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highlights

 

Remaking the Branch

There are few topics that so engage the minds of retail bankers these days as the future of the branch. The continual migration of customer transactions from the branch to electronic channels can no longer be ignored, particularly in an era when profitability is under pressure and every expense must be scrutinized.



The Mobile Transformation

The mobile banking landscape has changed greatly in recent years as customers graduated from simply checking their account balances on the cell phone to actually making payments via the device. Increasingly, mobile banking is transmuting into mobile payments.



Open Innovation for Competitive Advantage
Banks seeking to improve their innovation efforts are turning to ‘Open Innovation’ programs that leverage internal talent. by COLEY BROWN
Jan 15, 2014  |  1 Comments

Faced by competitive challenges from non-bank disruptors such as PayPal, Google and Apple, banks are stepping up their efforts to be more innovative. Many have established innovation teams, for example. A recent Accenture study pointed out, however, that in spite of funding and executive endorsements, many banks are still not satisfied with their innovation programs’ ability to deliver bottom-line results. These institutions often realize that many of the best solutions need to be pursued outside their internal organizations, sometimes in early-stage companies.

In response, many large banks have simply purchased outside companies or competitors with established innovations. While acquisition has its merits, it often comes with its own set of costs and hurdles. In this seller’s market, the best opportunities are gone quickly and expensively.

As an alternative approach, a growing number of banks are “incubating” innovation by finding and empowering their internal entrepreneurs. Leveraging these “intrapreneurs” can be the key to identifying, developing and executing internal innovative ideas, products and technologies and generating bottom-line growth. Once intrapreneurs are identified, their skills are allowed to flourish through an “Open Innovation” program, which is structured to find solutions to specific challenges by soliciting solutions and partnering with early-stage companies from outside the organization. This not only grows a bank’s innovation culture, but also retains internal innovative talent that is increasingly tempted to join early-stage companies in hopes of stardom.

One large global bank based in Europe, for example, created a global Innovation Center focused on improving the customer experience and experimenting with answers to global business challenges. The center is staffed with intrapreneurs from the bank’s various country units who are chartered with evaluating both internal solutions and external innovations from startups. In the first 18 months of the center’s operation, eight innovative solutions from early-stage external companies were moved to production.

Mentoring Process

Transforming an enterprise’s maze of good ideas into bottom-line results can be achieved by following three steps: identify the organization’s internal entrepreneurs; empower them with a process and program to build their entrepreneurial skills under experienced mentors; and leverage these empowered intrapreneurs to encourage others inside the organization.

This process borrows from a practice common among angel investors and venture capitalists: seeding their startup investments with seasoned executive mentors and board members to help their investments succeed. The Open Innovation approach facilitates the converse situation: startup founders and their teams mentor bank executives on how to be entrepreneurial and deliver results. The skills transfer is accomplished in part by following the startup’s example and teaching measured risk-taking, executing a sprint validation cycle and adopting a willingness to pivot when needed.

When this approach succeeds, banks can dramatically transition a small group of naturally innovative employees into a dynamic innovation engine. It must be noted that positive results can also come from a quick failure that does not waste resources. Part of what startups can teach is when to kill an idea that does not have merit and pivot to a better approach.

Recently, a U.S.-based online bank experimented with ListenLogic’s social media analytics product to determine the influence of social media comments. While the pilot produced interesting new data, the fact that it could not be tied back to an existing bank customer or specific individual for follow-up made the program less effective. The trial ended with a valuable learning experience for both the bank and startup. Based on the learning from this experiment, the bank focused on a new program to gather information on existing customers’ social media identities.

These types of Open Innovation programs result in a classic win/win. The early-stage company gets a bank partner with the means and expertise to promote and distribute their innovation. The bank, in turn, solves a vexing challenge while incubating its intrapreneurs under the mentorship of successful startup founders. Such a program requires banks to:

  • Assemble teams of intrapreneurs in an open and collaborative environment that includes the necessary executive “air cover” to experiment;
  • Find the right early-stage company and match its innovation with a defined business challenge;
  • Create a sprint validation process for combined teams of intrapreneurs and startup founders that focuses on proving or rejecting ideas quickly;
  • Establish an approved method for a bank to engage small, early-stage companies through progressive stages that does not crush the startup or overly expose the bank.

For one major bank, Vuzit, an entrepreneurial image processing and storage startup, was vital in creating a successful sprint validation process. Tasked with creating technology to quickly offer remote deposit services to customers, the bank’s internal intrapreneurs worked with the startup to deliver a fully functional prototype in three months for one-third the cost of the original project.

While Open Innovation programs were intended as an alternative to acquisitions, they have the added benefit of identifying a new stream of candidate firms for potential acquisition. Successfully partnering with an outside company identified through the Open Innovation program suggests a future, lower-risk purchase decision by the bank’s mergers and acquisition (M&A) group. It is a “try-before-you-buy” approach that dramatically lowers risk and increases M&A success rates.

This “try before you buy” approach was demonstrated recently by the acquisition of Clover Network Inc. by First Data Corp. Prior to the acquisition, the two organizations worked on a joint development project designing a point-of-sale system that was both innovative and robust enough to handle the transaction volumes of the second largest merchant processing platform in the United States. As a result of the project, it was clear that Clover’s platform was valuable to First Data, and that there was sufficient value to make an acquisition worthwhile. After a year of working together the acquisition process went quite smoothly.

Mr. Brown is CEO and co-founder of VisionMine, an Open Innovation consulting firm and internet portal that matches corporate business and technology challenges with startup innovations discovered by the firm. He can be reached at coleyb@VisionMine.com.

 

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comments

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jp nicols
1/21/2014 1:05 PM

I love attending things like Finovate and NextBank and seeing the perspective of startups with no legacy business model to protect and defend, and more research and development spending is coming from smaller firms now. According to the National Science Foundation’s Business Research and Development Survey, firms with greater than 25,000 employees accounted for only 40% of R&D spending in 2008, down from 70% in 1981. Besides seeing outside perspectives, bank innovators are always energized to meet each other at these events, too. It gets pretty lonely being surrounded by the “business prevention department” back at the office. It's hard to innovate in banks. It's even harder doing it alone.