Whatever happened to transformation theories?

22 October 2005

Why has the world's honeymoon with organisations and concepts that were expected to revolutionise our world ended? Capco's Shahin Shojai, director of strategic research and Samuel Wang, global head of marketing & PR, identify some trends that sent predictions into a tailspin.

During the heydays of the technological revolution, a large number of prognosticators made predictions about how the world we live in would be transformed by the tremendous strides made in technology. Of course, since that time the world's honeymoon with those organisations and concepts that were expected to revolutionise our world has ended and some people have even grown to be repelled by those same buzzwords that were once revered by the major global industries.

But, why were so many people so wrong? Could it be that the predictions were extremely positive in order to, as some suggest, help boost the share prices of those companies that the investment banking institutions in which these analysts were employed were helping to take public. Why were the margins of error so large? Could it be that other factors are responsible and that the original predictions were not incorrect, if somewhat exaggerated? These are the types of questions we aim to answer in order to identify what trends might be anticipated for the future.

What ever happened to disintermediation?
One of the most widespread predictions of the late 1990's was that financial intermediaries would be disintermediated. The intermediaries that were expected to be eradicated were not, however, limited to brokers. Predictions, including one made by one of the authors of this paper, also focused on disintermediating the investment management companies, by arguing that custom-tailored mutual funds, which are structured by choosing a combination of money managers from among a list of best performers to create your very own discretionary structure, would challenge the more generic and one-size-fits-all products manufactured by the mutual fund industry.

Neither the disintermediation of the brokers, especially at the top end, the private bankers, nor the fund management companies took place. If anything, the reverse is true. The value of advice has in fact gone up, mainly because while investors realised that they should question the advice of their advisors they also realised that it is not easy to make money from markets outside of a speculative bubble.