How innovation and technology are levelling the playing field
Smaller and more agile new players are harnessing innovation, new technology and different business models to compete with, and even beat, well-established enterprises.
Reacting and innovating
The strength of established players rests in their long-developed capabilities, structures, processes and resources, but these can also be weaknesses when stark change becomes an imperative in an era of digital disruption. A “business as usual” approach is no longer possible if they are to thrive, let alone survive.
In contrast, new players, lacking rigid and complex bureaucratic structures, can become highly agile and innovative organizations. The use of digital technologies enables truly entrepreneurial businesses to do something extraordinary: to identify hitherto unrecognized demand and overcome long-standing institutional and other obstacles to reach vast pools of new potential customers. The rewards for those who get it right can be immense, and can transform lives and countries.
Alibaba’s e-commerce innovations
One example of how to harness digital technology to leapfrog established players is China’s Alibaba Group. Only established in 1999 by Jack Ma, its Executive Chairman, it was valued at US$200 billion during its initial public offering in September 2014. Alibaba’s success in beating established global players and dominating the Chinese e-commerce sector rests in using digital innovation to address pressing customer needs.
Beginning life as an online B2B business platform, which facilitated wholesale transactions between companies in emerging and developed markets, Alibaba empowered entrepreneurs to reach national and global markets. Then it founded Taobao, a B2C marketplace that gives small businesses access to consumers nationwide and a means to directly chat and negotiate over prices.
Alibaba set up the online escrow payment system, AliPay, to facilitate more e-commerce transactions by addressing scarce payment methods. Buyers only release the funds once they are satisfied with the received goods, thereby reducing trust issues and incentivizing sellers to be honest.
It also set up Yuebao in 2013, a money market fund that allows users to deposit unused balances from Alibaba e-commerce accounts and receive higher returns than traditional bank accounts.
Established banks have traditionally owned the financial payments and transactions space, but this domain is under threat by new FinTech players across the world, such as Alibaba’s Yuebao. Innovative technologies are allowing new players to reach almost two billion people who have never held a bank account, threatening the traditional domain of established financial institutions.
With the proliferation of mobile phones across the developing world, mobile operators and technology upstarts have seized upon innovative technologies to reach underserved communities, who typically have been neglected due to poor infrastructure.
While some established banks are rising to the challenge, such as “floating banks” in Indonesia, which capture new customers in island populations, their innovation speed is generally not quick enough to match that of new players.
If you can’t beat them
One way that established players can overcome the competition from new players is to join with them and combine both strength sets. Some established banks are responding to the threat of new players by creating their own innovation incubators, while others are collaborating or outright purchasing third parties.
At the very least, established players need to acknowledge the need to embrace technological disruption and become far more tech-savvy, customer-centric and open to new ideas.