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Coping with regulation in an age of disruption

  • Gerard Seijts and Chris Chan
  • |
  • Mar 19, 2019
Coping with regulation in an age of disruption

In September 2018, we took our global discussion of disruption to Hong Kong, where we held three discussions with several dozen leaders from the local business community. Participants included bankers, retailers, technologists, human resource specialists, and representatives from the real estate, insurance, and civil service sectors. In each session, we had three questions: What kinds of disruptions are you seeing? What are you doing about them? What should Ivey do to prepare future leaders for disruption? Our first session focused on the role of regulation in light of technological disruption, the impact of social change, and the challenges for business schools.

Technology and the domino effect

FinTech (financial technology), introduced to compete with traditional ways of delivering financial services, is a prime example of disruption to a sector. Our participants said Chinese businesses and consumers were very quick on the uptake with these services, which are offered by companies like WeChat, Tencent, and Alipay. This rapid uptake in turn fostered the introduction of analogous services in adjacent sectors. One partial dissenter pointed out that credit cards, and even bank accounts, are far less ubiquitous among Chinese consumers, which made FinTech-based services that much more attractive.

“In part, it’s about how much additional functionality you get. The disruption is greater when the initial functionality is great,” he said.

Convenience is another deciding factor. One participant told of visiting a small village outside of Hong Kong. Once prosperous when he last visited a decade ago, the main street is now half empty. The garment business that had previously sustained the town had all migrated to the web, leaving few opportunities behind.

“To survive as a bricks-and-mortar store, you need to be selling something that has to be experienced – tasted, or smelled. Otherwise, you’re doomed,” he said.

Regulation trumps technology as a disruptor

Several participants argued for a focus on the changing social, political, and regulatory contexts in which FinTech and other technological advances occur. One participant put it this way:

“The regulation of financial institutions is disrupting those institutions more than technology.”

In the same vein, participants cited disruptions in the global trading system, with companies from the kinds of free-trade agreements that provided a measure of predictability to companies that do business across borders.

One participant noted a contradiction.

 “At the same time that technology is globalizing us, nationalism is deglobalizing us.”

Social change is on the horizon

The changing values of younger generations are also creating social change and disruption.

“More young people are looking at taking their destiny in their own hands and making their society better,” said an entrepreneur from the group.

A participant whose firm helped to fund many of the 600 so-called social enterprises in Hong Kong observed that, while most are still relatively small-scale today, they may not be in the future. What does that imply for the future of organizations and the workplace?

The challenge for business schools

What should Ivey and other business schools do to better prepare tomorrow’s leaders for disruption? One answer came early in the discussion, when participants focused on the regulatory and political context of change: People should be spending more time learning social sciences and economic models.

“I think political scientists would have a lot to tell an organization these days,” said one participant.

A financial services representative suggested one lesson to teach is the increased economic stratification that often grows out of nationalistic politics.

“Business schools need to teach that these kinds of interconnections are critical,” she said.

What does it mean to go to business school?

Another participant appeared to play devil’s advocate by questioning what it means to go to business school and the end product. Are they delivering generalists who know something about how to run a capitalist organization, or deep specialists in one field who also know something about business?

“I think business schools are in peril of delivering mush,” he said. “I think we used to know more about what ‘I went to business school’ meant. Today, as an employer, I don’t know what that means. In the case of a high-end school, it certainly means that you managed to get in there, and therefore there must be something redeeming about you. But how does that help me and my business?”

Others defended the traditional role of business schools. While acknowledging that business schools provide basic analytical skills and functional knowledge, and at least a window into general management, they also advocated for a far stronger focus on corporate social responsibility.

Developing leadership and leadership traits

Others mentioned business schools help to develop new concepts of leadership – leadership that may be issue-based, or project-based.

“Maybe Lisa leads on this project and I’m accountable to her, even if I don’t report to her. Next time, someone else will be leading, and I’ll be accountable to him or her. The leader becomes the facilitator, the organization becomes more fluid, and the hierarchy counts for less,” one participant said.

They called for more instruction in team-based management. Instead of training  professional managers, business schools should be training skilled team members.

One participant said business schools should instil empathy and humility in today’s MBA students.

“Yes, it has to start way before business school, but business schools have to continue that lesson plan,” he said.  “What is ‘design thinking’ about? It’s about starting with an empathy for the customer and working toward a solution, rather than starting with the solution and working toward the customer.”

“Maybe it’s not about developing CEOs. Maybe it’s about developing good corporate citizens,” one participant noted.

Doing good versus getting rich

The discussion also turned to what motivates people in business. Most agreed it’s about working for the greater good, but also about doing well and getting rich.

“I’m not saying forget about the former, but I’m saying don’t forget about the latter, which obviously has curricular implications,” said one participant. “How many of your courses are about social entrepreneurship, and how many are about how to get rich?”

Another participant cast this same question in terms of time horizons. If you are focused mainly on enriching yourself, you may adopt a short-term time frame. If you are also focused on larger issues, such as protecting natural resources or building your community, you may be willing to take a longer view and defer your personal wealth-building.

“Which financial analysis are you going to run – simpler, short-term or more complex, longer-term?” she asked.

One manufacturer questioned what would happen if he assembled his employees and told them that they were the most profitable firm in their industry, and they were maximizing returns for shareholders.

“They probably wouldn’t clap. They probably would worry that we weren’t providing fair returns to our other stakeholders,” he said. “If the people who work for you believe in their hearts that a 20-per-cent ROE is simply too high because it reflects a lack of investment in key areas other than short-term profitability then that’s something we have to deal with, right?”