Big corporations are finally realising that their business models will not work for very much longer. Some have decided that if “disruption” is inevitable, then they might as well be the ones doing the disrupting.
For example, all the big car manufacturers have realised that once cars drive themselves we won’t need to own one anymore – you can simply order one when you need it. GM now plans to build a fleet of self-driving taxis, and reckons the money it makes could overtake its profits from actually making cars very quickly. Toyota wants its own autonomous cars on Tokyo’s roads by the time the city hosts the 2020 Olympics.
Likewise, banks are piling into fintech. Santander has invested in iZettle; UBS and Morgan Stanley, among others, in Visible Alpha. Anyone with a smart idea for an app for transferring cash or arranging a mortgage can probably bag a few million from a big bank before lunch. Disney, meanwhile, plans to pull its films from Netflix and launch a rival streaming service. As technology invades new industries, established-but-vulnerable companies are all racing to respond. They deserve respect for that.
There is no point in burying your head in the sand and hoping change will go away – you may as well be the person building the new business. And GM and Toyota know more about cars than any upstart rival. They have deep pockets, and trusted brands. Likewise Disney has content, name recognition, and plenty of money. Those should be big advantages.
The trouble is, businesses almost never manage to switch from one technology to another. It is unlikely any of the motoring giants will take the lead in self-driving cars, or the legacy banks in fintech, or the old media firms in streaming. Why not?
First, they are too set in their old ways – they worry too much about the legacy business. If self-driving cars mean we don’t own a vehicle any more, then thousands of dealers will be out of work. So will repair centres and finance units. Can GM really live with that? Will Disney be happy for us to stop going to the cinema, or will a bank be relaxed about no one paying ridiculous charges anymore? The board might decide to trash the old business, but thousands of staff with jobs at stake are unlikely to agree. It won’t happen – or certainly not fast enough.
Second, they have huge historic costs. Any big company will have pensions to pay, office leases to maintain, suppliers who can’t be got rid of quickly, and layers of expense, built up over decades. The new business might be viable, but only with far lower costs. A traditional giant trying to revolutionise itself won’t find it easy to make the new model work – a start-up travelling light has a big advantage.
Thirdly, they are usually too late to the party. There are probably music executives who still think they should give streaming a whirl rather than just rely on CD sales. The truth is that if you have not already launched a virtual taxi service like Uber, or a TV streaming service like Netflix, there is not much point in trying now. Customers have already grown comfortable with the new brands.
So what should the old giants do? Forget trying to compete. They are better off managing whatever business remains. Decline can be surprisingly profitable, if managed intelligently – just look at the tobacco companies. If management don’t realise that, then shareholders should tell them – before they waste billions on a fight they are going to lose.