[Dave Birch] In my review of James Gardner's Innovation and the Future Proof Bank, I focused on James' core observation about transforming innovation from a function into a process. The payment sector is no difference and payment organisations must somehow develop along these lines, whether by building an internal process or by combining or connecting to some other one. Within the incumbents, though, there is a still a long way to go.
Half of banks will still lack a formal innovation programme and budget in three years time, severely restricting their growth potential, according to research from Gartner.
[From Finextra: Cost-cutting banks wide open to disruptive IT innovation - Gartner ]
If there is an innovation programme, what should it do? It has to create some backdrop and shared language for thinking about the future (I rather like James' "futurecasting" approach), it has to try and understand the big picture, and it has to look for new ways to make money (frankly). It also has to develop a fruitful mutual relationship with strategy. Looking from the outside, I can see that in some organisations the boundary between strategy and innovation is hazy and they become confused.
In many ways this is because innovation and strategy share much common territory; they both look into the future, look outside the business, try to make sense of the confluence of known trends and anticipate the emerging ones. Where they most obviously separate is that part of the company's strategy that looks as maintaining "business as usual", though even here there is often an assumption of product/ service evolution.
[From Innovaro Blog - Future of Innovation]
Actually, James has also observed another problem (from the inside: he was Lloyds TSB) in the specific relationship between innovation and IT.
CIOs have such vastly different priorities to innovators that they are fundamentally unable to embrace innovation and keep on keeping on.
[From BankerVision: Future leaders, and IT contradicts]
It's undeniable in the case of banking: the majority of IT budgets are swallowed up in the "business as usual" integration, migration, compliance and other basic functions. There's not always the money to deliver the great new Internet identity management system, the new micropayment system or the experimental social lending platform. But there's something else that has occurred to me listening to stories and case studies in and around the CSFI's roundtable lunches, and that is that the role of chance in turning innovation into
A couple of years ago, I was involved in a consulting project for a retail bank. It was an innovation project that brought together people from across the business units to come up with some of what James would label "breakthrough" ideas. I'd been invited because payments were one of the areas where the bank's management were hoping for better performance and they thought that Consult Hyperion's practical experiences business modelling and prototyping mobile payment proposition might be helpful (and I'm sure it was). The process went well, the people came up with a number of ideas that the management began to feed into the business modelling systems to work out how to prioritise them for development. A couple came out top, and plans were made to start work. In the end, none of them came to fruition. The bank lost something like £10 billion in the credit crunch (having spent a lot of money buying portfolios of badly-performing US mortgages) and were subsequently taken over. The guys I'd been reporting to, who seemed to me to be experienced and sensible people, were sacked (because of the merging of two payments units into one) and none of the innovative new mobile-enhanced products materialised.
Compare this with another project that I was involved in a week before that. Once again we had been hired as part of an innovation drive in payments in a retail bank and asked to bounce around some concepts for new channels (working with internal bank teams who were generating lots of new ideas) and then use our Hyperlab prototyping facility to build a work prototype (the system involved adding some custom software to chip and PIN cards). The prototype worked well and was moved into production and launched as part of a revamped credit portfolio. It was very successful, bringing in 500,000 new accounts (which was very high for a new credit product in a mature European market). At the benchmark acquisition cost of £100 per customer, that was a £50m success for a project that didn't cost one-twentieth of that. And I happen to know that the same team is working on a major mobile product launch at the moment, so the management have clearly backed them further.
My point is this. I know both teams and there are equally smart. The failure of the first team and the success of the second were due to external circumstances. Even the most successful of innovations makes such a negligible contribution to the banks profit and loss account that it is cannot control its own destiny..
I mentioned that the second team, that got their innovation out the door before the roof fell in, generated an additional UKP40m for the bank. Well, in that year the bank paid ONE of their employees almost exactly that amount. Innovation is just not on the critical path at senior management level and I think that goes a long way to explaining why it is so difficult to get traction for new ideas down at the coal face.
Perhaps the most important use of money - It saves time.
Author W. Somerset Maugham (1943).
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