April 29, 2019 | Written by: David Kwon
Categorized: Industry Insights | News & Events
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Financial companies have always been innovators. But in this age of digital transformation, innovation in financial services is more important than ever to stay competitive. Innovation processes, traditionally limited to product development, are now spreading throughout the entire organization.
Many companies, however, are not yet well-positioned to reap the benefits. When researchers from the IESE Business School asked 29 large companies across 11 industries and four countries about their innovation practices, only 23 percent said that they had delivered “significant innovation.”
What impedes innovation in a large corporation
Innovation teams in large companies often suffer from a fatal flaw: They end up looking and working like the large financial corporations that they are a part of. This makes them more risk-averse, and that’s anathema to innovation, which is supposed to push boundaries, not be constrained by them. As a consequence, innovation teams don’t think disruptively enough, opting to meet process measures instead of coming up with revolutionary ideas that have major impact on business results. What use is adding incremental features if the results from the innovation effort aren’t any different from business as usual?
In the early state, the innovative concept is shielded and nurtured by the innovation team, but at some point, the proof of concept must be sent on the next stage of its journey, to become an operational product, service or feature. That’s when the real problems start. The innovation must run the gauntlet of internal control functions, including security, compliance, architecture and more. Each of these will hammer and hack at the innovation until it is normalized to fit into the company’s business-as-usual operating model.
According to a Harvard Business Review strategy and innovation survey, 55 percent of corporate leaders said that politics, turf wars and a lack of alignment were the biggest obstacles to innovation in their companies. Not-invented-here syndrome is the enemy of open innovation.
A new model
To dismantle the status quo and rekindle innovation in financial services, your innovation team needs a new environment altogether. By putting the team in an environment designed to support innovation, you give it a chance to thrive. There are several ways to give innovation teams breathing room:
- A new space outside your company’s walls: Renting a digital studio or garage space from a strategic partner gives the innovation team a new, vibrant environment in which they will be able to stretch their wings and think differently about how to design products, services and features. Dedicated service providers such as WeWork and IBM iX Digital Studio offer incubator-style spaces tailored for innovation teams. About 40 percent of the Fortune 500 companies who rent office space through WeWork chose to do so because they wanted a more creative entrepreneurial environment.
- Capability to develop production-ready outputs: Innovation teams can avoid the gaps and rework that often accompany an innovation’s move into the production phase by equipping themselves with a production-grade development environment. Thanks to cloud and virtualization technology, production-grade software development environments can be set up cost-effectively, even for a small innovation team. The automated DevOps processes allow continuous build-test-release, enabling the innovation team to iteratively pilot-test the product with end users.
- Internal control process that accelerates innovation: Challenge your internal functions to design new processes that support innovation. New control processes should be custom-designed for innovation — fast, flexible and accommodating — rather than offering a one-size-fits-all approach.
- Diversified talent: One danger of innovating only using seasoned employees is the tendency for everyone to think alike. Fresh talent from diverse backgrounds can disrupt this groupthink to offer different perspectives on innovation. The Harvard Business Review reports a direct correlation between diversity — in age and gender, yes, but in ethnicity, career path, industry background and education, too — and innovation. The most diverse companies showed a 19 percent uptick in innovation-based revenues, the report says. Mixing the innovation team with talents from an innovative company that knows your industry will diversify the team’s perspective and help them be more disruptive in their thinking.
- Driving change from the top: Whichever techniques a company decides to adopt, senior sponsorship is key. Many of these techniques involve making significant cultural changes. Executive sponsors are the only ones who can remove the internal hurdles that stand in the way. Rethinking the innovative process is a daunting task, especially for large companies, but the results could be transformative.
Like trying to get a big project done in a noisy coffee shop or a cluttered study, innovation can only be as productive as the environment that surrounds it. Take your innovation outside — and watch it thrive.