One of the things you learn early if you read Professor Michael Porter’s seminal book Competitive Strategy is looking for new competitors to your market. I read that book for a class in 1983 and I thought it was the most important book I read in undergraduate business school. Thank you Professor Anne Hill for making that book part of your curriculum. I still remember reading it to this day. If you haven’t read it, you need to read it. It’s topics and methods are cogent to this day.
If you look at business history, it goes through periods where conglomerates are built, then broken up as nimble focused competitors take market share, then built again. General Electric is a good example of a conglomerate that is not working right now. 3M isn’t. 3M is a thesis-driven firm in lots of different industries. Currently, a lot of the old lions have lost their roar.
At the same time, new conglomerate companies are being built. Amazon and Google are good examples of conglomerate like companies that are building big businesses. However, they look a bit more like 3M in that they are somewhat thesis-driven. In some cases like Google, their thesis is very broad. It’s about data, and utilizing internet technology to gather more data and enter new markets.
When we look at the asset management industry, the same players have been there for generations. Few if any of them resemble tech companies so they are vulnerable. Even if they use a lot of technology their corporate culture hardly resembles the startup culture. It’s pretty hard to call any of the investment banks “nimble” or that they embrace failure.
That is the key, culture. If I am a big finance company I can buy innovation and they generally do. However, Professor Michael Gibbs research has shown that in mergers the dominant culture wins out and kills the other culture. What C level execs at the big financial albatrosses need to do is radically change their culture. Otherwise, tech giants like Google or PayPal could enter and cross the border. In China, Alibaba launched Yu’e Bao, a money market fund for its digital payment system, Alipay. With $211 billion in assets, the fund has grown to become the world’s largest money market fund in just four years.
So, it can happen and with the hunger for revenue, it probably will.