Sorry Banks, the Fast Follower Model is dead thanks to Big Bang Disruption

By Bernard Lunn

To learn about Big Bang Disruption go to this HBR article.

TL:DR. When more than half the 7 billion people on the planet have a mobile phone, innovation happens too fast for the old way of doing things.

The old way was for incumbents to watch as a startup slowly brings some new innovation to market. Then they apply their capital and brand to move faster than the startup can do. It is that “fast follower” model that is dead thanks to Big Bang Disruption.

The HBR article lists “four strategies that incumbents have used to survive and even thrive in the face of big-bang disruption:

“See it coming.

Learning to recognize the warning signs is key to survival. But since the early market-based experiments usually fail, the familiar signals sent by low-end customers jumping ship may never arrive. You need new tools to recognize sooner than your competitors do that radical change is on the way, and that means interpreting the real meaning behind seemingly random experiments.

Slow the disruptive innovation long enough to better it.

The best survival strategy may simply be to ensure that disrupters can’t make money from their inventions until you’re ready to acquire them or you can win with a product of your own. You can’t stop a big-bang disruption once its unconstrained growth has taken off, but you can make it harder for its developers to cash in. Many big-bang disrupters build market share and network effects by offering their early products free. You can delay their profitability by lowering prices, locking in customers with long-term contracts, or forming strategic alliances with advertisers and other companies critical to your rivals’ plans.

Get closer to the exits, and be ready for a fast escape.

It’s up to senior management to confront the reality that even long-successful strategies may be suddenly upended, requiring a radical re-creation of the business. To compete with undisciplined competitors, you have to prepare for immediate evacuation of current markets and be ready to get rid of once-valuable assets.

Try a new kind of diversification.

Diversification has always been a hedge against risk in cyclical industries. As industry change becomes less cyclical and more volatile, having a diverse set of businesses is vital. Fujifilm, a perennial also-ran in the film business, has survived the transformation to digital photography by transitioning to other products and services that draw on subsidiary technologies, ranging from nanotechnology to the manufacture of flat-panel TVs. A move into cosmetics, for example, was made possible by repurposing chemical processes developed to keep photos from fading. TomTom has begun to ease its reliance on its automotive navigation systems business by signing a deal last June with Apple to provide mobile mapping services.

How do you launch your own innovations? Make sure future strategies are built on a platform that can easily be extended and experimented with, and quickly scaled both up and down. The profitable life of a big-bang disrupter may be short, and you’ll need to be ready with the next one before someone beats you to it. Think again of Amazon, which isn’t so much a set of businesses as it is a technology platform that allows the company to repurpose its intangible assets—its expertise in e-business, its remarkable efficiency in forming collaborative partnerships with thousands of other businesses, and its leadership in software virtualization—as market conditions change. Amazon now sells not just books but everything and leases its core technologies to third-party resellers. It even offers its expertise in online retailing and cloud computing to unrelated businesses that outsource their hardware and software needs to Amazon.”

Here at Daily Fintech we are “in the weeds”. We write daily about the new things happening. It is occasionally useful to step back and look at the big picture. Here are the 5 reasons Fintech is changing the world:

  • Software is eating the world. Meaning innovation goes to the top of the stack where it connects with real world concerns (such as how to make money renting a spare bedroom or driving a car for busy people).
  • Finance is the biggest part of the world left to eat. Retail and media have already been eaten.
  • Finance is the most digestible part of the world left to eat – because finance is almost entirely digital. Healthcare by contrast still involves humans doing physical things to other humans.
  • Money makes the world go around. For example, sharing economy services are really just payment processing with a vertical domain skin.
  • If you wanted to invent the ideal incumbents to attack you would invent banks. Banks shot themselves in the foot during the Global Financial Crisis. They are unloved by customers and in the cross hairs of the regulators.

Most people in the banks that we speak to understand all this. The question is what to do about it. That is where understanding Big Bang Disruption matters because it is tempting to reach for the “tried and true” strategic response of being a fast follower.

Waiting for the market to take off and hoping to be a fast follower is now a recipe for irrelevance.

Daily Fintech Advisers (the commercial arm of this open source research site) can help implement strategies related to the topics written about here. Contact us to start a conversation.

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