Why culture is important in managing technological innovation
By John Price, Commissioner, Australian Securities & Investment Commission
This article was submitted to the Australian Institute of Company Directors for publication in the Company Director magazine in May 2016
Technological innovation is rewriting almost every industry including the financial services industry. At the recent "ASIC Forum 2016 - Culture Shock", we explored innovation and digital disruption in the financial services sector against a backdrop of what this means for organisational culture.
Kelly O’Dwyer, Minister for Small Business and Assistant Treasurer, spoke about the national innovation and science agenda and encouraging investment in early stage venture capital. Minister O'Dwyer emphasised the important role financial technology – or FinTech – will play in Australia’s innovation future, and set the scene for discussions on disruptors and the challenges these new business models raise for regulation.
One disruptive technology that is especially significant for financial services is blockchain, or distributed ledger technology. Blythe Masters (CEO of Digital Asset Holdings) explained the potential for blockchain technology to transform financial markets and infrastructure in the same way the internet transformed access to information. (See "Blythe Masters at the 2016 ASIC Annual Forum" on YouTube for a good explanation of this much talked about technology). ASX has announced it is partnering with Digital Asset Holdings to explore how blockchain could be used to radically reduce its post-trade processing from the current period of two working days. Not only does this have benefits for efficiency and speed, it also has the potential to significantly reduce systemic risk and back-office administration and compliance costs.
Robo-advice represents another fundamental shift in the way financial services can be delivered. We heard at the ASIC Forum how robo-advice aims to leverage off existing offerings to give consumers access to good quality, convenient, low-cost, financial advice. ASIC is keen to see a healthy and vibrant digital advice sector and is seeking industry’s view on our proposed approach to the regulation of robo-advice.
ASIC, through its Innovation Hub, has seen a high level of interest from businesses seeking to capitalise on the new "sharing economy" through implementing crowd-funding and marketplace lending initiatives. Panellists indicated that crowd-funding may revolutionise how smaller businesses (and start-ups in particular) access funding. Funds can be raised from a diverse market using online funding platforms in a way that aims to be faster, easier and more accessible than traditional fundraising. A proposed regime for crowd-sourced equity funding has been introduced into Parliament and a consultation on crowd‑sourced debt funding will take place later in 2016.
We are yet to see if innovations like block chain, robo-advice and crowd-funding will drive as much change to Australia’s financial markets as Airbnb and Uber have done to their markets. As a regulator, ASIC seeks to encourage innovation that has the potential to benefit the real economy. ASIC’s recent agreement with the UK’s Financial Conduct Authority is an example of ASIC’s willingness to support innovation. The agreement will help break down barriers to entry both here and in the UK by ensuring more support from financial regulators to innovative FinTech companies as they attempt to operate across both our markets.
Managing the risks of change and harnessing the value of innovation are not new concepts. What is new is the scale, breadth and potential for radical change underpinned by digital technology. Technology-driven innovation is going beyond its traditional role of driving efficiencies, to now challenge entire business models and disrupt industry structures. If your business is not already being directly challenged by digital disruption, then it is likely the business of your suppliers or your customers is being impacted– or soon will be. Directors will now need to take a much broader view of the world in which their companies operate, accept that changes may be unpredictable, and be ready to adapt. How directors steer their company in the face of change will be critical to a company’s continued success.
To return to the central theme of the ASIC Forum, a key tool in managing the opportunities and risks associated with change is a director's ability to influence organisational culture. As organisations adapt to this new world, directors should be questioning how they can set the tone from the top to ensure the right outcomes are delivered. While driving innovation, boards must continue to examine business structure, incentives and the acceptance of poor behaviour as potential challenges to the culture they are seeking to promote. In a world where everything else is changing, maintaining a strong culture might just be the key.