Institutionalizing Innovation

By Kenneth Cline

Bank of America's Catherine Kenworthy describes how financial institutions can make product innovation "repeatable, consistent and integrated."

Financial services is not known for innovation. Checking account products, for example, are similar from one bank to the next, with only slight variations between them. Innovations that do arise, such as "free checking," tend to be easily copied.

Yet competition is so intense in today's retail marketplace that institutions must seek every advantage to gain share. While innovative products can often provide that edge, the trick is to produce a constant stream of innovations so gains are consistent and repeatable.

Bank of America Corp. believes it has found a way to do that with a product innovation process that includes idea champions, screening committees and rigorous tracking methodology. The Charlotte-based company says the process essentially provides managers with a constant supply of implementation-ready new ideas that can spur revenue growth.

"Revenue growth can't be based on one person having a great idea one day. It's got to be based on a stream of activity, a portfolio of work that will produce an intrinsically higher rate of revenue growth," says Catherine S. Kenworthy, BofA's consumer segment marketing executive.

While it sounds simple, designing such a process requires a lot of work, since creativity is intrinsically hard to "manage." "The essential paradox is this: if there's too much process, you're going to stifle creativity with excessive bureaucracy. You need to create an outlet for that creativity, but do it in a way that also ensures a level of accountability," Kenworthy says.

Some of the products that emerged from this process enabled Bank of America to expand its reach in targeted markets such as Hispanics and college students. "Nuevo Futuro," an entry-level checking account designed for Hispanic customers who do not currently use banking services, generated 144,000 new accounts in its first two months. "CampusEdge," which provides students with a one-time fee waiver if their accounts fall into overdraft status, helped Bank of America double its share of the student market in its territory.

Banking Strategies spoke with Kenworthy at BAI's SmartTactics for Branch Delivery and Sales Management Conference.

Banking Strategies: Banking is not generally thought of as an industry marked by product innovation. Products are fairly undifferentiated, from the customer's point of view. How is Bank of America trying to overcome that tradition?

Kenworthy: Part of the problem has to do with the complexity of financial services companies. Getting everyone on the same bus at the same time to drive an integrated, crisp execution is not easy, since different departments tend to operate in a vacuum.

A lot of the product innovation work I've been involved with is focused on generating a more consistent, repeatable and integrated execution in this area. That will produce a higher volume and faster velocity of new products.

Banking Strategies: Why the emphasis on "repeatable, consistent and integrated"?

Kenworthy: It's important for both customers and shareholders.

For customers, it involves that moment of truth when they walk into the banking center with a question or issue. Can we handle that issue/concern in a way that reflects all parties working on the same team with the same knowledge and the same ability to execute? So, consistent and integrated execution is important for customers.

For our shareholders, we see innovation as a way of accelerating revenue growth. And for that to happen, innovation has to be sustainable or repeatable. Revenue growth can't be based on one person having a great idea one day. It's got to be based on a stream of activity, a portfolio of work that will produce an intrinsically higher rate of revenue growth.

Banking Strategies: So you're essentially trying to institutionalize product innovation?

Kenworthy: Absolutely. And we have many examples to point to in terms of how this process is transforming the way we do product innovation to generate much higher levels of throughput.

We also have a new account for college students called CampusEdge, which provides a onetime fee waiver for various problems that inexperienced customers might run into, such as overdrawing on the account. The introduction of this product immediately reversed the two-year negative growth trend we had experienced in the student market.

Essentially, we have developed over the last few years a new process for evaluating creative ideas and taking them to the market. The process resembles a giant funnel, with many ideas entering at the top and only a few coming out at the bottom. In 2003, for example, we began with 111 potential products in the queue. We launched only five.

We strive for a disciplined approach at each stage in the process so we don't push products to market based on intuition or gut feeling. We start initially with a conceptual question: is this a relatively good idea compared to other choices? As we get deeper into the process, we look more closely at financial assumptions, technology requirements, and also develop more detailed marketing and training plans.

This process at least puts an objective framework around the classic question involving new products: why didn't it sell? The age-old debate revolves around whether the sales people failed in their efforts or whether the product itself wasn't any good.

Our innovation process tries to get to the heart of that issue by creating an ongoing dialogue between the sales team and the product team so there's a joint commitment. It limits the backtracking on both sides. Yet throughout the control phase, there's a lot of tough, disciplined business conversation.

Banking Strategies: How long does this process typically take?

Kenworthy: It depends. We had one product that went from concept to launch in just three weeks. That was our Risk-Free CD, launched in the summer of 2002. It allowed customers to withdraw their money from the CD without penalty as long as they put it back into another Bank of America product. In the wake of the 9/11 terrorist attacks, this gave people more confidence about investing their money. It attracted $30 billion in deposits.

Other new product introductions involve multi-year efforts. It can really run the gamut depending on the nature of the risk and the nature of the opportunity.

One of the things we've spent a lot of time thinking about is the difference between breakthrough innovation and more straightforward innovation. There are situations where you want to go for a breakthrough. That's certainly part of our payments strategy. But there are also occasions when more straightforward innovation will do the job.

We use customer feedback, which we call "the voice of the customer," to decide which kind of innovation is appropriate. In some cases, this feedback will help winnow out those ideas that are more whizzbang than customers need or want. Sometimes a simple answer can go a long way.

Banking Strategies: How do you collect that customer input? What techniques do you use?

Kenworthy: We use qualitative surveys, focus groups, and quantitative research. Sometimes, we'll use something as sophisticated as conjoint analysis, which is a way of analyzing groups of choices. A lot of our tools are designed to solve, but not over-solve, the customer need.

Some companies put too much faith in pilot projects. They say, if we really want to know what customers think, let's pilot it and that will tell us. But there are many challenges and all kinds of interpretational issues that go along with that.

So no research technique is perfect. You pick one that's the most pragmatic choice for the need. Sometimes the good old-fashioned focus group can go a long way.

Banking Strategies: Where do you get the ideas to start with?

Kenworthy: They come from three categories.

One has to do with the customer segments for which we decide to compete. Clearly, the Hispanic market is one good example of that. We try to understand the financial dissonance in the lives of those customers and gain insights into how to make their financial lives better. Hispanic customers, for example, have a tendency to seek out a savings account when their needs would be better served by having both a checking and a savings account.

The second category is the ideas contributed by our own teams of people working on various challenges. That can create a good portfolio of opportunities for us to sift through. But if we can't make the case that a particular idea is directly germane to the needs of the customer segment we're competing for, the idea will not proceed through the process.

The third category involves looking for ways to solve financial issues or challenges. When we have, for example, potential dissonance between a customer objective or need and a company fee objective, we look for a financial solution driven by the customer to get to a better answer.

Banking Strategies: How do you then vet these various ideas?

Kenworthy: We go through a research phase, taking input from both customers and bank associates. We initially go through qualitative/focus group kind of research, then zero in on quantitative research to pinpoint where we see the unmet need and how a solution or concept can be compelling in terms of bridging that gap.

We use employee input, what we call "the voice of the associate," to reality test the concepts and bullet proof them in a way that would never emerge out of pure customer research.

Banking Strategies: Isn't customer need the critical element?

Kenworthy: Customers may present a need, but it may not be their full need. Customers don't want to be bankers. They don't want to have to think about the full execution of their need. So there's an interpretational exercise involved here. We can come up with a great conceptual solution to a customer problem, but it's no good if it lacks executional practicality.

The voice of the associate is needed to provide an elaboration on customer needs. Employees can also develop scenarios for issues customers may not necessarily anticipate.

Banking Strategies: At what stage do most of the ideas get dropped?

Kenworthy: Our goal is to really sift out the very best ideas early in the process, and then make sure those happen and work. For 90% of them, we don't want to put in the effort needed to build business cases. So that 90% gets killed early in the defining stage.

Banking Strategies: How do you avoid "analysis paralysis" in this process, while also avoiding overly strict deadlines?

Kenworthy: There are two kinds of potential errors here. The first is throwing out a date that we never could have met in the first place. The other potential mistake is putting the date so far out there that it leads to analysis paralysis.

In the end, it's somebody's day job to work the initiative. Everybody may have a point of view, but especially early in the process, a product developer is accountable for having the best perspective on how much work needs to be done by whom to reach a decision point on a proposed product.

Banking Strategies: So somebody has to be in charge?

Kenworthy: Of every initiative. And their performance is based on the percentage of times they met the deadline for decision-making points in our new product introduction process across the lifecycle of the project.

Banking Strategies: Does every proposed new product have its own product manager?

Kenworthy: Yes. Somebody is accountable for it. Of course, they won't just work on that one idea. But when other people provide input, it's always steered back to that one person.

The product manager then makes a recommendation to the steering committee, which is the arbiter. The committee governs the whole process, representing sales, marketing, finance, technology, operations, etc. When an idea comes through, the committee holds a vote where every single person has a say: go or no go. The decision doesn't have to be unanimous but everyone votes.

Once the decision is made, there's an expectation that everyone supports the decision.

There isn't just one steering committee, by the way; there are several different steering committees, for different products and channels. One committee may be looking at deposit products, another at debit cards. From those steering committees, ideas go up to the segment level committee, where I participate. This committee decides the things we want to prioritize.

Banking Strategies: So idea generation is a shared responsibility around the company?

Kenworthy: Absolutely. At different integration points across the company, there are people who are responsible for idea generation. There's somebody for deposits, for consumer real estate, for cards, etc. So there are different people who are driving that process and fully accountable for it.

Banking Strategies: How do you track or measure the progression of a proposal from the idea stage to segment level committee?

Kenworthy: Unless you're measuring the process itself, I would argue it's really not a process. Companies like Sony are extremely focused and disciplined in their product development. There's no room for chitchat. They have a very specific set of steps, actions and outcomes that are components of the overall process.

The essential paradox is this: if there's too much process, you're going to stifle creativity with excessive bureaucracy. You need to create an outlet for that creativity, but do it in a way that also ensures a level of accountability.

That's why execution measurement is so important. You shouldn't feel so tightly roped into the process that you can't meander a bit down a side street. But you should also be required to come back to the table after a date certain and put forth a factual representation of the opportunity.

Banking Strategies: Isn't there a danger of this process becoming too expensive and time-consuming?

Kenworthy: This process results in very finite decisions, so there's not a lot of shifting around or adjustments at the end. By the time we get to the end, we don't need to look at any more options or variations. We've looked at every possible angle. And if we find the project is not worth it, we go on to other opportunities.

Banking Strategies: How much senior management support is required for a process like this to work?

Kenworthy: I saw an article recently about the most innovative companies in the world, like GE and Nokia. A common theme among these companies was the commitment of every CEO to innovation. They viewed it as crucial to their company's future success. Innovation is either part of senior management's DNA or it's not.

Mr. Cline is senior editor of Banking Strategies.

Copyright © 2004 by Banking Strategies, published by BAI.

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