Managing Wealth in the Age of Digital Disruption

What critical challenges lie ahead for family-led businesses and investors?

We live in an era of unprecedented digital disruption. Technological advances are rapidly changing how people live, work, and consume, causing fundamental transformations to the global economy.

At such an uncertain time, and with even more significant technology-driven changes on the horizon, what critical challenges lie ahead for family-led businesses and investors?

Digital transformation

Digital transformation presents both a challenge but also an opportunity for those that can master it. Today, we find ourselves in the initial stages of a fourth industrial revolution, where significant communication and connectivity advances are taking place.

Breakthroughs in areas such as robotics, artificial intelligence, nanotechnology, blockchain and DLT, quantum computing, biotechnology, and IoT are in the process of irrevocably changing how the global economy operates.

Almost every industry from media, telecom, financial services, and retail to manufacturing, healthcare, insurance, and education is experiencing varying degrees of digital disruption. These disruptions are unfolding rapidly and changing consumer expectations, habits, and behaviours in the process, causing traditional business models to become less effective.

“Digital technology, despite its seeming ubiquity, has only begun to penetrate industries. As it continues its advance, the implications for revenues, profits, and opportunities will be dramatic.”

— McKinsey

Adapting to these transformations will be one of the most critical challenges for family-led businesses and investors in the coming decade. Many companies, especially in traditional industries like real estate and manufacturing, remain stuck in the old world, run on legacy systems and processes. They will need to be transformed digitally across multiple business units to stay competitive.

Finding the expertise to lead digitisation initiatives, developing the right digital transformation strategies, and establishing new technology-driven business models will be challenging.

Equally so, the need for education and the alignment of goals among business owners, boards, and employees. Those who are not ready and willing to change will be met with an unavoidable decline as consumer preferences evolve and innovative technology-enabled competitors move in.

Cybersecurity

Digitalisation and the proliferation of connected devices provide tremendous productivity and profitability opportunities, but they have also increased our vulnerability to cyberattacks. Not only are the number of attacks on the rise, but they’re also growing in severity. According to Cybersecurity Ventures, cybercrime will cost the world $6 trillion annually by 2021, up from $3 trillion in 2015.

A scary reality must be confronted.

Assets must now be managed and protected in a high threat level environment that features a wide range of interconnected cybersecurity threats and a growing number of persistent, well funded, and highly sophisticated adversaries.

Combatting and managing these threats across vast and increasingly connected ecosystems of assets will be a monumental and continuous challenge and ultimately compel many businesses and individuals to re-envision their understanding of risk and adjust their management strategies accordingly.

“It takes 20 years to build a reputation and a few minutes of cyber-incident to ruin it.”

— Stephane Nappo

Cybersecurity will become even more challenging in the future as the Internet of Things increases the number of connected devices to previously unimaginable levels. More and more third parties, such as cloud computing service providers, will also join the ecosystem of assets that must be protected, adding fresh security concerns.

These challenges will be ramping up just as a global cyber skills shortage begins to bite, and education gaps severely impede organisations’ ability to defend against cyberattacks, making things even more challenging.

Talent and the future of work

Advances in technology are driving transformations in jobs, skills, and the very nature of work itself. Thanks to the growing adoption of new technologies like AI, many businesses are either partially or entirely automating many tasks that workers carry out today, enabling increased productivity and efficiency.

Of course, these same technologies will also create new jobs and industries. However, in the coming years, skills shortages are likely to occur as workers will need to develop the new skills required to work these new jobs. Companies will have to create radical retraining programs to keep up with technological changes and stay ahead of new competitors.

The introduction of new digital marketplaces is also having a significant impact on jobs and the nature of work. Digital platforms are enabling a new flexible gig economy to flourish, which has, in turn, enabled skilled professionals to opt-out of the traditional 9 to 5 roles to work independently by offering their services online to companies around the world.

These new digital platforms provide access to a scalable source of labor and expertise and are eliminating hiring barriers such as geography for many companies.

Simultaneously, however, they are making it harder for older companies with more rigid work policies to attract the best talent. As younger generations of workers continue to move further away from traditional and structured forms of work, the challenges of attracting leading talent will only grow.

Business owners will need to begin operating and managing a transition to a world where independent, project-based workers gradually take over a larger and larger share of the work currently being done by full-time employees. They will need to incorporate a more flexible and global remote workforce into their strategic planning and mindset to attract the best talent.

Digital challengers

Thanks to rapid advances in cloud, mobile, data analytics, AI, and other emerging technologies, new technology-enabled platforms and business models are causing a wave of disruption across industries. They are also enabling the creation of markets with massive scale and efficiency and the conception of entirely new products and services.

As the divide between leaders, those embracing change, and laggards, those falling behind, grows, the need for legacy businesses to develop and invest in new technology-enabled business models is becoming more acute.

The likes of Alibaba, Tencent, Airbnb, Uber, Google, Apple, Facebook, and Amazon, are prime examples of companies that have built industry-dominating digital platforms in a relatively short period.

Amazon now boasts an almost 40% share of the world’s online retail activity, while brick and mortar retailers struggle to stay afloat. In China, tech companies rule financial services, outgunning banks, and traditional financial institutions.

Tencent, together with Alibaba’s payment solution, has captured virtually the entire Chinese market for mobile payments. The latter has been estimated to have approximately 60% of the Chinese e-commerce market as well.