Ever heard of Blockbuster On Demand? Yep, that Blockbuster, the once-dominant video rental store that ran itself into oblivion by sticking to brick-and-mortar.
While iTunes, Amazon Movies, and Netflix revolutionised home entertainment in 2006, Blockbuster hesitated to embrace streaming until it was too late – entering the game five years behind the curve.
Funny thing is, Blockbuster had the chance to buy Netflix for $50 million in 2000 but dismissed the offer and laughed at the idea. Sound familiar?
Enter the Disruption Dilemma
Disruption is the seismic shift that occurs when new technologies or strategies upset the status quo, rendering old ways obsolete. It’s the way Uber overtook taxis, how Amazon changed the way we shop, or the iPhone outperforming and ultimately ending Blackberry. Right now, it’s the way digital currencies are reinventing finance.
The dilemma arises when the traditional business practices that once drove a firm’s success end up becoming the thing that could upend its own future. The legacy incumbents may overlook or underestimate the potential of disruptive innovations because they don’t fit their current strategies or customer base. But, if they ignore these innovations for too long, they risk being overtaken by smaller, more agile competitors who capitalise on the new technology.
The essence of the Disruption Dilemma is finding the right balance between staying competitive with existing products while also adapting to disruptive innovations. Established players must confront a critical decision: adapt to the changing landscape or risk obsolescence.
The three stages of disruption
First outlined in Clayton Christensen’s 1997 “The Innovator’s Dilemma”, legacy incumbents respond to disruption the same way a child would grapple with a new baby sibling, and the clash between traditional institutions and the crypto industry echoes an age-old dynamic.
Stage 1: Dismiss “Things are fine as they are”
Initially, established players may disregard or underestimate the threat posed by disruptors. They may view the new entrants as serving niche markets or catering to customers with different needs, believing that their core customer base will remain loyal to their products or services.
The global finance market is currently facing digital disruption. Since blockchain technology emerged 15 years ago, the future of money has become uncertain. Tech and crypto companies are muscling in on traditional finance’s turf with digital currencies that are on an exponential adoption curve.
Consumer interest in cryptocurrency is significant and growing fast and while history has repeatedly shown that failing to embrace innovation can have dire consequences, many mainstream financial institutions have been slow to respond and quick to dismiss. They’re sitting at a very important fork in the Disruption Dilemma road.
Stage 2: Denigrate “It’s just a fad”
As disruptors gain traction and start encroaching on their markets, legacy companies may adopt defensive strategies such as aggressive marketing or leveraging their brand reputation to maintain market share. This is where legacy incumbents start to feel the pressure, and their responses are often attempts to drown out the disruptors with noise.
Last month, Jamie Dimon, CEO of JP Morgan, reiterated his long-held scepticism towards Bitcoin, dismissing it as a “public decentralised Ponzi scheme” and questioning its viability as a currency.
These comments echo a prevailing sentiment within traditional financial institutions, aimed at undermining the credibility and legitimacy of cryptocurrencies. But defensive tactics do not address the underlying, and unstoppable, shifts in customer preferences and technology.
The reality is that the world’s most famous cryptocurrency, Bitcoin, is going from strength to strength, breaking into mainstream traditional finance with the introduction of 11 spot ETFs and reaching a new all-time high of $73,000 USD earlier in the year.
No matter how hard incumbents try to dismiss, denigrate, and prolong the new era of decentralised finance, they’ll need to make a decision. Do they go for digital gold, or do they settle for silver forever?
Stage 3: Imitate “We do that, too!”
If you can’t beat them, join them. We’re now witnessing a shift within traditional finance as one by one mainstream institutions around the world are turning to digital currencies for fear of being left behind.
Despite Dimon’s well documented and longstanding criticisms of Bitcoin, just this year JP Morgan became intimately involved with a new Bitcoin fund. It’s one of two authorised participants for BlackRock’s Bitcoin ETF, and participants for Invesco/Galaxy Digital and Fidelity. They now directly facilitate capital flows in and out of the funds.
Last year, British banking giant Standard Chartered launched Zodia Custody – a digital assets custody platform for institutional clients in Australia and New Zealand. The platform provides institutions with safe, secure access to crypto exchanges and bank-grade cold wallet storage.
Government and regulators are starting to pay attention. This year’s Federal Government Budget allocated $7.5 million over four years to modernising regulatory frameworks for financial services and FinTechs. This includes development and consultation on licensing and regulating platforms that hold digital assets and continuing exploratory work on Central Bank Digital Currencies, asset tokenisation, and decentralised finance. Regulatory frameworks are essential to keeping Australia competitive on a global stage, accelerating innovation and disruption, while most importantly, protecting investors.
Dare to disrupt?
The disruption dilemma is not unique to any industry but is a fundamental aspect of progress. While we are seeing this play out in cryptocurrencies currently, every business faces disruption and those that fail to respond could pay the price. It’s time for business leaders to ask a fundamental question: Do I dare to innovate and disrupt, or do I deny and denigrate until it’s too late? Afterall, who is heading to the video store this weekend?
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