Next Generation Business Problems: Finance

The next-generation business problem for finance is knowing what is worth investing in. New technologies have changed business investment opportunities completely, says Dr John Vaz, who teaches Business Finance on the Monash MBA program. Without a deep understanding of these fundamentals, the challenges of digital disruption are merely academic.

Finance is about efficiently and effectively channelling money to worthwhile investments. But what makes an investment worthwhile has been altered forever by technology.

In Australia, this trend is exemplified by Foxtel, Vaz explains.  The cable TV provider is under siege from online streaming video services like Netflix and Stan, which offer on-demand television and movies for a fraction of the monthly cost of a Foxtel subscription.

“The Foxtel business model is based on point-to-point infrastructure. It provides you with a box and connects to your house. The new competitors say we don’t care about your dedicated infrastructure - we will just use existing infrastructure. Your Foxtel infrastructure is irrelevant.”

Vaz takes a term from the internet to label this kind of agile exploitation of existing infrastructure: “packetisation”. Packetisation, Vaz argues, can undermine the value of some infrastructure while making other small packets of individually-owned infrastructure more valuable by pooling them together through software and the internet.

Electricity can be generated independently with solar panels on the roof of homes, for example. Transport will morph to self-driven or private cars, while holiday accommodation can be provided by renting out private residences. These may be more efficient and faster than building major power plants, transport infrastructure or new hotels.

“A virtual infrastructure – software - is able to pull together all these pieces of existing, tangible infrastructure into a viable alternative. That mean you won’t need to own large assets to achieve something. You can achieve enormous capacity through existing infrastructure by using packetisation and integration.”

Packetisation, therefore, poses an existential threat to the finance industry, Vaz says.  In certain circumstances, technology means individuals may be able to transact with each other without using dedicated banking infrastructure. This is what we see with Bitcoin, where micro transactions not economically viable through existing players can occur.

As they deal with these disruptive risks, financial firms must adapt to other changes as well. The analytical work once done by the highest-paid employees will increasingly be done by machine intelligence. Instead of business rule driven machines it will be adaptive learning.

“The role of the person becomes less about teaching the machine and more about dealing with the exceptions,” Vaz says. “Look at investment advisors and banks that are charging for their advice. Guess what? With machine intelligence we’re going to commoditise that.”

The evolving role of finance in business is a central element of the Monash MBA program. Business leaders of the future must understand the critical challenges now facing investment institutions and activities, and be involved in building and establishing next-generation finance and investment models.