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Creating a world of winners and losers

10 August 2017Jonathan Faurie
Jonathan Faurie, FAnews Journalist

Jonathan Faurie, FAnews Journalist

Disruptive technologies, disruptive business models and disruptive communication is significantly affecting the way we live and the way that we interact with our world. But do we really know what disruption is? Like transformation, unless we define it by using established guidelines, disruption can mean anything to anyone.

The shifting sands

Disruption was a major topic at the recently held Nedgroup Investments Investment Summit where the morning session was taken up by economists who tried to unpack what disruption means in our lives.

According to David McWilliams, an independent economist, disruption is happening in a very visible and particular way.

“The unemployment rate is decreasing in many parts of the world as technology is enabling a new wave of entrepreneurs. In the past, as unemployment decreased, bargaining power – when it came to wages – increased. Employers, realising that they need staff in order to maintain a competitive advantage in the market would agree to these increases, and fund them by increasing the price of their product or services. However, we are not seeing that now. Companies like Uber are challenging this traditional model by making their services cheaper than that of traditional companies. In essence, as unemployment decreases, the bargaining power when it comes to wages is decreasing,” said McWilliams.

No flash in the pan

The effect of this change has been felt in many markets around the world and has resulted in increased angst against government and traditional open border policies.

“The biggest effect in the disruption of traditional business models is that it creates winners and losers. And while these two groups of people exist separate in society, they are equal at the ballot boxes. If governments do not design policies that regulate this disruption, populism will increase significantly, it is not a flash in the pan business,” said McWilliams.

Closer to home

Looking away from the impact of disruption on government to the impact of disruption on business models, what can we expect?

“People have been protecting business models for many years. Believe it or not, this is encouraged at schools. In that environment we have linear and non-linear (unconventional) thinkers. The linear thinkers are praised because they are taught and act in a specific way. They rarely think out of the box. They progress at school and tertiary educations and they move up in the companies that they are employed at. On their way to the top, they surround themselves with people who think like them,” said McWilliams.

The world is changing though, linear business models are coming under threat by technology. Unconventional thinking will be rewarded. In the past, a taxi driver in London had to take a two year course learning the back streets of London and charged a premium because of the knowledge they had. Now an Uber driver drives the same route with a GPS system telling them where to go; the premium is also significantly less than that of the London taxi driver.

Culling the middle man

In essence, there is nothing special about this new model except for the absence of the middle man. This is very applicable when you think of Amazon and Alibaba who are multi-million dollar companies yet own very little stock of their own, or in the case of Alibaba no stock of their own.

A lot of companies have had a tough time coming to terms with this new business model. The famous Canadian economist JK Galbraith said that when faced with the choice between changing one's mind and proving that there is no need to do so, almost everyone gets busy on the proof.

“There is a simple way around this. In a global market that is hyper competitive, companies that establish a temporary monopoly succeeds. Linear thinkers are spending obscene amounts of money defending their business models while unconventional thinkers are becoming proactive and making waves in the market,” said McWilliams.

The insurance angle

What does this mean for the insurance industry? Well, disruption has arrived.

Firstly, technology has changed the way clients access products and service. It has also changed the way we engage with clients. Instead of spending hours agonising what technology disruption means for businesses, small changes can secure the monopoly that McWilliams described.

Secondly, business models are changing. Peer-to-peer insurance is starting to grow its influence and the ability to switch insurance on and off when it is needed or not needed is becoming a major demand internationally. What is your response?

Editor’s Thoughts:
The worst thing to do when it comes to disruption is nothing. Being proactive and carving a niche in the market will benefit companies more than sitting back and waiting to see how change affects them. Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts jonathan@fanews.co.za.

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QUESTION

Technology has made a major impact on the industry. Disruption apart, can technology provide an answer to the cost containment conundrum that the industry faces?

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