The financial services sector employs 2.2 million people and contributes £66 billion in taxes to the UK economy. Following the explosive growth of the fintech sector from the ashes of the 2008 economic downturn, the financial services industry is no stranger to disruption. Yet it is this faction that is demonstrating the highest level of anxiety towards digital disruption, according to the views of more than 1,000 UK business and IT leaders from large organisations.
Two in three business leaders in financial services fear the impact of disruption on their markets over the course of the next 24 months. The Microsoft study, Digital Transformation: The Age of Innocence, Inertia or Innovation?, worryingly reveals that current business models don’t stand a chance when digital disruption hits far and wide. Nearly half of UK business leaders are aware of this. They believe their existing business models will cease to exist within the next five years.
“The dawn of the fourth industrial revolution is a massive opportunity for British businesses but many are still living in an age of innocence or inertia when they need to be innovating,” comments Nicola Hodson, general manager, marketing and operations, Microsoft UK. “Whilst this research indicates that business models are breaking, many business leaders appear unwilling to address them.”
The financial services sector fears that the biggest disruption will come from entirely new market entrants. Understandably, financial organisations are more focused on the future, with two-thirds stating that they have a formal digital strategy in place.
Meanwhile, the public sector faces an even bigger hurdle and has been the slowest to apply digital technologies to business challenges, with only a third saying they have a formal strategy in place and one quarter actively stating that no such strategy exists at all. Fear of cultural change and leadership are driving this uncertainty – only 35 per cent of public sector respondents believe they have a digitally literate leadership team, despite their belief it is a critical element to implementing a successful digital strategy.
According to Hodson, new challengers, mostly digitally savvy start-ups, are disrupting established markets through the sheer speed and agility in its deployment of new technologies. “(These start-ups are) luring expectant customers away from established competitors. For many larger organisations, the challenge is how to react to this market disruption in a considered way and how they maintain competitiveness in a rapidly shifting landscape.”
Worries over privacy
Business leaders remain cautious of the long term societal impact of rapid digital transformation. 51 per cent are anxious it will raise more concerns about privacy and security, and those in the public sector are most worried compared to those in financial services and retail. In addition, a third are concerned that older generations of workers will get left behind.