Complexity brings existential threats to organisations. It’s a rare industry not challenged by early or advanced stages of disruption: publishing is under open-source siege; music and film industries by P2P (peer to peer) sharing; education establishments by MOOCs (mass open online courses); computers by mobile; ‘fin-tech’ (financial technology) is challenging traditional financial firms; while even the consultancy model - long protected by big brains erecting barriers to entry - is threatened by the rise of technology-based analytics and tools unbundling their value proposition.
Banking disruption is one of the most dramatic. As the cost of internet-enabled smartphones rapidly moves down the cost curve, payments by mobile phone is ‘hurtling towards the $1 trillion mark’. Mobile money is fast ‘becoming a substitute for paper-based banks as it enables people who cannot get to a branch or ATM to use financial services.’ In Kenya, two-thirds of the population use mobile-money. Weighed down by regulatory and PR burdens, banks in the developed world may struggle to compete with nimble, unencumbered competition from ‘left-field’ exploiting these new growth models.
However, incumbents would be wrong to see the challenges (or solutions) as technological ones alone. Central to markets are people, yet modern organisations, taking their lead from classical economics continues to view wo/man not as s/he is, but as they would like them to be. The efforts of Leon Walras in the 19th century to bring to economics the precision of physics in describing human social behaviour have been widely criticised for the flawed assumptions in his general equilibrium model. We are not ‘sovereign in tastes, steely-eyed and point on in perception of risk, and relentless in maximisation of happiness’ as parodied by Nobel prize winning economist Daniel McFadden in 2006. We aren’t rational, nor adept at optimising gains, and as the Dutch proverb goes ‘he who has choice, has trouble.’ We instead make decisions ‘not only cognitively, but also strategically and viscerally.’
Yet, consensus continues to accept what the general equilibrium model tells us about human behaviour, despite it’s many flaws. Consensus remains unresponsive to the insights of social scientists that can prove the real homo sapien bears little similarity to the artificial homo economicus. Even in the face of surmounting evidence this view remains entrenched; while the likes of Milton Friedman even argue that the model could be correct even if the assumptions are not.
While organisations continue to bury their hand in the sand about the real drivers of human behaviour they will continue to see the changes around us as purely technological ones. The anti-tax campaigns against the darlings of the technology revolution - Google and Apple most notably - may therefore confuse decision-makers as to the real causes (for example, endowment, aversion-loss, certainty, recency effects and sociality of choice) and blind them to the opportunities they must exploit in order to survive in our complex world.