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Where does innovation grow?
This document discusses innovation in the banking industry from 1870 to present day and provides strategies for organizations to foster innovation. It covers how banks have innovated through technologies like credit cards, ATMs, internet banking, and more recent innovations from companies like PayPal, Square, and neobanks. The document advocates taking a strategic approach to innovation by considering horizons of growth, focusing innovation efforts on purpose, people, process, protection, and performance. It provides models for optimizing existing businesses through renovation or transforming through transcending traditional models.
Where does innovation grow?
- 1. Jonah Burlingame Head ofStrategy, Extractable Where Does Innovation Grow?
- 2. 2 The Pace ofInnovation Extractable Image courtesy: Brett Ryder
- 3. 3 UNBUNDLING OFBANKS BANK-DRIVEN INNOVATION 1870 Moving money faster andfurther Wired Transfer 1950 Abstraction of cash and formalization of credit Credit Card 1967/68 The beginning of the ‘quiet revolution of customer experience’ ATM 1980s Extending customer service beyond the branch Phone Banking Late 90s The dawn of self-service banking Internet Banking Pneumatic Tubes in Drive-Thru 1940s Customer convenience for the car culture Extractable 1998 Answering unmet needs in financial transacting PayPal 2007/08 Democratization of digital solutions Smart Phones / App Store 2010 Square, PayPal, Stripe Alt Payment Systems 2015… Simple, Atom, Monzo, Revolut, N26, SoFi, LendingClub Neobanks Apple Card 2019 Digital-first credit card Facebook Libra 2020 Cryptocurrency to challenge the status quo
- 4. Extractable Learning Curve 4 BigTech/Fintech (challengers) Digital CXBusiness Financial Services (incumbents) Digital CXBusiness
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- 7. Extractable 7 INNOVATION REQUIRES ADIFFERENT APPROACH
- 8. 10 Years2 Years5 Years HORIZON 1 Tend to the core of today’s business HORIZON 2 Extend core business (new products & services) HORIZON 3 Consider wholly new opportunities (alt business models) Value Time • Operational efficiency • Project portfolio alignment • Incremental innovation • Strategic agility • Competitive innovation • North Star (vision) • Radical innovation 1 Years 8 Horizons of Growth
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- 10. Extractable Outputs of GrowthPlanning New solutions that attract customers and/or increase operational efficiency. Defining a vision to guide decision-making. Aligning the current project portfolio toward your North Star. The ability to react quickly to future scenarios because they have already considered various possible implications. H2/H3 ideas can inspire H1 improvements. Recognition as a leader of new ideas and disruptive products. 10 Strategic Agility Portfolio Strategy New Product/Service Inspiration PR North Star Vision
- 11. 11 Where Does InnovationGrow? Extractable
- 12. Five Ps ofInnovation 12Extractable
- 13. Extractable PURPOSE Which growth horizonswill be the teams’ focus? How narrowly will you define the purview of the team? Will it be blue ocean or specific to a line of business? What are the expected outputs of the program (incremental vs radical innovations, or both)? 13 Scope Goals Mission
- 14. Extractable PEOPLE Who will yourecruit? Big thinking rule breakers are typically found outside big companies. Does the team represent a diverse set of psychological perspectives? Are they comfortable with uncertainty inherent in conceptual exploration? What will you motivate the team? Passion, excitement and the promise of doing great things for customers can motivate far more than big budgets. 14 Ambiguity Diversity Mindset Motivation
- 15. Extractable PROCESS Methodology Culture How strict willyou adhere to a formal methodology? Which methodology? Centralized innovation teams typically develop a culture organically. A decentralized model will require that the message of innovation is woven into the fabric of the company culture. 15
- 16. 16 Generating (and Harvesting)Ideas Top Down (centralized) Bottom Up (decentralized) Extractable
- 17. Extractable PROTECTION A lab modelwould effectively protect 100% of the team’s time, whereas a decentralized model may carve out 15–20% time from daily operations. Innovation is an investment. Where will the funding come from ? Whether to fund a dedicated lab or a “20% time” program, funding is a consideration. People, space, equipment, hardware, software. Do you need to procure new resources? How will you govern the resources? 17 Resources Budget Time
- 18. The Time toInnovate 18 Source: Accelerating Digital Innovation Inside and Out, Deloitte, 2019 Extractable
- 19. Extractable PERFORMANCE What will successlook like? Are your incentives aligned with your success objectives? What are the key performance metrics you will use to gauge success along the way? How should the team report on progress and failure? How often? Who will they report to? 19 Reporting Incentives Success KPIs
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- 21. Extractable 21 Approaches toDigital Transformation Changing the way of doing business by optimizing technologies and processes in support of customer experience Evolve Reimagining traditional business models and processes and disrupting with new technologies Transcend Optimizing your existing business model and processes with current technologies Renovate
- 22. 22 Close the Gap DigitalCXBusiness Extractable It’s critical for organizations to become digitally-native and adopt customer-centric methodologies in order to get new experiences to market quickly and efficiently.
- 23. Extractable Experience Delivery Transactional Product SupportAdvisory Operational Technology Enablement Processes Optimization Data Integration Execution Business Insight Business Intelligence Growth & Innovation Strategy CX Culture Digital Self-Service Analog Channel Augmentation Vertical Digital Integration 23Extractable
- 24. 24 Start Incrementally Extractable Reward experimentation(not just results) Develop a conduit to capture ideas Deputize your ambassadors of change Let them play and incubate solutions
- 25. Extractable 25 WHAT NEWIDEASWILLYOU UNLOCK INYOUR ORGANIZATION?
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Editor's Notes
- #3 sudden pressure to be innovative. Over 2000 books published every year since 2016 No longer just enough to offer a good product and/or service at a fair price. How did this happen… innovation has largely been tied to technology. And the pace of technology has increased exponentially. Technology used to be associated with hardware - machines, computers, etc. To better understand…brief look back on a history of innovation in financial services.
- #4 1967/68 “the humble ATM…was really the synthesis of several emerging innovations,” including computer displays, magnetic stripe cards, algorithms that link an encrypted PIN with a customer’s accounts and networks that interlink a bank account to ATMs across the world. 1998 - PayPal enters the fray as a disruptive player. [this may mark the end of bank-driven innovation and the beginning of new competitors] So here we are in an age of high stakes, rapid innovation with competition from non-obvious players - and not just fintech startups, we’re talking about BigTech. How does a traditional highly-matrixed financial institution, who has based their entire existence on mitigating risk, calculated growth.... Become as innovative as their disruptors. What prevents innovation? Is it size, no - look at BigTech. Is it resources? No. that would have prevented most of the FinTech startups from being able to nibble away at your business. I find it interesting that financial institutions are seeking ways to move faster and be more nimble like a startup, while those same startups are trying to scale to be large companies. But here’s the secret to why those startups won’t simply become that large slow-moving financial institution…
- #5 Tech challengers are digital natives and they’ve nailed the customer experience, now they’re learning your business. Contrast this with traditional financial services and you see that they’ve mastered the business but are struggling to adopt digital and become customer experience experts. Challengers are digital natives and have nailed CX (customer experience), and they’re learning your business. Financial services organizations are experts with a deep product/service offering but are playing catch up in digital and CX.
- #6 Let’s first acknowledge a fundamental barrier to innovating — it’s unnatural. Established businesses are built for efficiency, which depends on predictability and repeatability — on breaking tasks down into their component parts and holding employees accountable for hitting their targets. But innovation is by definition unpredictable and uncertain.
- #7 So why join the arms race to innovate?
- #8 “innovation is the process of coming up with new ideas for new products and services, and turning those ideas into viable solutions.” I like this definition… it’s not just ideas, but the execution that matters. Innovation is considered what you deliver to the market today, but it often takes years of strategic effort prior to that moment to develop a good idea into a solution perfectly timed for the market. innovation comes in two basic forms: Incremental vs radical – It’s important to recognize the need for a distinction between running the business of today vs thinking about the business tomorrow,
- #9 McKinsey & Company offer a strategic framework for growth via the lenses of three time horizons. It sets up a philosophical bifurcation between ‘what is’ (the business today) vs ‘what could be’ (the business tomorrow). Think of Horizon 1 as the core of your business today. You’ve got teams dedicated to your revenue streams, quarterly reporting, key initiatives, etc. And their forecasts probably don’t look further than about 2 years out. Any innovation thinking in this Horizon will most likely be incremental improvements to existing products. Horizon 2 seeks to look at extensions of the core business - think new products and services. This is probably 2-5 years out. This is important strategic work and may often be done as an annual strategic planning initiative. Thinking on this horizon are often what produces key competitive innovations. Horizon 3 is a time horizon that most organizations have a tough time thinking about. It requires a completely different way of thinking. But it can generate some of the most inspiring ideas for the business. This is where companies craft their North Star stories. In order for an organization to grow it needs to ensure it provides value to the customer. The strategic-minded within your organization are looking into to the future to understand when your current value proposition may become commoditized. And they’re exploring new opportunities in customer value now.
- #11 New product/service. The ultimate outcome of the program is a brand new solution that takes the market by storm. Vision. Defining a vision for the business’ preferable future is valuable because it sets a North Star to guide decision making. A vision can take the form of storyboard, a piece of design fiction, video or prototype. Portfolio strategy. When the vision for the company’s preferable future is clear then it becomes easy to align the current project portfolio toward it. Strategic agility. When program sponsors and leadership are active participants in a foresight-thinking program they develop strategic agility — the ability to react quickly to future scenarios because they have already considered various possible implications. Inspiration. When H2/3 efforts are properly socialized with H1 managers they can be inspired to dream up enhancements to today’s products with new technologies. An inspirational prototype or video can go a long way at accelerating new ideas. PR. Let’s face it, companies hunger for a good PR story. Being recognized as a leader of new ideas and disruptive products keeps shareholders happy.
- #17 Top down. A centralized model typically has a dedicated team — perhaps even a lab sponsored by strategic leadership — think Google’s moonshot program called X in which a wholly separate entity works on ridiculously difficult problems. Bottom up. A democratic/decentralized model as formal program woven into the culture of the company encouraging employees to contribute ideas. Think 3M’s “15% time” program in which employees are allowed 15% of their working time to devote to pet projects.
- #18 Some degree of insulation from the core business is necessary for innovation machines to thrive. Sponsors of H2/H3 programs should insulate the team from H1 business cycles — this means decoupling from time, budget and bureaucracy of the normal day-to-day workings of the business. The degree of isolation is subject to the specifics of your business, but the team responsible for new ideas need time to germinate ideas outside the harsh climate of daily operations.
- #19 Businesses must now move at the pace of technology
- #22 The Renovate mindset. This the most conservative approach to digital – very tactical in nature. Any sort of improvement to customer experience and processes is incremental. In this mindset the organization has probably identified several channel experiences and related tech platforms that they wish to update. The approach is typically technology-driven with RFPs sent to the leading vendors and the subsequent customer experience is dictated by the features of the chosen platform. We call this “platform-induced experience mediocrity”. One of the key reasons for adopting a Renovation approach is due largely to the organization thinking about digital as an adjunct add-on to the core of the business – in other words, they continue to do business the same way they always have but now need to support new channels of delivering the core business offering to customers. A great deal of the digital strategy is driven to achieve or maintain competitive parity. At the other end of the digital approach spectrum is a Transcend mindset. This is characterized by the disruption that we all read about coming from fintechs and the tech giants. These new threats to banking are coming from digital natives (their core competencies are their digital expertise + a customer-centric approach) which continues to set the bar for digitally-enhanced experiences. A Transcend mindset is one in which the organization constantly seeks to redefine a traditional industry, product or service, etc. It’s daunting, right? Most FIs lose hope – short of building a digital direct bank from scratch they know that they will never be able to compete on the same level as fintech and big tech employing a ‘renovate’ approach. There is hope. There’s a third approach to digital called Evolve. This is where Digital Transformation comes in – the seeming buzzword du jour of which the definition would vary wildly depending on who you ask. We subscribe in a very simple definition. Digital Transformation is the change the organization goes through to reimagine how the organization does business – to do it better. It’s not about technology for technology’s sake. Successful transformation strategies start with customer-centered design-thinking and leverage technologies to solve customer problems. The organization must go beyond the mere implementation of technologies to also affect a cultural change to shift employee mindsets. They must become ambassadors for data-driven decision-making, and empowered to deliver service excellence at scale through CX-thinking methodologies.
- #24 At the business layer focus on obtaining customer insight. At the operations layer seek to gain efficiencies. And at the experience layer strive to improve the delivery of exceptional service.
- #25 In my experiences with credit unions I have always found a great deal of intelligent, extremely caring folks on the front lines of the org. I’ll bet they have a ton of ideas. Find those unique folks who are connectors across departments and provide them with access to key decision-makers who can sponsor incubation of good ideas. Lastly, innovation is an investment. Not all ideas will be winners – sometimes the idea is good but the timing for the market isn’t right. When you create an environment with diverse perspectives and the freedom to play and experiment sometimes the craziest idea becomes the genesis of a big hit.