Doing tomorrow’s business today


Quintus Kilbourn | Head of Equities | Absa Corporate and Investment Banking | | |

“Never in human history has the present been so temporary” Gerd Leonhard, 2017.

No one knows the origin of the phrase “The future is now”. Some people believe it’s from an American short film from 1955 with the same name. Others believe it to be an old sports cliché, particular to baseball, uttered when coaches thought their team had a chance of winning the season.

Whatever its origin, those words have never been truer in the world of financial services and investing than they are today.

Digitisation in a globalised world and the resultant rapid growth of companies who demand a high market-cap without actually generating any free cash flow or substantial profits, have already changed the way we do business.

The businesses of tomorrow are already operating today and we are already investing in them; with various emerging trends giving us some clues as to how different things will be moving forward.

Here are just a few ways in which way we work will change in the very near future:

Technology through Robots and AI will replace humans where they can

It’s inescapable that digital transformation is changing financial services.

Futurist Gerd Leonard, who recently spoke at the Absa macro conference hosted in Cape Town, refers to technology as the driving force of economies today.

Technology will drive down the cost of doing business and increase efficiencies and robots, driven by advances in Artificial Intelligence (AI), will replace humans where possible, particularly in highly repetitive and predictable jobs.

Already robo advisors are able to help clients make investment decisions without the need for human interaction and in October the world’s first AI Exchange Traded Fund was launched in Canada.

Technology has become ubiquitous and those of us who give advice regularly will have to think differently, redefining our value add and areas of differentiation. We will need to reshape our way of working to focus on the aspects of advice where technology is weak, including Emotion, Intuition, Creativity, Values, Consciousness and Empathy.

Technology is forcing us to redefine our roles as banks – to reconsider our function as the “piping of the economy”, as conduits between investors, corporations and their respective investment, funding and banking needs.

Of course any approach to investing should have an element of caution and investing in the future will be no different, and there is no doubt that soon things will move faster than most of us can keep up with – unless we invest heavily in the right technologies, spend time on analysis and learning, and become much more nimble.

The fundamentals have changed

In June Tesla surpassed BMW in market capitalisation and it has done so without generating profits or free cash flow.

Tesla has no dividend yield but is valued on, and for, its “disruptive yield” and is gaining investor support for what it represents – the opportunity to affect the future.

It is disrupting, it is setting the tone and it is driving innovation faster than anyone else in the motor manufacturing sector, forcing the likes of BMW and Mercedes Benz to change faster and faster. Tesla has not made any money but there is a line of investors ready to invest whenever Tesla needs cash; investment driven by Tesla’s “disruptive yield”.

And that is how the fundamentals of the business are changing and challenged. In the past Tesla would have been a highly speculative investment. In fact it might just have been overlooked as it was not making money or even avoided because it was seen as too risky.  Today asset managers need to be more open minded and consider that different measures of return will drive a company’s worth in the modern and future market place.

Today successfully investing your client’s money means going beyond the macro factors that exist and examining these new underlying factors which affect the companies where you are investing. The best asset managers will challenge CEOs and ask not only about their business strategy, but also about their strategy regarding technology, automation, the environment, their stakeholders and how they are thinking differently about managing their staff.

We will see a shift in economic models

The current model of capitalism, which has seen the gap between the wealthy and the poor grow to unprecedented extremes, is simply not sustainable.

Instead we will see a Neo-capitalism which looks to add value for all.  The question remains, what will this look like and how will technology affect how it is shaped?

We are already starting to see purpose driven businesses enjoy success. When Whole Foods opened its first grocer no-one believed that it would grow to be a multi-billion dollar business.  What they did, however, was start a movement around organic food which more and more people bought into, eventually reaching annual sales of $17bn.

However, just being a “company for greater good” did not drive ongoing growth and returns for shareholders, and eventually the company had to consider alternatives, eventually selling to Amazon for $13.7bn. Amazon brought scale, new customers and new avenues of sale.

Both companies were/are extremely client centric – Wholefoods had the customer at heart, Amazon has the customer at mind.

Wholefoods saw the healthy food and “for greater good” opportunity; Amazon sees the total customer need opportunity. Amazoncollects and analyses every data point and knows the customer better than they know themselves – Amazon works the data and knows that the data is its most valuable asset. A totally different and new way of doing business in consumer, or then human sector.

Exactly what Discovery has done for Health and other insurance in South Africa.

The future is bright

When the first refrigerator was invented it had a dramatic effect on the spice trade, bankrupting many of the shipping companies of the day.

Their mistake?

Believing they were in the spice business and not realising they were in the shipping business. The future will make those of us in financial services examine what we do at the core of our business.

Banks need to realise “we are shipping merchants”. It’s not about the spice that we carry it’s about the ships that we have.   Disruption is forcing business to ask themselves; what are we and where do we really fit in? What is our true purpose and how does that serve all stakeholders? And how do we position our businesses to be tech ready?

The reality is the future is not tomorrow; in business the future is now.

Financial Services, which is not traditionally known for responding nimbly to change, will have to embrace it if we want to survive and ensure our role remains a significant one in the future.