to assume that technology is the magic bullet in transformation, but that’s not entirely true. Business transformation cannot be achieved through technology alone. It starts with people. People, working in tandem to optimize your existing business model while strategizing your next. It is people who have the ability to imagine your company’s future state, and it is people who can design, iterate around, and leverage new technology until it’s met.

“Business transformation cannot be achieved through technology alone.”

The good news is people are a resource that most companies have an abundance of. So it’s crucial to create a culture that encourages leaders and employees to stay up-to-date on emerging technology so they can exploit new possibilities in tech, customer experience, business model, and supply chain that will give companies’ the biggest advantage. This technology-driven market can be intimidating, but a human-centered approach will keep you competitive.

It’s easier to spot a new opportunity when you aren’t invested in the old one

Even if you possess the technology and human resources for a modern business model transformation, it’s not always clear where to begin. Devising new business models that harness the power of constantly evolving technology, while keeping current operations running smoothly, can feel like trying to hit a moving target. To succeed in this challenging context, large organizations need to find ways to transform their scale from a liability into an asset.

For leaders of big companies, this means capitalizing on an ability to do things the disruptors can’t — mobilize resources to operate at two different speeds. The first is streamlining and optimizing the existing business in a shorter exploitation cycle. The second is strategizing how to eat your business from the inside out so you are already designing the next business. Early engagement gives you a head start over the inevitable start-ups.

Companies will need to be continually re-inventing themselves – transitioning between optimizing existing business models to inventing and scaling new ones. The businesses that can stay agile and pivot quickly are the ones who win in the marketplace.This means senior leadership will need to focus on three areas simultaneously:

• Executing against the existing business model by leveraging technology
• Defining and designing the next business model
• Transitioning between different business models over time at speed and at scale

Making decisions on fast integration, scaling up of technologies into the existing business while managing the tension between them, and ultimately making the call on when to flip, will define success in this market.