? I am pretty sure that for most of you it was within the past five years. The term is actually over 20 years old; it was first used in an article published in the Harvard Business Review in February 1995. When terms like disruptive technology enter popular usage, there is a tendency for them to be applied liberally and, as a result, excessively. These days, if you want to make something sound innovative and exciting then just attach the label ‘disruptive technology’ to it, even if it isn’t actually disrupting anything.
And this should concern us, because a lot of asset management organisations are investing a lot of money introducing digital technology into their operating models. I question how much of that money is being spent wisely; and I question how much of that money will deliver the outcome that any form of business investment should deliver: more profit.
In asset management we have a track record of thinking that we are leveraging advances in technology to future proof our operating models when what we are actually doing is spending a lot of money to join a bandwagon heading down a cul-de-sac. Recent examples of this include the dash to implement IBOR projects and the noise around Big Data initiatives.
it is difficult to objectively conclude that it has been disrupted by digital technology. More importantly, when I look at what mainstream asset management organisations are doing in their haste to 'go digital' it looks a lot like they are joining a bandwagon rather than future proofing their operating models.
because they had realised that technology alone does not disrupt; disruption occurs when new technology enables the introduction of new business models with disruptive power.
About 10-15 years ago, asset management companies first started making client reports available to their institutional clients as PDFs via static portals. Many investment management firms told their clients that as they could now access reports via the manager’s client reporting portal, they would no longer print and post paper copies of the reports. However, their clients refused to accept this and firms continue to print and post paper copies of client reports to this day. The problem was that there was insufficient differentiation between the old and the new reporting models, and there was insufficient added value in the proposed move to ‘paperless’ reporting. In fact, it was a regressive step from the clients’ perspective because they had to do more to get the same service at the same price.
Introducing new technology without introducing new business models will not change behaviours, or re-invent customer needs, or recalibrate customer expectations. It will not disrupt.
be disrupting the industry. My point is that asset management organisations need to do more than just introduce digital technology, they need to leverage it to re-invent parts of their business models.
In this second post in our series I am going to highlight three of the main areas where digital technology has been disruptive in other industry sectors. Some of you may feel that I am telling you things that you already know; but please bear with me. I want to provide examples of
Passive marketing is where information about companies, their products and their services is made available but it is left to the recipient to decide whether or not they want to access it. Some examples of passive marketing are mailshots, billboards, and advertisements in magazines and on TV. In asset management, publishing a factsheet on a fund supermarket would be an example of passive marketing.
Passive marketing allows organisations to raise awareness of their brand, products and services among a large number of people at a relatively low cost. Thousands of people will see a poster at a busy railway station; millions will see a TV advert. But passive marketing suffers from a lack of targeting. Millions may see a TV advert but how many of them are potential customers? There is also the problem that organisations don’t know how effective their marketing approach has been.
In the case of active marketing there is a direct interaction between provider and prospect and so it is immediately clear whether or not the marketing approach is being effective; and if it isn’t being effective it can be adapted, in real-time, to improve it. The problem is scale and cost. While millions may see a TV advert, it is neither practical nor cost-effective to call or visit millions of people to see if they would be interested in your product.
Traditionally, passive marketing methods have been used to raise awareness of brands and products within a mass audience, and active marketing methods have been use to selectively target products and services on a sub-set of the potential market.
In the retail sector, digital technology has re-created the way that organisations market their products because it has made it possible to selectively target a mass audience in a cost-effective way.
Think about the way that retail websites and marketplaces like Amazon work. When I log on to my Amazon account, I get recommendations for products that I may be interested in buying. These recommendations are
to me because they are based on my personal history of viewing and purchasing products in the marketplace. I can even provide feedback on how good each recommendation is. This is an example of low-cost active marketing to a mass audience, which for many retailers is the ideal business model. And it wasn’t possible before digital technology went mainstream in the retail sector.
Digital technology has the power to disintermediate, to reduce the number of third parties acting as distribution channels between manufacturers and consumers. For example, I can buy a huge range of products on-line from Amazon, I don’t need to go to multiple retail outlets on the High Street or in a shopping mall.
purchasing relationships between manufacturers and consumers, and more importantly between small-scale manufacturers and mass markets. Digital technology has made it possible for all manufacturers to sell their products directly to consumers via their own websites, removing the need for any intermediate delivery channels.
