Innovation labs that deliver - Corporate Leaders Enabling...

Innovation labs that deliver

Navigating the digital banking ecosystem

Contents

At Futurice, we believe in collaboration – and not creating every business solution from scratch. We believe the combination of bespoke business design and existing tech solutions can be a powerful one, offering quick results and speed to market.

3 Summary

5 The Opportunity

6 How banks can build and broaden a culture of innovation

7 Case Studies

9 Conclusion

10 Contact Us

SummaryIn this paper we take a look at what some of the leading UK banks and financial service companies are doing – and what they should start doing – in order to ensure the best and broadest impact from new software solutions, innovative projects and customer-centric thought.

Large, traditional financial services organisations are facing a new combination of challenges: decreasing margins in the face of uncertain global market conditions; threats from new market entrants such as digital, mobile-first banks or Fintech startups and an unprecedented number of incoming regulations.

In an attempt to navigate these challenges, most banks have set up ‘innovation labs’ or similar as a focal point of new tech-nology-driven business development and product lines, but their track record in the industry is less than stellar. The typical lab intermingles the ‘intrapreneurship’ of ideas that have been developed in-house alongside Proofs of Concept devel-oped in partnership with external startups and a programme of hackathons and networking events. However, we often see banks investing directly into external Fintech firms rather than launching successful new products that have been developed from within innovation labs. Efforts to improve offerings across, for example; payments, customer experience (CX) design, use of blockchain, regulatory compliance and backend software have brought some serious investments to the likes of R3, Kabbage

3 Navigating the digital banking ecosystem

and WeLab. This kind of acquisition and investment is not going away, but what can banks do to ensure that it’s not the only source of innovative products?

There are cultural and organisational factors at work. Banks’ IT teams (and others) have traditionally been focused internally on supporting existing back office and operational processes, rather than being at the front line of pushing new business de-velopment through the creation of new products. They are often supported by large teams of system integrators and consultants whose interest is in long-term commitment towards legacy technology. This is a major structural reason for the difficulties seen in trying to get new ideas to market. Moreover, with the advent of PSD2, banks are under more pressure to understand where they really add value. New requirements, to open up their payment initiation processes and their customers’ data to third parties, combined with growing expectations for digital design and user experience, bring huge challenges and opportunities. We think that ecosystem strategies will dominate, by providing end users with services through specialized partnerships with vendors who are best in class at different things. This ultimately drives client value, but raises a requirement for the organization to adopt, manage and technically orchestrate these connec-tions, which is difficult and costly without the right tools.

Figures from Oliver Wyman,

https:////w.oliverwyman.com/content/dam/oliver-wyman/global/en/2016/oct/Brexit_POV.PDF

According to management consultants Oliver Wyman, the UK-based financial services sector earns between £190-250bn in annual revenue, contributes £120-125bn in national Gross Value Added, and employs 1.1 million people1.

UK-based financial services sector earns between £190-250bn in annual revenue

£120-125bn in national Gross Value Added

Employs 1.1 million people

• Customers’ expectations and demands are rising rapidly in step with the growth of connectivity

• Banks can expect to experience yet more pressure to reinvent them-selves as the digital-first economy matures

• The early adopters and confident combiners of new tech, innovative services and collaborative mindsets will set the pace

• It is no longer viable to use in-house technology for everything, as specialised Fintech vendors become increasingly more efficient as they scale

• Specialist services provided by these vendors are becoming pro-ductized, but also commoditized, meaning that price-based pro-curement and the ability to switch between vendors is becoming increasingly more important.


1 https:////w2.deloitte.com/uk/en/pages/financial-services/articles/banking-industry-outlook.html2 http://uk.businessinsider.com/inside-banking-culture-transformations-report-2017-83 https:////w.mckinsey.com/business-functions/strategy-and-corporate-finance/our-insights/how-big-companies-can-innovate

The OpportunityCustomer expectations and behaviours from disparate industries are converging, meaning that best in class experiences from outside the banking sector, from Amazon to ASOS to Spotify are driving demand. Interfaces more commonly seen in the retail or tech sector, such as AI-powered chatbots, are appearing. Bank of America’s new chatbot Erica, for example, has 3.5 million users and served 11 million transactions within its first three months. Demand for a seamless, secure ex-perience across multiple channels has been difficult to deliver, however, even as banks have accepted that redesigning products and services around the customer is now essential.

We agree with a recent Deloitte report which, taking into account global economic forecasts, warns that “[l]ong-term sustain-able growth in the banking industry seems only possible with a radical departure from a sales- and product-obsessed mindset to one of genuine customer centricity.”1 Transfor-mation of culture and technology go hand-in-hand, so whilst mindset and working pro-cesses need improvement, banks also face

challenges around technology: how to get new products to market quickly; how to work with multiple third-party service vendors and external developers; and how to think about IP when it no longer makes sense to build a full technology stack in-house.

The dominant narrative around Fintech start-ups has had them as the big, wrecking-ball disruptors of established financial services brands. This view is worth challenging – could established players look at the suc-cesses and failures of the startups to help triangulate the real customer pain points? With far more capital and, invariably, a much larger workforce, the big players should

remember that successful Fintechs are usually solving interesting consumer prob-lems. And many of these are universal. Constructive dialogue and partnership is possible. When just 17% of the industry has launched more than five digitally driv-

en products since beginning their innovation efforts,2 clearly something is not working. THe opportunity is there for today’s banks to grasp true, company-wide innovation and become tomorrow’s innovators. It has to be more than mere ambition: Carl Bass of Autodesk has a point when he says that “a lot of what people substitute for innovation is trying to be three days ahead of their com-petitor in the market.”3

“In the era of all things digital, consumers have constantly growing expectations so just being

customer-centric is no longer enough. You need to be customer obsessed in order to be chosen over a myriad of other solutions."Maria Leontiou – Head of Innovation Center, Eurobank


Futurice have helped to develop (or to reset and re-focus) all types of innova-tion hubs, innovation labs innovation accelerators – you name it – and some elements are universally useful.

How banks can build and broaden a culture of innovation

1. Innovation is cultureThe mindset and methods required to deliver stand out customer experience include co-creation, experimen-tation and permission to fail. Doing this right means unleashing a cultural phenomenon that cuts across siloes and hierarchies. In our view, you cannot understate the importance of this cultural element. Company culture or put another way, employee experience, is a driver of customer experience, and if it is not right it will drive things in a negative direction. Each initiative needs to be accompanied by organisational evolution – one that takes employees on the same journey.

2. Share the languageWithout shared terminology, which does mean actually agreeing – together – what something means, you will get dysfunctional connections between innovation teams and their parent organization. All the way through an innovation programme, ensure you check definitions,

3. Embed the knowledgeThe challenge for large corporations lies not in kickstart-ing a separate digital innovation hub but more often in turning the whole towards agility, entrepreneurship and disruption. One valuable way to embed the knowledge and spread the benefits is to make the hub responsible for training others. Organise events and programmes, internally and externally, for people to share learning and insight. This way, you can scale innovation and ways of working company-wide.

4. Focus on playbooks not metricsDispense with metrics geared only to sequential prog-ress and hierarchy Instead, look to playbooks: a blend of business process workflows, standard operating procedures and cultural values. These offer a much more flexible way of managing and evaluating the messy and the human. One characteristic of successful play-books is a tendency to invert the traditional hierarchical approach to decision making, giving people on the front line permission to make decisions. The rationale is that front line employees are usually closest to the action and have the necessary information to make the right ‘front line’ decision. Spotify’s “limited blast radius” approach to innovation, for example, empowers teams to experiment and fail but deploys a decoupled architecture to lower the cost and impact of failure.

5. Value speed over perfectionPerfection certainly confers some advantages. But nobody starts there, and making it the end goal will kill ideas before they get a chance to fly. Perfecting prod-ucts or services takes enormous amounts of time – it doesn’t suit a competitive and rapidly changing environ-ment. What was perfection 18 months ago may no longer cut it. Innovation means trying out ideas quickly, iterat-ing fast and being willing to chuck away the failures.

Be conscious of, and try to mitigate variance in the way different terms are perceived. Ask questions: What do we mean by “innovation”? Are we looking for high-level, disruptive ideas, or incremental improvements? What does customer-centricity mean for us? What kinds of changes are we looking for, and why?

“Every innovation program should begin with a vocabulary definition exercise

and gathering practical examples. A shared understanding of the applied terms is essential to create the desired value for business.”

– Krista Naumanen, Culture and Business Adviser, Futurice

such as innovation, MVP, customer-centricity, agility and self-organizing.


UK-based Moneycorp are global specialists in currency exchange and international payments, handling a huge volume of transactions for a wide variety of corporate, institutional and individual customers in over 190 currencies.

As other sectors pushed ahead with customer expe-rience-led change programmes, Moneycorp saw an opportunity to bring retail banking-style best prac-tice to its own offering. Using lean and agile ways of working, the engagement unfolded from an initial mobile user experience review and Service Vision Sprint to a full platform rebuild project.

Case Study 1: Moneycorp – Creating a Frictionless Financial Service

• A fragmented international payments system meant moving money across borders could be extremely difficult – bespoke platforms are needed to join it up

• A widening gap between the customer expe-rience of domestic banking and international financial services

• Moneycorp needed to shift their ways of work-ing into a delivery cadence that was weeks and months, not quarters and years

Futurice has partnered with Moneycorp since 2016 to design and build a new customer-centric platform and service experience. We’ve worked closely with their domain experts in navigating a complex mix of regulatory environments and financial systems, to co-create a best-in-class inter-national payment platform. We overhauled Moneycorp’s user-facing online platform for private and corporate customers, bringing in best-in-class modern web technologies (including React & Redux, Styled Compo-nents and Typescript).

To progress Moneycorp’s product launch strategy, we helped roll out an iterative release process, meaning we had real data early with an MVP in the first few months. A new online registration system, launched mid-2017, doubled conversion rate from ten to twenty per cent. We also created an internal UI component library to support a white labeling solution and reduce launch time in new territories from six months to just one or two.

Over the course of the project, we’ve actively worked to refresh and im-prove working culture and processes rather than operating as a siloed and outsourced vendor. Ensuring collaborative and creative work can happen at speed has helped to deliver a smooth and frictionless product for Moneycorp’s customers.

MAIN CHALLENGES SOLUTION RESULTS


Case Study 2: Cross Sector InsightFuturice X Allianz: Building Digital Ecosystems in a Large Enterprise

• Allianz wanted help to spearhead digital and cultural transformation from within.

• Allianz were looking for a vision for best in class innovation governance and decision making.

• Support was needed for the major cultural developments required with this degree of change.

Allianz Global Digital Factory’s (GDF) mission is to deliver services with high standards to be applied globally. Futurice advised on the compensation and organisational models in the pre-launch phase, and afterwards supported the core staff of 30 in defining approaches.

We facilitated the digital customer journey transformation for two journeys; life insurance and motor claims. With defined KPIs and using Futurice’s Service Vision Sprint (SVS) tools and methodology, the multi-disciplinary teams designed new journeys and, in parallel, demonstrated new ways of working to the wider business.

Futurice managed a ten-week, Lean Service Cre-ation programme that was hand-crafted for the transformation of Allianz. The process helped to re-shape the team’s mindset to be more custom-er-centric and collaborative. Allianz team’s gained firsthand experience of user insight, concepting, rapid prototyping and continuous feedback testing with actual customers. The teams designed a tar-get service journey blueprint and a set of clickable prototypes to share and begin implementation as part of an MVP pilot phase.

CHALLENGES SOLUTION RESULTS


There is no one-size-fits-all guide for digital innovation programmes, as each is strongly influenced by organisational context. The banking sector, in particular, is affected by legacy systems, regulation and an increasingly competitive Fintech sector. There are, however, some basic principles that will help banks thrive as they adopt new ways of working and innovating.

The ambition must be to push such changes beyond a potentially siloed innovation hub, and this means working to define, accept and socialise the behaviour principles of a new working culture. We believe this can and should be done in close and long-term combination with appropriate tech solutions – whether these are off-the-shelf or bespoke. One-off initiatives only produce temporary results. Only the banks that are able to build a wide and permanent culture of innovation throughout their organisations will stay in front.

Conclusion


Contact us

FuturiceFuturice is a digital consultancy that helps organisations transform their business by bringing together complex software engineering and beautiful human-centered design.

Timo HyväojaManaging Director, London [email protected]

+44 7826 0685 41

David MitchellCommercial Director, London [email protected]

General [email protected]


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