CU Water Cooler

How Do We Solve The Incumbent Dilemma?

Tim McAlpineComment

Industry after industry has been disintermediated by the Internet and new technologies.  

  • The music industry 
  • The television industry
  • The movie industry 
  • The retail industry
  • The advertising industry
  • The publishing industry
  • The travel industry
  • The telecommunications industry

Just to name a few.  

In each case, there were incumbent players in large organized industries that were riding high but failed to reinvent their business models for the next era.   

Most have succumbed or have been diminished by new technology players that have capitalized on the Internet. Young companies like Google and Amazon have displaced numerous legacy industries. 

But even technology companies are not immune: It was thought that Microsoft would forever keep its lead, but even it has cooled over the past few years as it failed to transition its lead in the PC era to the mobile era.

And in the enterprise computing space, cloud computing companies like SalesForce are surpassing client-server giants like Oracle and SAS.

It all comes back to the incumbent dilemma

It's difficult to pivot and reinvent when you are busy servicing a going concern. It's risky to think about leaving the old way of doing things for an untested new way. It's expensive and hard to invent the future. It's really hard when you are small and in a highly regulated industry that frowns upon risk. And it's exceptionally hard when you are in the technology business, but you are not in control of the technology that runs your business. 

Mark Andreessen (co-founder and general partner of the venture capital firm Andreessen-Horowitz and co-founder of Netscape, one of the first browser companies) wrote a powerful summation in the Wall Street Journal entitled. Why Software is Eating the Word. Mark suggests:

"More and more major businesses and industries are being run on software and delivered as online services—from movies to agriculture to national defense. Many of the winners are Silicon Valley-style entrepreneurial technology companies that are invading and overturning established industry structures. Over the next 10 years, I expect many more industries to be disrupted by software, with new world-beating Silicon Valley companies doing the disruption in more cases than not."

The incumbent dilemma is now upon the financial services industry

The financial services industry is ripe for reinvention and these well-funded technology disrupters have now focussed their aim squarely at it. Early success stories like Paypal, Mint and Square are the tip of the iceberg. New start-ups including BankSimple and MovenBank are building interest and hype while they build towards imminent launch. Major players like Google and Apple want to replace that George Costanza bulging, overstuffed billfold with their next-generation phones.

The good news for the incumbents is that the financial service industry is incredibly complex and highly regulated. Consumer-led revolts like Napster or BitTorrent can't easy happen in this space. Regulators like the NCUA and FDIC in the US and the the OSFI and CSA in Canada won't allow unregulated players to easily touch the money.

The bad news is that the up-chain players like Visa and MasterCard and the big banks like Bank of America, Chase, Wells Fargo, RBC and TD Canada Trust control the way money moves and have deep pockets and enormous market share to fend off or acquire the new technology disrupters.

So, what are the small incumbents to do?

It won't be easy. Credit unions can't just license a bunch of software and technology from big incumbent vendors who themselves are facing the same incumbent dilemma. And as much as it pains me, the marketer, to say it, credit unions can't market themselves out of this either.

The credit union incumbents need to work together to build technology solutions that rival the disrupters. Service with a smile won't cut it over the next decade as consumers demand the same simplicity and ease of use they have come to expect from other disrupted service industries. Technology wins every time.

The credit union industry is in a unique position to collaborate and build things. We see this with the thousands of credit-union-owned CUSOs that have come to life in the past decade. 

We see this with the Filene Research Institute and the countless executives who have donated their time and energy to the i3 Program. We can see the fruits of their labor with programs like the Michigan Prize-Linked Savings Lottery and the countless credit unions participating in the Savings Revolution concept. 

We see large-scale collaboration in Canada with the credit-union-owned Central 1 developing its own online banking system that almost half of the countries' credit unions now use.

Credit unions fighting credit unions for the crumbs from a small piece of pie should not be the goal. We can debate the merits of the seven cooperative principles until the cows come home, but principle number six, "cooperation among cooperatives," holds the biggest promise to allow the small incumbent credit unions to be part of the coming disruption and reinvent themselves in the public's eye. 

Serious technology and software collaboration will allow credit unions to survive and thrive. The book stores didn't have this. Nor did the video stores.

Agree or disagree? Got a better idea? Please leave a comment.