Markets are changing faster than ever and disruption is a growing challenge for banks. An article from CNN Money predicts that credit cards may soon be as outdated as vinyl records. Creative destruction is hard to resist.
While innovation may be the answer, it’s not an easy option. We live in a world of rules and more rules. Tighter regulation discourages banks from pushing the envelope.
But tougher markets make innovation essential. Goldman Sachs’ new derivatives clearing service shows that it is still possible to be creative in a regulated market.
Successful firms have innovation embedded in their brand. But there are risks involved not least of which is getting a return on the original investment or avoiding unintended consequences as happened with securitization.
This is definitely not something to be tried at home.
Many of these issues can be addressed by having a formal process. As ideas emerge they can be aligned with strategy, reviewed by risk and compliance, evaluated by finance and rolled out by marketing and sales. If innovation is a process it becomes part of business as usual, instead of something we do when the moment takes us.
New ideas may originate inside and outside the organization – customers, employees, alumni, partners even regulators. Part of the innovation process can even come from leveraging the partner eco system. For example, the apps development environment for Windows Phone 7 produced over 5,500 apps within weeks of the phone’s launch.
Banks should develop an innovation process that works for them. The process should flow from the development of an idea, through commercialization to the full realization of the opportunity. Getting the full return on an innovation should be a key part of the process and where many innovation initiatives come undone.
R&D is essential, but by itself is not enough. Microsoft spends $9 billion annually on R&D and has over 10,000 patents, but still faces disruption across parts its business.
To make innovation a successful business process requires metrics to measure ROI, technology to capture, share and communicate ideas and governance to manage risk. It also needs a process that embraces enhancements and leadership to deliver vision and support its success. Genius can be part of the process. Whether through alchemy or wizardry, there is always a secret sauce.
But there must be a constant commitment. It’s no fun playing catch-up.