General Interest

Creating value in the age of sector convergence — A perspective for consulting and advisory firms

In the 60’s, Joseph Schumpeter defined ‘creative destruction’ as “… the incessant product and process innovation mechanism by which new production units replace outdated ones. This restructuring process permeates major aspects of macroeconomic performance, not only long-run growth but also economic fluctuations, structural adjustment and the functioning of factor markets. Over the long run, the process of creative destruction accounts for over 50 per cent of productivity growth.”

In today’s world, sector convergence is broadly analogous to Schumpeter’s creative destruction, in creating new opportunities and value clusters across sectors. Business models are seamlessly converging and breaking through defined sector boundaries of the past. Sector convergence is disrupting traditional business models, breaking down industry silos and static frameworks to create fluid, seamless and dynamic businesses of the future.

As examples:  

  • Growing penetration of Electric Vehicles (EVs) is leading to increased convergence of the Integrated Oil & Gas (O&G), Utility, and Automotive sectors to capture the opportunity in EV charging infrastructure.
  • Rising healthcare spend is attracting non-traditional healthcare players to invest in the innovation-focused and value-driven healthcare industry. While some healthcare companies are leveraging technology to improve their existing healthcare models, others are looking to acquire technology to create a new model or value proposition.
  • Rapid e-commerce growth, coupled with consumers’ rising demand for faster delivery, has made shipping and last-mile delivery a priority for retailers. With focus on in-house logistics, Amazon is leading convergence of retail sector with logistics.
  • Convergence in the insurance industry continues to accelerate due to increasing adoption of Internet of Things (IoT). Emerging technologies such as AI for risk tracking, blockchain, etc. coupled with inter-connected devices, are putting new demands on the traditional business model of insurers with new and predictable data-driven risk.
  • In addition, convergence of automotive with the services sector is opening up new revenue streams and bringing cost and efficiency advantages for both OEMs and service providers across the value chain.

Put together, the co-mingling of e-commerce, data analytics, mobile capabilities, IoT, and emerging technologies is breaking through sector silos and diminishing traditional barriers to entry while creating newer ones.

Consulting and advisory firms need not just think, “far and beyond” but also “evolve and upgrade” to design new solutions for their clients. In order to help their clients retain leadership position and grow market share, consulting and advisory firms need to maintain a laser sharp focus on disruption from emerging technologies and evolving regulatory standards. As a result, consulting and advisory firms find themselves becoming a source of guidance for clients traversing this transforming landscape. The four most critical changes (amid other factors), that clients find themselves adjusting to, include:

Changing nature of risk registers: Risk in the future will be dynamic and dispersed. Ecosystem risk management and related compliance is one of the top concerns for the C-suite, since convergence will bring new forms of risk that clients may not have encountered before.  Collaboration with clients on planning active risk controls, compliance and co-creating technology-agnostic products and processes will facilitate better risk management that cuts across traditional boundaries.

Demand for decentralized decision-making: There is a growing demand for agility in business models to enable faster market access. Traditional organization structures slowed down decision-making time and left innovations lagging. Through the adoption of a flexible business model, clients will be able to respond faster to rapidly changing expectations and establish first-mover advantage.

Shift in competitive dynamics and emerging ecosystems: Convergence is leading to an ever-shifting competitive landscape where firms are on an aggressive hunt for partnerships and allies. Competitors are not only big and visible, but also nimble and stealth. Carefully evaluating business partnerships will help clients develop the right inside-out strategy, that offers balance between organic investments and inorganic growth (M&A strategy).

Greater regulatory intervention and government interference: A converging landscape will exert greater pressure on regulators to expand the scope of their roles from being regulatory to supervisory. This active intervention to protect national and consumer interest is likely to create a strong barrier to convergence.

Professional advice, expertise, and support are more critical now than ever for business leaders across the globe. In an era of convergence where customer expectations are constantly changing, consulting and advisory firms can help clients focus on their core vision and values while at the same time, guiding them to develop an agile, action-oriented response in the short term.

As consulting and advisory firms prepare for the future, staying ahead will not only be contingent on solutions that cut across sectors, but also on innovative solutions that analyze problems through different lenses. These range of lenses can be alternative data assets, intellectual property and patents, along with real-time sentiment on social media in order to spot and address disruption, innovation and convergence of all sectors. A lot of the problems and challenges that consulting and advisory firms will face are ones that have never been solved before, creating the greatest opportunity for consulting and advisory firms to be the frontrunners in a converging landscape.

 

To gain more insights on sector convergence, please contact us on ps@evalueserve.com

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