1. Disruptive Technologies
Impact on Strategic Alliances, Partnerships & Channels
Phil Hogg
Vice-President, Strategic Alliances, Moneris Solutions
President, Association of Strategic Alliance Professionals (Toronto Chapter)
Co-Author, Financial Post Series on “Successful Strategic Alliances”

2. Agenda
I. An Introduction to Disruptive Technology
Theory
• Why Seemingly Great Companies Fail
• Sustaining versus Disruptive Innovation
• The Innovator’s Dilemma
II. Key Disruptive Technology Enablers
• Mobile Internet
• Cloud Computing
• The Internet of Things
III. Winning Partnership Strategies to Exploit
Disruptive Technology
• Strategic Alliances;
• Partnerships & Channels.

3. Overview of Moneris Solutions
Global Rank*• Established and incorporated in 2000
– Joint Venture between the Royal Bank of
Canada and the Bank of Montreal.
– Over 40% Market Share in Canada.
– Over 40 years of card processing experience.
• Corporate Head Office
– Toronto, Ontario.
• US Head Office
– Schaumburg, Illinois.
• Number of Merchants
– Process for 380,000 merchants.
• Transaction Processed/Year
– 3.5 Billion.
1. Bank of America
2. Vantiv
3. First Data
4. Chase Paymentech
5. Citi Merchant Services
6. WorldPay (EMEA)
7. Cielo
8. Moneris Solutions
9. Barclays
10. WorldPay (USA)
* Source: Nilson Report, Top 150 Acquirers Worldwide 2011, November, 2012

4. I. An Introduction to
Disruptive Technology Theory

5. • Background:
– Founded by George Eastman in 1880 and developed the first snapshot
camera in 1888
– Core products included film manufacturing, photofinishing, and cameras
– Market share of 90% for film and 85% for cameras by ‘76
• Sales:
– $1 Billion by 1962
– $10 Billion by 1981
– $20 Billion by 1992
• Technology Prowess:
– Invented the first digital camera in ’75 (patent in ’78)
– In 1986, invented the first megapixel sensor, capturing 1.4 million pixels
– Invented another 50 products that were tied to the capture or conversion of
digital images
When Being Rational Kills Your Business (I)

6. Eastman Kodak Files for Bankruptcy (2012)
• Profitability
– “We’re moving into an information-based company, but it is very hard to find
anything [with profit margins] like color photography that is legal”
• Bureaucracy
– With over 145,000 employees in a multi-layered organization, it was difficult to
change. Middle management thought they were in the film business and not the
imaging business.
• Too Little. Too Late
– By 2000, the value of digital cameras sold exceeded the value of film cameras
sold.
– Kodak “officially” entered the digital market in 2003.
Source: Kodak

7. When Being Rational Kills Your Business (II)
• Background:
– 1985, Blockbuster was founded by David Cook in Dallas, Texas
– 1987, Wayne Huizenga and two partners invested $18.5 Million for 50% of the
business using a similar franchise model as Waste Management (1 new store
every 24 hours)
– 1994, Viacom purchased Blockbuster for $8.4 Billion
– 1999, Viacom sells off 20% of company in an IPO
– 2004, Viacom sold Blockbuster to the public (Icahn buys10 million shares)
• Sales:
– $7.4 Million in 1987
– $2.2. Billion in 1994
– $6 Billion by 2005
• Technology:
– 2004, Blockbuster starts online business while eliminating late fees

8. Entering the Disruptive Technology “Perfect Storm”
Captain!
There’s just
too many
of them
Damn It!
Get Me
Spielberg on
the Radio!
Mark Walhberg & George Clooney
“The Perfect Storm”

9. Blockbuster Files for Bankruptcy (2011)
• Profitability Ran Supreme
– As the company changed ownership from Huizenga to Viacom to Icahn’s controlling interest,
strategy changed and maintaining profitability was paramount
• Misunderstood the Impact of Technology Changes (It is “Net” Flix)
– All understood that technology would change the business, but none thought it would destroy
a $6 Billion business.
• Challenges in Running a Start-Up within the Core Business
– The online business was a start-up. Blockbuster could not come to grips with starting a start-
up operationally or support for the fulfillment side of the business.

10. Disruptive Technology – The Origins
• Term coined by Clayton Christensen and Joseph Bower in
1995 in an article for the Harvard Business Review
entitled “Disruptive Technologies: Catching the Wave”.
• In 1997, Christensen wrote “The Innovator’s Dilemma”
where he further explored cases of disruptive innovation.
– The Economist, in 2011, named the Innovator’s Dilemma as one of
the six most important business books ever written.
• In 2003, Christensen wrote “The Innovator’s Solution”
where he replaced the term “disruptive technology” with
“disruptive innovation”

11. Sustaining Innovations
 Improvement to existing
markets and value networks.
 Improvements can either be
considered incremental or
radical.
 Industry Leaders have a high
probability of beating new
entrants in sustaining
technologies.
Influence & Shape
Existing Markets

12. Disruptive Innovations
 Help create a new market or
value network.
 Eventually disrupts an existing
market and value network over
a short or long period.
 Very difficult for Industry
Leaders to compete against
New Entrants as it changes the
whole market.
Transform Existing Markets
And Create New Ones

13. • Lower Performance Thresholds
– Lower performance metrics
– Industry Leaders existing clients do not
want to use the product.
• Unique Product Attributes
– A disruptive innovation usually offers
new features not found in today’s
market.
– A key feature in many disruptive
innovations is moving away from a
centralized business model.
• Lower Cost Base
– The firm establishing the disruptive
innovation has a lower cost base than
Industry Leaders.
Canon Countertop Photocopiers
Microsoft Operating System
Sony Portable Radios & TVs
Disruptive Innovations Characteristics
When first introduced…

14. The Disruptive Innovation Model
Performance
Time
Disruptive
Technologies
Performance that customers
can utilize or absorb
Industry Leaders Nearly Always Win
New Entrants Nearly Always Win
Pace of Technological
Progress
Sustaining Innovations
Source: Clayton Christensen, The Innovators Solution

15. Two Types of Disruptive Innovation
Performance
Time
Disruptive
Technologies
Performance that customers
can utilize or absorb
Pace of Technological
Progress
Sustaining Innovations
1. Low End Disruption
Clayton Christensen, The Innovator’s Solution
Non-consum
ers
or
Non-consum
ing
occasions
DifferentMeasure
OfPerformance
Time
2. New Market Disruption

16. US Integrated Steel Mills vs. Mini Mills
SteelQuality
Time
% of Tons
Rebar
7% Gross Margin
4%
Angle Iron: Bars & Rods
12% Gross Margin
8%
Structural Steel
18% Gross Margin
22%
Sheet Steel
25%-30% Gross Margin
55%
Source: Clayton Christensen, The Innovator’s Solution

17. The Innovator’s Dilemma
• Lessons Learned from Business School
– Customer
• Listen to your customer to understand future demands
and requirements, especially your most valuable
customers.
– Margin and Market for Growth
• Unrelenting focus on moving towards higher margin
products (even if it requires moving resources from lower
margin products). Focus on new markets that can
support growth for large organizations.
• When Confronted with a Disruptive Technology
– Customer
• Customers, especially most valued customer, reject the
product.
– Margin and Market for Growth
• Management rejects the project as it provides lower
margins to support the needs of large organizations and
thus, not considered a market for growth.

18. II. Key Disruptive Technology Enablers

19. McKinsey Global Institute
Twelve Potentially Economically Disruptive Technologies
Source: McKinsey Global Institute, Disruptive Technologies: Advances that will transform life, business and the global economy, May 2013

20. Mobile Internet

21. Mobile Internet – When First Introduced
• Lower Performance Thresholds
– Slow connectivity speeds
– Limited downloading of attachments
(20K for Mobitex)
– Few web pages had been designed for
mobile browsing
• Unique Product Attributes
– Allowed users to access e-mail,
mobility calling, text messages, and
access the internet
• Lower Cost Base
– Primary feature, and costs for the user,
was for the voice network. Data rates
for e-mail were reasonable.
Disruptive Innovation Characteristics

22. The Next Disruptive Force – Mobile Internet
• Global Mobile Traffic in 2012
– Increased by 70% in 2012
– Now represents 12x’s the size of the
entire global internet in 2000
– Mobile video traffic exceeded 50% for
first time
• Introduction of 4G
– 4G generated 19x’s more traffic on
average than non-4G connections
– 4G connections only represent 0.9 %
of the mobile connections today, but
account for 14% of the mobile data
traffic
• Offloading to Fixed Networks
– 33% of total mobile traffic was
offloaded onto fixed networks (w/o
offload, global traffic would have
increased by 96% rather than 70%)
Source: Cisco Visual Networking Index: Global Mobile Data Traffic Forecast Update, 2012-2017

23. Machine-to-Machine (“M2M”) Opportunities
• Machine-to-Machine* is:
– The ability of machines, assets
and devices exchange data with
people or company’s
management systems in need of
the information*
– Derived from telemetry technology
• A Disruptive Innovation Enabler**
– Over 60 Billion Machines on the
Planet
– 10x’s more connected machines than
people
– 15x’s more connected machines than
handsets
• On the Cusp of Stunning Growth
– Ericsson has forecasted mobile
connection growth of 50B
machines by 2020
• Transportation Government
• HealthCare Manufacturing
• Energy Education
• Retail Financial Services
• Oil & Gas
* Source: Webopedia ** Source: Frost & Sullivan
Industry Verticals

24. Machine-to-Machine (“M2M”) Applications
Fleet Management
Remote Patient Monitoring
Facilities Management
Device Monitoring & Mgmt.
Asset Management
Security Management
Smart Grid
Remote Inventory Management
Home Energy Management

25. Potential Impact by 2025
$3.7 Trillion to $10.8 Trillion per year by 2025
• Developing Nations
– 50% of the value derived by spreading
internet to developing nations
– Expected that 3.5 Billion citizens in
developing nations to have internet by
2025 (2 Billion via Mobile Internet)
• Health Care
– Potential to cut more than $2 Trillion in
the projected cost of chronic disease
– Patients with heart disease and
diabetes can be monitored through
ingestible or attached sensors to
transmit readings
• Education
– Potential to increase lesson quality,
improve student performance, and
increase graduation rates through
hybrid online/offline teaching models
• Public Sector
– Online services through mobile apps,
such as information requests, license
applications, and tax payments) can
enhance productivity
• Retail Sector
– Productivity gains by delivering retail
goods through a digital channel could
be 6-15 %.
– By 2025, 30%-50% of retail
transactions could take place online
• Mobile Payments
– Globally, cash payments represent
90% of the more than 3 trillion
transaction made every year
– Digital wallet technology is evolving
exponentially
Source: McKinsey Global Institute, Disruptive Technologies: Advances that will transform life, business and the global economy, May 2013

27. Cloud Computing
• Defined:
– Internet-based computing
whereby information, IT
resources, and software
applications are provided to
computers and mobile devices
on-demand
• Essential Characteristics:
– On-Demand Self Service
– Broad Network Access
– Resource Pooling
– Rapid Elasticity
– Measured Service
• Service Models:
– Software as a Service (“SaaS”)
– Platform as a Service (“PaaS”)
– Infrastructure as a Service
(“IaaS”)
• Deployment Models:
– Private Cloud
– Community Cloud
– Public Cloud
– Hybrid Cloud
National Institute of Standards & Technology, Special Publication 800-145

28. Created by Sam Johnston

29. Why Cloud Computing is Disruptive…
• Lower Performance Thresholds
– Not as Secure
– Not as Fast
– Not as reliable as your internal
network
• Unique Product Attributes
– Lower OPEX and CAPEX
required to run
– Rapid elasticity
– Broad Network Access
• Lower Cost Base
– Costs are spread over many,
many users

30. Amazon Web Services
• Started in 2006 by Amazon,
originally as a way to make use of
excess computer capacity not used
for Amazon’s own retail shopping
site.
• Revenues of $2 Billion, supporting
“hundreds of thousands of
customers in over 190 countries”.
• Morgan Stanley believes that AWS
will reach $24 Billion in Revenues
by 2022.
– In a recent report they write that
AWS is making waves in
conventional IT by “applying retail
economics”.

31. Potential Impact by 2025
$1.7 Trillion to $6.2 Trillion per year by 2025
• Sale of Cloud Based Services
– $1.2T to $5.5T could be in the form of
surpluses in selling products & services
– An additional 2B to 3B additional
internet users
– In developing countries, estimated that
there will be 3.5B internet users; many
of whom will only have mobile devices
• Productivity Improvements
– Estimated that $500B to $700B could
come in the form of productivity
improvements for the enterprise IT
– Includes savings in:
• Infrastructure (Both Capital & Operating
Expenses)
• Software Development & Packaged
Software Costs
Source: McKinsey Global Institute, Disruptive Technologies: Advances that will transform life, business and the global economy, May 2013

33. The Internet of Things
• Defined:
– The Internet of Things refers to the
use of:
• sensors,
• actuators, and
• data communications technology
– built into physical objects that
enable those objects to be:
• Tracked,
• Coordinated, or
• Controlled
– Across a data network or Internet
• Three Essential Steps:
– Capturing data from the Object
– Aggregating that data from the
object
– Acting on that Information
• The Technology
– From simple identification tags to
complex sensors and actuators
– Radio Frequency Identification
Tags being the least expensive
– Micro electromechanical Systems
(MEMS) allow very sophisticated
sensors in virtually any object (and
even people)
• Applications
– RFID to track the flow of raw
materials, parts, and goods through
production and distributions
– RFID tags on containers and boxes
are used to track products as they
make their way through
warehouses and transportation
hubs to store shelves and even all
the way to the consumer

34. Technology Roadmap – The Internet of Things
Source: SRI Consulting Business Intelligence

35. Potential Impact by 2025
$2.7 Trillion to $6.2 Trillion per year by 2025
• Health Care
– Estimated an economic impact of
$1.1T to $2.5T per year by 2025
– Assist with in-hospital health monitoring
where physicians and nurses have
access to real-time data
– Using sensors on drug bottles and
packages to reduce the $75B worth of
counterfeit drugs sold each year
• Manufacturing
– Savings of $900B to $2.3T
– Improvements in operational efficiency:
• Tracking machinery
• Supply chain tracking & management
• Flow of inventory around shop floor
• Oil, Metal & Mineral Extraction
– Savings of $100B to $200B
– Help find and map mineral deposits
and increase recoverability
• Smart Electrical Grid
– Savings of $200B to $500B
– For consumers of energy, demand-
management applications that could
reduce costly peak usage
– For utility operators, real-time
information on the state of the grid in
reducing total outage times
• Agriculture
– Savings of $100B per year
– Leaf sensors can measure stress in
plants base upon moisture levels
– Soil sensors can gather information on
how water moves through the soil
• Urban Infrastructure
– Traffic
– Waste Water Systems
– Garbage collection
– Water Managemet
Source: McKinsey Global Institute, Disruptive Technologies: Advances that will transform life, business and the global economy, May 2013

36. III. Winning Partnership Strategies to
Exploit Disruptive Technology

37. Corporate Strategies
Responses to Disruptive Innovation
In the Innovator’s Dilemma, Christensen suggests the following three
methods to handle disruptive innovation in an organization:
1. Acquisition 3. Spin-Off2. Internal Development

38. Corporate Strategies
Responses to Disruptive Innovation
In the Innovator’s Dilemma, Christensen suggests the following three
methods to handle disruptive innovation in an organization:
1. Acquisition 3. Spin-Off2. Internal Development
4. Strategic Alliances

39. Strategic Alliance Strategies
A Low Cost Corporate Strategy for Disruptive Technology
1. Acquisition
3. Spin-Off
2. Internal Development
Advantages
• Least Cost Solution
• The “Borrowing” Strategy
• Quick Entry into Disruptive Technology Market
• Limited Integration Challenges
• Usually quicker exit if disruptive innovation is not
successful

40. Moneris’ Disruptive Innovation Strategy
Internal Development & Strategic Alliances
• Recognizing the disruptive impact of smart phones and tablets as vehicles for
payment processing, Moneris used an internal development strategy to establish:
– Low End Disruption
• For its existing client base, Moneris introduced eSELECTplus Mobile
– New Market Disruption
• To attract non-consumers, Moneris introduced its Payd service
• Being the first to market in Canada, established our technical leadership
• Required Strategic Alliances strategy for Retail Distribution Capabilities
Performance
Time
Sustaining Strategy
Low-End Disruption:
DifferentMeasure
OfPerformance
New-Market Disruption
Time

41. 1 Giga Ethernet
100M Ethernet
10M Ethernet
* Graph Source: Ericsson Canada
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
10M HSPA
100M LTE
1Giga LTE*A (“4G”)
MobilePC
10 Years
Strategic Alliance Strategies – Mobile Internet
“It’s Déjà Vu All Over Again”
Internet Protocol Networks
The First Wave
=
Enhanced Strategic Alliance Activity
High Speed Mobile Data
The Second Wave
=
Enhanced Strategic Alliance Activity
Speed

42. Recent Strategic Alliances for Mobile Internet
Mobile Wallet
IBM MobileFirst
US Department of Defence
Smart Grid Initiative
Single, Global M2M Platform
Mobile Commerce
Usage Based Insurance

43. Strategic Alliance Strategies – Existing Alliances
Analyse for “Strategic Fit”
Strategic Fit
• Must posses the following attributes:
– Compelling/Competitive Market
Strategy
• Supports sufficient revenue and net
income for a win/win alliance
• Provides strong value add to the
customer
– Strategic Alignment
• Compatible long term strategies
• Complementary Strategic Drivers
• Synergistic Strengths & Weaknesses
• As a Disruptive Innovation matures,
Strategic Alliances built on legacy
technology are at risk of no longer
supporting the strategic drivers originally
considered in establishing the strategic
alliance in the first place.
X

44. Strategic Alliance Strategies – Existing Alliances
Analyse for “Operational Fit”
Operational Fit
• The evaluation of a good operational fit
involves evaluating:
– The degree to which alliance partners’
day to day business practices and
policies are compatible;
– the effectiveness of the system of
metrics and rewards, and,
– organizational support to the success
of the alliance.
• When an existing alliance is pressure
due to a disruptor entering their
market, they will retrench from existing
alliances.
Operational Fit Challenges
Resource Allocation
Survival instincts will cause reduced staff and
capital.
Communications
As the party retrenches, external communications
will lessen.
Time Allocation
Company alliance responsiveness will be
reduced to focus internally.
Day-to-Day Problem Solving
Problems will not likely be solved early as the
retrenching party has reduced resources
Corporate Culture
Likely to change due to intense pressure from
Disruptive Innovator.

45. Channel Partner Strategies – IT Distributors
• While the technology landscape is changing,
the VAR Ecosystem will remain a central
component of how SME’s will adopt and
procure new technology.
• VARs have been struggling with a
challenging market, changes in technology,
and skill gaps in key areas.
– VARs require more from an IT Distributor than
a partner portal and a 1-800 for service
– IT Distributors must support VARs by offering
them IT education and marketing programs
designed to build upon their growth and
expertise in disruptive technologies
• IT Distributors have to stay ahead of the
curve in understanding how disruptive
technology will impact hardware, software
and services sales.
• Finally, the time is right for IT Distributors to
start searching out and researching strategic
alliance partners to establish additional
revenue enhancing opportunities.

46. Channel Partner Strategies – Value Added
Resellers
• Disruptive Technologies, such as
Cloud Computing, will accelerate
the growth of new customers in
the Small & Medium Enterprise
Market
• Given the change VARs must
focus on providing their clients
with additional options, including
the provision of managed
services.
• VARs, and potentially with the
assistance of IT Distributors,
should seek out alternative
channel relationships to off-set the
reduced revenue erosion from
some disruptive technologies
– e.g. partnering with payment
processors

47. In Conclusion…
• Encourage you to get better acquainted with disruptive innovation theories and
practice
• From a strategic management perspective, disruptive innovation can create
challenges and opportunities.
– Make Use of the Alliance Health Check
• Look for Disruption activity
• Review Strategic Fit
• Review Operational Fit
– Look at Disruptors as Potential Strategic Alliance Candidates
• From a Channel Management perspective, IT Distributors must provide
educational and marketing support to their VAR Community to educate them
on Disruptive Technology and winning strategies to garner additional revenue
• VARs should also seek out additional channel relationships based upon
Disruptive Technology changes to enhance revenue opportunities.

48. Phil Hogg
Vice-President, Strategic Alliances
Moneris Solutions
Phil.hogg@moneris.com
www.linkedin.com/in/philhogg