How disruptive forces have changed everything

No matter what industry you're in, your business is probably feeling the impact of disruptive forces as the pace of innovation continues to accelerate.

Disruption and innovation in business is a major focus for us. As Greg Ward, Deputy Managing Director for Macquarie Group said in recent discussions with clients, "We know we will be disrupted – as will a lot of our clients. We need to benefit from technology, rather than become a victim."

Here's a brief round up of the insights from our discussions with clients across Australia.

Incremental disruption

In just about every sector, technology is a game changer. It democratises access to markets, and this means smaller players can set the pace of change.

Being small doesn't mean you have to think small. Technology is leveling the playing field for small and large businesses alike. In the past, you needed significant capital investment to fund innovation, product development or customer acquisition. Today, businesses of all sizes can use crowd sourcing, the cloud and social media to achieve the same objectives at a low cost.

Ward describes this as a "tremendous opportunity where David can beat Goliath," citing the example of a Macquarie Business Banking client who uses technology built on a simple cloud platform to generate over 1,000 leads each month.

Disruption might still feel like a big word for a small business, and positioning your firm to be a disruptive force may seem an expensive challenge.

But it's important to understand disruption doesn't need to happen overnight. It may be as simple as doing small things differently - the process of testing, refining and trying something new.

"The power of the idea is what's important, rather than the clout of the business behind you. You don't need a brand new idea – new approaches to existing ideas can be just as valuable," said Ward.

Focus on customer experience

Ben Perham, Head of Strategy and Corporate Development for Macquarie's Banking and Financial Services Group says the key to disruption is to offer a "better client experience than the incumbents," citing Uber as a classic example of a disruptive force driven by customer need and experience.

A recent article in Tech Crunch1, The battle is for the customer interface, described Uber's success as part of a new movement where the power – and the profit – lies in the customer interface. Disruptors such as Airbnb, Alibaba and Facebook control a 'thin interface'' at the top of vast supply systems they don't need to own. So Uber is now the world's largest taxi company – with no vehicles.

Perham describes a 'tidal wave' of fin-tech startups, from peer to peer lending to PayPal, and the impact they are making in the financial services area.

"Alibaba is now so much more than an online retailer," Perham explains. "Just nine months after getting into financial services, it had gained 20 per cent of new deposits in China. It is now the largest online payment processor globally."

For Perham, the competitive landscape ranges from start ups like Lending Club to larger organisations such as Apple.

In 2012, Deloitte mapped the digital disruption of Australia's key industries and predicted that one third of the Australian economy faced imminent and major digital disruption2. Just three years on, this disruption is clearly underway in financial and professional services.

Developing a culture of innovation

When Microsoft surveyed 500 small and medium businesses (SMEs) in Australia in 2014 as part of its Joined-up Innovation report series, it found workplace culture has an influential role on innovation. Many SMEs were struggling to innovate, with barriers including a fear of failure and a lack of support for fresh ideas. It also identified six cultural traits common to successful SME innovators – with customer focus at number one.

Look for opportunities next door

So where will your next innovative idea come from?

"What opportunities might exist in your adjacent markets, if you think a little differently?" asks Ward. Consider your current sector knowledge and strengths, and whether you can create an agile, start-up culture within your own business to help drive change.

Many disruptive technologies emerge from sectors outside your usual competitive landscape – such as retailers moving into banking or software into bookkeeping.

Is disruption a threat or an opportunity?

As industries transform, some companies cease to exist. Kodak, Borders and Strathfield Car Radio all serve to remind us of the danger of ignoring the changes all around.

It has never been more important to understand the potential of new technology in your sector – and how you can use it to your advantage.

Perham also shares the example of Airbnb – clearly a disruptive force in travel but potentially also an opportunity for the residential real estate industry. Today, a property with a granny flat could present a simple revenue stream for buyers, adding further value to the home.

It's clear technology is creating unprecedented change, and businesses of all sizes are at a crossroad. The action you take will impact how your business evolves, survives and thrives – and we all need to be bold enough to take on these new challenges.

Ones to watch

  • Xero – transforming bookkeeping and accounting
  • Pexa – offers real time conveyancing, creating a frictionless transaction for customers
  • Legal Vision – helps people hire 'freelance lawyers' online by the hour – more efficient for clients but also more flexible for lawyers who want to work from home.

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Additional information

This material has been prepared by Macquarie Bank Limited ABN 46 008 583 542 AFSL & Australian Credit Licence 237502 ("Macquarie") for general discussion purposes only, without taking into account your personal objectives, financial situation or needs. Before acting on this general information, you must consider its appropriateness having regard to your own objectives, financial situation and needs. The information provided is not intended to replace or serve as a substitute for any accounting, tax or other professional advice, consultation or service.

1 Tom Goodwin, The battle is for the customer interface, March 3, 2015

2 'Digital disruption: Short fuse, big bang?', Deloitte, September 2012