In a recent article published in the Journal of Information Science, Dr Deepak Saxena (Dublin Institute of Technology) and I postulated that managers frequently struggle with the amount and variety of (digital) information available to their businesses. We based our findings on empirical evidence from the tourism industry, but it appears that this phenomenon is not constrained to any one industry.

In another recent report, Anand Sanwal, CEO and Co-Founder of CB Insights, describes the speed and impact of the digital transformation by use of a remarkable quote taken from Ernest Hemingway's novel The Sun Also Rises (1926). The conversation goes: "How did you go bankrupt?" Answer: "Two ways... gradually, then suddenly". Accordingly, parallels can be drawn to the overwhelming effect of the digital transformation especially on those companies that are not prepared, which are usually each industry's current and long-time giants. It appears that "suddenly" has already happened for many of them.

Take a look at how the set-up of the top five publicly traded companies by market capitalisation has shifted from a mix of various industries to tech industries in over just one decade:

Illustration: CB Insights; Reference: Visual Capitalist

Sanwal notes that technology and data, "a match made in heaven", make businesses faster. However, the flipside of this coin is that the speed and impact of change also puts immense pressure on companies, many of which struggle to handle the flood of information both internally (operations-oriented) and externally (market-oriented).

  1. Internal. In its "Report on the prudential risks and opportunities arising for institutions from fintech" published in July, the European Banking Authority (EBA) notes that the digital transformation is expected to "fundamentally change the risk profiles of institutions". Amongst other things, the analysis shows "a growing shift towards operational risk" caused by the overall increase in change. This is particularly true when new technologies are used for the first time and employees are at the beginning of the learning curve. According to the EBA, factors that contribute to this risk are a lack of technical skills, shortage of expert staff, and the inadequacy of technology infrastructures.
  2. External. Due to the public nature of much of the data available, the implications for companies are by far not only of "internal" nature. Take the example of companies'—often unwilling—participation in social media activities. Due to their public nature, there is no hiding from bad customer feedback, no matter the industry. As per the above-cited article, Saxena and I found this to be certainly true in the tourism domain: on digital platforms, many company representatives felt like subjects of customers' expressions, rather than equal participants in conversation. At the recent Future of Fintech conference, Affirm's Founder and CEO Max Levchin made a similar observation about the financial industry: because traditional lenders are—on a public level—confronted with the bad feedback of those customers being "tricked" into high fees, he sees big opportunities for customer-oriented, data-driven institutions.

"Gradually, then suddenly"

History tells us that corporations are highly vulnerable to accelerations in digital transformation, so being prepared for its suddenness is crucial. Saxena confirms that, based on his interchange with the research community in and around Dublin's Institute of Technology, the struggles described above are not limited to one single industry. Across industries, the "dinosaurs" still getting used to being digital have been shaken up by competitors that grew up (so to speak) in a digital, data-driven world and whose business models are therefore better accustomed to data by nature—take, for example, American Express and Visa competing with PayPal, or take the fully data-driven Airbnb, whose valuation is now greater than that of Hyatt and Starwood/ Marriott combined.

And there's more data-native competition approaching, given how the cost of launching a tech startup has decreased over the past two decades due to facilitators like open-source horizontal scaling and cloud / Amazon Web Services (AWS):

Illustration: CB Insights; Source: Upfront Ventures

Yet, there is still more room for scalability. At the Future of Fintech conference, ConsenSys Co-Founder Joe Lubin noted that, besides the lack of technically able recruits in job markets everywhere, the most limiting factor for the evolution of blockchain and cryptocurrencies is the lack of scalability of the technology—currently, only 20 transactions per second are realistic. Put differently, the bottleneck is still the "lack" of data being processed.

In future posts, I will elaborate on what remedies exist to treat the symptoms of information overload, and how profits may still be chased in such an environment.

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