NEW YORK, June 27, 2017 /PRNewswire/ -- Most executives of
middle-market companies not only expect their business to
experience disruption in the near future, but welcome it, according
to Disruption in the Middle Market, a report released today by
Capital One Commercial Bank. However, this optimistic view does not
always translate into action; only a small portion of middle market
companies have taken a full range of defensive measures to protect
against disruption's potentially destructive consequences.
Capital One surveyed more than 300 senior executives from
companies with annual revenues ranging from $100 million to $3 billion to determine their
views on disruption—a significant interruption to an existing
business arising from innovative technology, a new business model,
or political, economic and environmental forces.
The study revealed that attitudes toward disruption correlated
to size. Smaller middle-market companies are more likely than
their larger counterparts to be unprepared for disruption. The
report also highlighted a series of steps, such as strengthening
financial relationships, that smaller companies can take to catch
up.
"The concept of 'disruption' and its dramatic impact on markets
and industries is often seen as a contest between startups and very
large, established companies, but middle market companies are also
a key part of this dynamic," said David
Kucera, Senior Managing Director of Capital One's Financial
Institutions Group. "Some have the flexibility to be disruptors
themselves, while others are likely targets of disruption.
Their ability to survive and even flourish in the face of
disruption depends critically on their access to financial
resources."
Disruption in the Middle Market provides a detailed
picture of the views of middle-market executives about disruption
and the steps they are taking to address it. Eighty-eight percent
of respondents reported that their companies have already
experienced disruption or expect to experience it during the next
three years. However, only one-sixth of those surveyed
believe they are prepared to deal with a disruptive event. Despite
this lack of preparation, four-fifths of middle-market executives
view disruption as an opportunity, not a threat. Many of
these executives believe that disruption threatens their
industry—but not their own company. Forty-three percent said
that their industry is vulnerable to disruption, while just 18
percent reported that their own company is vulnerable.
Size proved the key determinant in a company's preparedness and
attitude toward disruption. Companies with revenue between
$2 billion and $3 billion are much
more likely to see a disruptive event as an opportunity than
companies in the $100 million to $499
million range. In addition, larger companies are more likely
to have insulated themselves from the effects of a disruptive event
and to be pursuing a disruptive strategy of their own that could
lead to a competitive advantage.
Financial Preparation Is Critical
The study revealed that a strong relationship with a stable
financial institution could play a critical role in helping a
middle-market company respond to disruptive forces. Sixty-eight
percent of those with an ongoing banking relationship expect to
need additional funding in the face of a disruption. These
companies will find it easier to arrange than the 32 percent
without a strong banking relationship. Here again, smaller
companies are at a disadvantage. Many lack the holistic
banking relationship needed to confront disruption, and instead are
willing to consider alternative sources of capital like
peer-to-peer lending and even crowdfunding.
"Companies at risk of disruption should look for established
financial partners that offer a broad and evolving selection of
services, combined with a deep understanding of the industry as the
marketplace changes," said Bob
McCarrick, Head of the Commercial & Industrial Banking
group at Capital One. "Those without solid, long-term financial
support are particularly vulnerable."
"Disruptive innovation is affecting companies of all
sizes—reframing opportunities and risk," said Anat Lechner, Clinical Professor of Management
and Organizations at New York
University Stern School of Business. "Disruptors take bold
steps to shift their value in ways that simultaneously create a
strategic edge for themselves, and create a disadvantage for others
who are holding to old business models and offerings"
Additional Findings
Almost one-third of middle market companies are passive in
the face of disruption
Success in the face of disruption
requires both preparation and the will to act. Companies that have
actively prepared for disruption and are pursuing a
disruptive strategy, we dubbed disruptors. They constituted
16 percent of the respondents. By contrast, delayers are not
prepared for a disruptive event and are not pursuing a disruptive
strategy. They accounted for 30 percent of the respondents.
- Virtually every disruptor—92 percent—has an in-house person or
team tasked with identifying threats, and 85 percent have created a
contingency plan. By contrast, only 41 percent of delayers have a
person or team dedicated to disruption and 24 percent have created
a contingency plan.
- Disruptors are four to five times as likely to have purchased
interruption insurance and to have implemented regular firewall
testing than delayers.
- Almost two-thirds (63 percent) of disruptors have increased
their overall R&D budget by 11 percent to 25 percent over the
last year. Thirty-three percent of delayers, on the other hand, did
not grow their R&D budget at all.
- Disruptors are almost three times more likely to have
sufficient banking relationships to provide financial advice and
support during a disruptive event than delayers, and are less
likely to require additional capital to remain competitive.
Small companies are much more likely to take a passive
approach to disruption
There is a clear correlation between
company size and whether a company is a disruptor or delayer.
- Just three percent of companies with revenues between
$100 million and $499 million are
disruptors, while 44 percent are delayers.
- By contrast, 27 percent of companies with revenues between
$2 billion and $3 billion annually
are disruptors, while only 13 percent are delayers.
Attitude toward disruption varies considerably by
industry
Middle market executives in some industries have
adopted a much more proactive approach to disruption than those in
others.
- Financial services and insurance companies are archetypical
disruptors. Forty-seven percent are quite or extremely prepared for
disruption, and 83 percent are pursuing a disruptive strategy. The
overall middle-market averages for the survey are 16 percent and 60
percent, respectively.
- Energy, resources, and chemicals companies tend to be classic
delayers. Eighty-three percent are slightly or not at all prepared
for a disruptive event (compared to 53 percent for the full
survey), and only 37 percent are pursuing a disruptive strategy
(compared to 60 percent overall).
Note to Editors
Capital One conducted this
survey from April 12, 2017 to
May 8, 2017 with the assistance of
Beresford Research, a market research firm. Three hundred and
one senior middle-market leaders—approximately 70 percent C-level
executives—were interviewed to determine their views on disruption
in the middle market. For purposes of the study, middle market
companies were defined as firms doing business in the United States with annual revenues between
$100 million and $3 billion.
About Capital One
Capital One Financial
Corporation (www.capitalone.com) is a financial holding company
whose subsidiaries, which include Capital One, N.A., and Capital
One Bank (USA), N.A., had
$241.2 billion in deposits and
$348.5 billion in total assets as of
March 31, 2017. Headquartered in
McLean, Virginia, Capital One
offers a broad spectrum of financial products and services
consumers, small businesses and commercial clients through a
variety of channels. Capital One, N.A. has branches located
primarily in New York,
Louisiana, Texas, Maryland, Virginia, New
Jersey and the District of
Columbia. A Fortune 500 company, Capital One trades on the
New York Stock Exchange under the symbol "COF" and is included in
the S&P 100 index.
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SOURCE Capital One Commercial Bank