Over the last few months, the topic of disruption has been making the rounds in investment news headlines and literature. I was particularly struck by an Institutional Investor article this Spring that discussed the asset management industry’s vulnerability to disruption. The writers purported that “the combination of new technologies and shifting demographics and client needs is bringing a sea change to the asset management industry.”
In fact, many established companies have a blind spot for disruption. This is due to the fact that ingrained assumptions have already led to success. If your business is already thriving, why should you worry about disruption? The truth is, it is almost inevitable. With technological innovation, high profits, shifting demographics, and global social changes pave the way for disruptors.
Disrupting the Current Business
One strategic way that the article suggests for addressing disruption is to launch a new product to directly compete with the disruptor. This can be especially effective for large companies that have the ability to leverage their advantages. Market knowledge, size, capital, size, and relationships all provide a benefit to incumbents.
Reportedly, some leaders in the industry don’t believe that asset managers should worry about disrupters. In response to that argument, the writers at Institutional Investor, offer the following rebuttal:
“…the profitable big players have a hard time seeing threats, especially when these are coming from smaller and more innovative players or outside their traditional set of competitors. Even when incumbents perceive the possibility of disruption, they discount it or cannot change their existing business model fast enough because of vested economic interests or internal bureaucracies — and by then it is too late.”
Invest in Disruption
A possible strategy to thinking proactively, according to Institutional Investor, is investing in the threat itself, whether it is a disruptive digitized process, human capability, or technology. It could even involve acquiring businesses with those components. Investing means preparing for disruption head on.
Focus On a Niche
Instead of directly dealing with the disruption, some companies may want to retreat and focus attention on a particular segment of the market that disruption is less of a threat. While this involves moving to a smaller market size, companies can remain profitable. Your existing capabilities provide you with a way to serve smaller markets.