2 September 2016
The impact of digital technology on traditional businesses is now high on the agenda of many boardrooms, albeit still sitting behind reducing costs and dealing with the impact of commodity and currency volatility. Many businesses deploy the continuous improvement approach, which sees management focusing on achieving small, incremental changes in processes in order to improve efficiency and quality. This is, of course, a sound strategy for increasing profitability and shareholder value over the long term, but to make bigger strides forward and stay ahead of the competition, Boards should consider embracing business innovation and harnessing disruptive technologies.
Business innovation is all about introducing new ideas, workflows, methodologies, products or services. Core business aims can often be better met by IT innovation; using technology in new ways to create a more efficient organisation. This will usually require employees to embrace a radically different approach to product development, service delivery or marketing and will carry an inherent risk, but careful planning and implementation will mitigate that risk.
Technology deployments need to be thought through fully. Ask yourself these questions:
- Is there a real need for the technology?
- Is the proposed solution usable and scalable?
- Are there barriers to accessing the technology?
- What are the costs/expected benefits?
- Is it too complex?
The simpler and more user-friendly it is, the more it will be taken up.
A disruptive technology is one that displaces an established technology and shakes up the industry, or a ground-breaking product that creates a completely new industry. Modern examples are digital cameras and e-readers. The impact on a long-established traditional business can be severe. Take the case of Wikipedia, for example. It displaced traditional encyclopaedias with a free online encyclopaedia maintained by volunteers, resulting in Encyclopaedia Britannica ending its print run in 2012 after 244 years. It also disrupted professionally edited digital encyclopaedias such as Microsoft’s Encarta, which was discontinued in 2009. This could perhaps have also been successful as a low cost subscription model, as used in the music download industry.
Another example is cloud accounting, which has been a hugely disruptive technology in the business world, displacing many resources that would conventionally have been located in-house or provided traditionally by a hosted service. It is also having an impact on the way the accountancy profession delivers its services, as can be seen by leading firms increasingly putting it at the forefront of their offering, as UHY has done.
So, how do Boards find the sought after disruptive technologies and incorporate them within their businesses to add substantial value? We are seeing an increasing appetite for inorganic growth, through M&A, but also joint ventures and strategic alliances, which sometimes appeal as a looser arrangement, but one that mitigates risk. If you are interested in exploring any of these strategies, please contact your local corporate finance specialist.