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Transforming Banks for a Digital Future: The Winners, The Losers, and the Strategies to Beat the Odds
For more than a decade, from the late 1980s until just after 2000, Instinet was on a roll. Its pioneering software and proprietary computer workstations appealed to professional stock traders who needed to move large blocks of shares efficiently. As the stock market boomed, Instinet rode the updraft. At its peak in 2000, the company, a division of Reuters, took in about $5 million in revenue each day the market was open, earning 20 percent margins and processing more than one in every five Nasdaq trades.
Then, nearly as fast as Instinet reached the pinnacle of an industry it helped to create, its growth formula stopped working. New competitors offered more flexible systems loaded with features and powerful graphics that traders clamored for. By late 2001, with the over—the—counter market in steep decline, Instinet's daily trading revenue slumped to $2.3 million—less than half what it had been at its peak—and Reuters' investment of more than $1 billion in the company was losing value fast.
Instinet's predicament when its success formula hit the wall is far from unique. For a majority of businesses today, fundamental threats to the core have moved from rare events to nearly common occurrences. Strategies are becoming obsolete faster than ever before. Since 1994, research by Bain & Co has found, more than 50 percent of the companies in the Fortune 500 have faced serious threats to their core business models. About half of that group have gone bankrupt or been acquired. The rest have made risky and fundamental changes in strategy. What's more, the pace of business turbulence is likely to accelerate along with globalization and rapid technological change. Within 10 years, the data suggest, only one company in three will resemble what it looks like today.
Alternative to the Bold Move
Many management teams find themselves tempted by big—bang solutions: dramatic, transformative mergers or aggressive leaps into sexy new markets. But seemingly bold moves like these rarely pay off. The success rate for major, life—changing mergers is only about one in 10. It is less than one in seven for moves into a hot new market far from a company's core.
As Instinet would ultimately discover, a better answer for most companies usually lies closer to home. The Bain research shows that nine out of 10 companies that successfully renewed themselves found the solution in mining hidden assets—assets they already possessed but that were previously undervalued, underutilized or simply unrecognized. These hidden assets were not central to the strategy of the past, but they held the key to the future. The study suggests that the most valuable hidden assets are camouflaged as hidden business platforms, untapped customer insights, and underused capabilities.
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