2. 2
The Pace of Innovation
Extractable
Image courtesy: Brett Ryder
3. 3
UNBUNDLING
OFBANKS
BANK-DRIVEN
INNOVATION
1870
Moving money
faster and further
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
8. 10 Years2 Years 5 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
10. Extractable
Outputs of Growth Planning
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
13. Extractable
PURPOSE
Which growth horizons will 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 you recruit? 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 will you 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
17. Extractable
PROTECTION
A lab model would 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 to Innovate
18
Source: Accelerating Digital Innovation Inside and Out, Deloitte,
2019
Extractable
19. Extractable
PERFORMANCE
What will success look 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
21. Extractable 21
Approaches to Digital 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
Digital CXBusiness
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 Support Advisory
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
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.
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…
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.
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.
So why join the arms race to innovate?
“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,
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.
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.
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.
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.
Businesses must now move at the pace of technology
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.
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.
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.