Asset Management

The disruptors and the disrupted

By Emma Lunn

Almost two decades since the concept of disruptive innovation was thrust into public consciousness, companies have both risen and fallen prey to the process. Kodak was a loser, Amazon was a winner, and the iPhone alone has disrupted a number of technologies – cameras, alarm clocks and radios, to name a few.

But this June Harvard Business School professor Jill Lepore argued it was time to give the concept (whereby new innovations suddenly shake up the marketplace, replacing predecessor technologies) a rest.

The original theory in Clay Christensen’s 1997 management tome The Innovator’s Dilemma has been overcooked, Lepore’s New Yorker article argued, and the business world now lives in a unreasonable state of fear that their product or their company is about to be disrupted. So would family offices be wasting energy to consider the concept as part of their investment approach?

You only have to look at the recent protests from London black cab drivers to see the effect a disruptor can have on an industry. Mobile app Uber has disrupted the taxi industry – and it’s one of a number of significant disruptors that have shaken up both the technology and investment space.

Family offices and high net worth (HNW) individuals can look at disruptors from two angles. Firstly, disruptive innovations can be related to a family office’s own business model and how it should be developed. Secondly, disruptive innovation can be related to investment opportunities that family offices and HNW individuals can capture.

“Regarding investment opportunities, first movers clearly have a competitive advantage,” says Max Lami, chief executive of Oppenheimer Europe. “It is paramount for family offices to invest in R&D in order to spot disruptive innovations first, define the theme, create the investment vehicle and make the investment. 3D printing is a recent example.”

Inevitably some family offices will be wary of disruptors – but as well as the threats and challenges introduced by new players, there are opportunities for investment that wealth managers can’t afford to ignore. The finance industry is a good example: it’s currently being disrupted by both crypto-currencies, such as Bitcoin, and peer-to-peer platforms (Lepore points out the finance industry’s disruptive innovation led to the global financial crisis, showing outcomes are not always great).

Some critics go so far as to say that family offices should see Bitcoin as the new offshore bank account due to its ability to restore freedom to transact and ensure financial privacy.

As well as finance, other experts point to a wide range of technological themes that family offices and investors should be aware of.

Ian McKenna of the UK’s Finance and Technology Research Centre says the next big thing is wearable technology such as Google Glass, and biometric tools and apps.

“Cellphones will become wearable devices and the Internet of Things will be embedded in our daily lives; there will be a chip in everything you buy,” he says.

The clumsily-named “Internet of Things” comes up time and time again when disruption is discussed. Other themes include the way we buy things, cloud services, robotics and artificial intelligence.

HNW individuals and family offices are likely to be wary of technology and the previous dot-com crash but, at the same time, if they run a business they’ll be wondering if it’s innovative enough. Whatever they do, disruptors can’t be ignored. 

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