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Why companies must invest in new technologies, even if it eats their own lunch

  • Companies need to adopt new, emerging technologies, even if they cannibalize their legacy operations, a panel of experts said at the World Economic Forum meeting in Dalian.
  • A GSMA report said mobile technologies and services generated 5.2 percent of gross domestic product in Asia Pacific in 2016.
  • Previously, the big used to eat the small, but now, the fast eat the slow, and I'm seeing it everyday, said Catherine Wood from ARK Investment.

Companies looking to grow should not shy away from adopting new, emerging technologies, even if they cannibalize their legacy operations, a panel of experts said Thursday.

The rapid adoption of smartphones and improved Internet connectivity around the world has changed the way users today interact with technology — and has sometimes spurred the decline or demise of traditional businesses.

"There's a clear accelerated adaption of digital lifestyle by consumers," said B.G. Srinivas, group managing director at Hong Kong-based telecommunication services provider PCCW. "On the other hand, in the enterprise sector, we're seeing enterprises going through massive amounts of digital transformation."

Srinivas was speaking on a panel with other business leaders and investors at the World Economic Forum's June meeting in Dalian, China.

Everett Rosenfeld | CNBC

Over the past few years, companies have been forced to reconsider their existing business models in sectors as diverse as media, banks and transport services.

For example, the emergence of Netflix and a host of other online and mobile streaming services have forced legacy media businesses to reconsider how they approach their customers.

"We've seen over the years, over the many years of media, this trade off or this contest between content and distribution, back and forth — it's the history of media," said Catherine Wood, chief executive officer of ARK Investment Management.

"Any platform that understands its customer and tailors media for each customer, understands not only what each person likes, but can formulate new programs, new media, because of what it sees in demand from existing customers is going to continue to pull ahead," she said.

Video-rental chain Blockbuster's demise in the wake of the introduction of streaming services can show what happens when companies don't embrace new technologies, even when they cannibalize existing businesses.

Players such as Netflix have extended their reach by offering high-quality video-streaming options on mobile devices, even in regions where internet connectivity is spotty at best.

A recent report from GSMA, the trade body representing interests of mobile operators worldwide, said in 2016, mobile technologies and services generated 5.2 percent of gross domestic product (GDP) in Asia Pacific. This amounted to about $1.3 trillion of economic value. GSMA predicted that by 2020, this would increase to $1.6 trillion, or 5.4 percent of GDP in the region.

"Mobile is where everything is going. We're going to carry our content with us, when we want it and anytime we want it," said Wood.

Financial technology, or fintech, is another sector demonstrating why established businesses need to adopt new technologies to keep up with disruptors.

For years, banks have enjoyed a monopoly over how people conducted financial transactions.

But disruptors are providing new ways of sending and receiving payments through the internet.

Today, companies such as TransferWise let users swap money in various currencies with each other on its platform, start-ups such as Toast allow remittances to be sent over the Internet and collected in person, and the likes of Alipay and WeChat Pay have changed the way users pay for goods and services.

Attendees compete with an intelligent robot in the game 'shuffle board' during the Annual Meeting of the New Champions 2017 on June 28, 2017 in Dalian, Liaoning Province of China. Annual Meeting of the New Champions in Dalian runs through to June 29.
VCG | Getty Images
Attendees compete with an intelligent robot in the game 'shuffle board' during the Annual Meeting of the New Champions 2017 on June 28, 2017 in Dalian, Liaoning Province of China. Annual Meeting of the New Champions in Dalian runs through to June 29.

But the fintech industry will not be able to continue developing at its current rapid pace without the presence of banks, said Sergey Solonin, chief executive officer of Qiwi.

To be sure, over the last several years, banks have invested in new technologies, including blockchain and cryptocurrencies, as well as fintech start-ups.

"We see that without banks being good platform for fintechs, for newcomers, it will be difficult to develop at the pace we see right now," he said. "Banks do invest a lot of money into fintechs right now. And also because of some regulatory issues that we face, I think we'll still see some disruption on the market, but the weight now, it moves towards collaborative forms for fintechs with banks, instead of being just disruptive."

Solonin said that banks have several advantages over fintech start-ups. That includes compliance capabilities, know-your-customer processes and relationships with regulatory bodies.

Emerging economies, according to Wood, have an advantage when it comes to adopting fintech because much of the legacy infrastructure seen in the West — such as credit cards and bricks-and-mortar bank outlets — are not as prevalent. This enables countries such as China to leapfrog some of the old ways of doing things.

"It's much easier for fintech, or tech-fin, as the head of strategy at Ant Financial said yesterday, to happen here, because tech is the operative word —and tech means declining cost curves and that enables more activity," said Wood.

PCCW's Srinivas added that while getting companies to give up, or upgrade, their legacy infrastructure in favor of new technologies is a challenge, another difficulty lies in the existing corporate mindset.

"The change will not happen because they have to cannibalize their current businesses," he said, referring to banks as an example. "That's a massive disruption that banks will have to go through."

Wood added that companies' ability to change their mindset may define their ability to survive in the long term.

She pointed to the words of Klaus Schwab, the founder and executive chairman of the World Economic Forum: "It used to be that the big used to eat the small, now it is the fast eat the slow and I'm seeing it everyday."