The financial industry is no stranger to innovation investment. Even before the onset of the pandemic, banks and their fintech partners had unveiled many successful innovations – from digital wallets to effortless peer-to-peer transactions. But innovation in fintech continues at a breakneck clip and traditional fintech institutions are playing catch-up to innovative start-ups leveraging AI and blockchain technologies to create new products and services.
A key reason many established financial institutions continue to waste huge amounts of money on “innovation” and see very little return is organizational viscosity – they simply can’t move as fast as a small, nimble start-up with a much higher tolerance for risk. While that reality will not change, there is hope for financial institutions looking for ways to operationalize the way they innovate. The approach focuses on a concept very familiar to the industry – the portfolio. Having a portfolio mindset allows the company to balance its innovation activities between the lower-risk / lower-reward and the higher-risk / higher-reward types of ventures. This requires innovation programs to operationalize innovation initiatives with good data and metrics.
Unlike other business functions like HR and sales where metrics are a core pillar of how decisions are made, innovation departments routinely lack a formal, fit-for-purpose metrics infrastructure by which innovation ideas are considered and progress is assessed. However, this current state of “blind innovation” doesn’t need to continue. By focusing on a few key areas of their innovation ops, financial brands can put in place an intuitive and scalable metrics framework that will deliver better results and significantly cut down on innovation-related waste.
Here are the few areas that financial brands need to correct in order to drive sustainable innovation growth.
Gain visibility into your pipeline.
For as much as the business world talks about “innovation,” it may be surprising to hear that many companies – regardless of sector or size – have scant visibility in what their innovation pipeline actually looks like. This means that companies have very little idea about how current innovation projects are progressing, and sometimes do not even know what they have in the pipeline. This makes it challenging for businesses to carve out any sort of long-term innovation strategy. Furthermore, this lack of pipeline visibility leads to scattershot decisions on which projects to fund and to what degree. Therefore, getting visibility into the innovation pipeline in a measurable way is a cornerstone priority for innovation success.
Adopt a holistic approach to innovation.
Too often, financial brands are focused on short-term ROI above everything else. This is necessary and proper in many areas of the business, but for innovation, an “immediate ROI or bust” approach results in companies lurching from priority to priority and investing in incremental gains that barely move the needle. To stay ahead of external change, financial technology companies need to adopt a holistic approach to their innovation by establishing a portfolio of innovation initiatives spread out over the short-, medium-, and long-term. Sustainable innovation is about building an internal environment that supports all of your company’s goals both for today and tomorrow. In addition, this approach allows companies to hedge their innovation bets by having multiple well-conceived projects at various levels of uncertainty and time to maturity versus scrambling from one half-baked short-term idea to the next.
Implement an innovation-specific game plan.
The innovation function, which anticipates and builds for future success, is distinct from other departments that run today’s core operations. And unfortunately, because innovation requires that it march to the beat of a different drummer, companies have a tendency to do one of two things: a) shoehorn innovation into existing strategic frameworks built for other departments, or b) push innovation off to the side with minimal guidance and see what shakes out. Both of these approaches are fatal to sustainable innovation growth, but thankfully they are straightforward problems to fix. Companies need to approach their innovation success with an innovation-specific game plan. This will mean something a bit different for each organization. But any company will need to carve out innovation-specific governance methodologies, innovation-specific responsibilities, and well-considered articulation of the firm’s innovation-specific ambitions. With a firm grasp on how to structure innovation ops in a way that actually makes sense on the ground, we’ve seen companies merge innovation strategy more easily into their overarching business outlooks and corporate planning.
Given how competitive the financial industry is today, financial brands cannot afford to miss out on innovation opportunities. And by making a few tweaks to their outlook on innovation, financial companies can build a more functional innovation workflow for today and put themselves in a better position to stay ahead of competitors for years to come.