FRANKFURT: The top executives of many a corporate giant must feel like the fictional character Gulliver, waking up to find themselves under attack from modern-day Lilliputians, small start-up companies which overwhelm their established rivals with new technologies.

The old powers of market incumbents — massive scale, control over distribution, brand power, millions of customer relationships — are no longer seen as the obstacles they once were to agile rivals with innovative business models.

A new survey finds business leaders believe four out of 10 top-ranked companies in their industries worldwide won’t survive the next five years.

They blame the accelerating change in technology, shifting business models and a need to merge to cut costs in order to ensure they don’t become footnotes in someone else’s corporate history.

“Not just lone companies, but entire industries are being side-swiped by these effects,” said James Macaulay, co-author of the study, which polled 941 business leaders from a dozen industries in the world’s 13 biggest economies.

“Digital disruption now has the potential to overturn incumbents and reshape markets faster than perhaps any force in history,” the survey states.

The survey was conducted by a research centre at top-ranked Swiss business school IMD, the International Institute for Management Development, with backing from Internet equipment maker Cisco, where Macaulay works as a consultant.

INDUSTRIES AT RISK: Industries with the highest number of top-rated companies at risk were hospitality/travel, media and entertainment, retail, financial services and consumer goods/manufacturing, in that order, the survey showed.

Meanwhile, industries which still largely deliver physical products or services such as pharmaceuticals, utilities and the oil and gas sectors were rated the least likely to be disrupted.

Michael Wade, another co-author of the survey, said there were some things software could not replace. “Consumers are still unlikely to take an app if they get a headache,” joked Wade, a professor of strategy at the Lausanne-based IMD business school.

Meanwhile in travel e-commerce aggregators have taken millions of customers from direct bookings with hotels and airlines already struggling with a decade of decline in business travel amid the economic and structural challenges.

Karl Ulrich Garnadt, chief executive of the German Airlines division of Deutsche Lufthansa AG, told venture investors in Berlin this month that his industry still spends too much time worrying about direct competitors in Asia or the Mideast.

He noted how the industry missed the rise of mobile travel apps, the top dozen of which now collectively have a valuation around 88 billion euros ($99 billion), while the market capitalisation of Lufthansa, Europe’s largest airline group, has shrunk to 5.5 billion euros from double that a decade ago.

Towards that end, Lufthansa is seeking ways to woo back customers who expect them to deliver more than boarding passes to their mobile phones. With free on-board Wi-Fi soon to be available on every plane, he wants flight attendants to use new apps to help frequent travellers make new travel bookings in mid-air.

In banking big lenders are now all at giving board-level attention to the rapid growth of “fintech” start-ups in markets from mortgage-lending to wealth management to small business loans.

In an era of cloud computing and services delivered to smartphones, fintech start-ups have no need to duplicate the retail branch networks that tied customers to banks. And new players aren’t saddled with making heavy investments in creaky, decades-old back-office banking systems.

HUNT OR BE HUNTED: In corporate circles, the most common sobriquet for these digital threats is Google or, less frequently, Amazon.

But, depending on the industry, the big threat goes by different names: for automakers and transport companies, it is Tesla, the luxury electric car company, or Uber, the online taxi service. For hotels and airlines, it’s Airbnb or Trivago, now majority owned by Expedia.

BMW-owned British carmaker Mini said this week customers would in the future be able to offer their private vehicles for car-sharing, mindful of a trend amongst younger drivers to not have their own cars.

The challengers offer massive improvements in how customers use the products or services of established businesses. They combine that with finding ways to slash costs and enter markets without investing heavily to own physical assets or distribution infrastructure, says McPhee.

Uber, the online taxi-hailing service is now applying similar strategies to sign up drivers to deliver everything from groceries to heavy equipment, in a challenge to logistics giants like FedEx and UPS.

McPhee notes the historical parallel to what occurred after the advent of the Web in the mid 1990s: Just 25 per cent of the Fortune 100 top US companies were still in existence 15 years later.

Published in Dawn, June 28th, 2015

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