Why Leaders Must Embrace Technological Chaos

Traditionally, large organisations benefit from an unfair advantage. They operate through tried and tested routines that have been built over time, reaping the benefits of learning curve effects, knowhow and economies of scale. Standardised processes have been perfected to a degree of precision that minimises inefficiencies and maximises a standard output.

Operationally, large organisations have structured themselves in a way that makes the best use of their resources in a stable and predictable environment which they understand. McDonald’s spent years perfecting the art of producing fast food through several time and motion studies, kitchen layout analyses and supply chain and logistics management.

Fast-food orders are processed within minutes with minimal variations in taste and product quality, irrespective of the outlet’s location around the world. Ryanair closely studied the Formula 1 pit stop model to orchestrate all groundwork in all airports in which it operates to turn around an aircraft in twenty minutes. In both cases, consistency and efficiency brought about significant benefits in terms of cost minimisation and ultimately profitability, rendered possible by repeating the process time and time again in a predictable environment.

In contrast, small organisations and start-ups can never match this power. They still need to get to grips with their core processes, learning from their mistakes. Not only do they not have the required size to benefit from economies of scale, they lack the financial resources to offer a serious challenge. It is a battle between David and Goliath.

Technological chaos breaks down established rules and routines

Established rules and routines do not work in chaos, and technological disruption is no exception. It effectively destabilises business norms and assumptions by creating a new environment, levelling the playing field. Traditional rules and routines are incompatible with the demands of this new environment because technological disruption creates uncertainty on how to respond to it.

During times of chaos, large organisations no longer benefit from learning curve effects and economies of scale. They need to create new rules and routines to respond to the changes happening around them. This disruption places them in the same boat as start-ups and small businesses because they face similar issues.

It is no longer a battle between David and Goliath; it becomes a competition among equals. If anything, large organisations may be shackled by the chains of bureaucracy that often defined the established rules and routines that brought them past success.

A clear example of this is the financial services industry, which has been radically reshaped by various technological innovations. The financial technology (fintech) industry is still small in comparison to traditional finance, but it is growing steadily at a compounded annual rate of 20%. Indeed, the market value of fintech is expected to reach US$332billion by the end of 2028. In response to the emergence of this new industry, several jurisdictions are developing regulatory sandboxes, which allow organisations to test innovations in the market, to incentivise fintechs to set up in a thriving start-up environment.

Established financial services originally poured cold water on the credibility of fintechs as a serious alternative, but enterprising start-ups have hit these giants hard where it really hurts. They have exploited key areas of weakness characterising traditional banks and developed innovative unique selling propositions around these.

The rise of conversational AI platforms, such as chatbots and customer service automation, has enhanced customer experience as well as improved service delivery and response times. Better AI-enabled customer data analytics have provided small fintech firms with more valuable customer knowledge to develop customised and effective services. Fintechs have also leveraged the benefits of emerging regulatory technology (regtech) and other digital solutions as means to lower their operating costs and provide a more competitive offering.

This is not to say that traditional banks are not fighting back. Indeed, omnichannel digital banking has become the gold standard most banks are aspiring to. From my experience in guiding several of my banking clients on this journey, though, I know realising this vision is far from simple. It requires a complete paradigm shift in the business model from a product focus to a customer centric focus. This shift basically shakes traditional banking organisations to the core.

It is clear that fintechs are here to stay. Traditional financial services that fail to adapt and change to face this new reality risk oblivion in the future.

Technological chaos brings about industry shakeouts

As we have seen, technological chaos makes large established organisations vulnerable. They may be caught out on a limb, not knowing what their next move should be. In some cases, they may be oblivious to chaos or feel immune to its impact. Obliviousness or overconfidence causes the downfall of many established organisations, opening up opportunities for new businesses to take over the throne.

The travel industry has endured several shakeouts resulting from technology disruption. During the 1990s, this industry was dominated by large global tour operators such as Thomas Cook, Airtours, TUI and First Choice. Can you remember these names? Of course, some of these operators still exist, but their market share is a far cry from what it used to be.

The internet brought about serious challenges to the operating model of traditional tour operators, giving the individual traveller the opportunity to connect directly with airlines, hotels, and others to organise their own travel without the intervention of a third party. This phenomenon was effectively the disintermediation of the travel industry, intended to give more power and choice to travellers.

Technology also brought about opportunities for incumbents in the industry to create reintermediation as virtual operators emerged, offering customers a one-stop service for all their travel needs online. The operators that seized this opportunity essentially turned their algorithms into gold by using customers’ data to create more personalised services, options, and experiences. Today, the largest players in this market are Expedia and Bookings.com.

Make sense of technological chaos

Making sense of technological chaos is the fountain of gold of tomorrow. Technological chaos may well provide the perfect opportunity for you to get ahead of your competitors, but to do so, you need to decode it before they do and adapt your strategy accordingly. Until you properly understand chaos, your organisation’s business strategy is likely to be out of tune with its environment. The longer it takes for your organisation to make sense of chaos, the longer it will take to steer it back to the proper path.

This is an extract from Digital Made Simple by David Galea.

David Galea is Director of Digital Leadership at Centigo and author of Digital Made Simple.