INNOVATION-READINESS 2021 Rebooting innovation

Rebooting innovationDespite decades of corporate talk and experimentation, digitization strategies remain largely piecemeal, unfocused and ineffective. Is change finally coming?By Paul Centopani

INNOVATION-READINESS 2021

Original research from

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I N N O V AT I O N - R E A D I N E S S 2 0 2 1

Rebooting innovation

Introduction

As technology further ingrains in the mechanisms of daily life alongside burgeoning consumer

adeptness, an onus falls on businesses to keep pace. Despite decades of corporate talk and

experimentation, is change finally coming for the largely piecemeal, unfocused, and ineffective

digitization strategies?

Within financial services, companies need to figure out where in the innovation pack they want

to fall, their main focal points and the optimal balance of in-house development and strategic

partnerships.

This study from Arizent — parent company of National Mortgage News, American Banker,

Employee Benefit News, Digital Insurance and Financial Planning — explores the compounding

effects of how business leaders drive innovation through organization, culture and processes

in tandem with external sources.

Key findings include

• Among companies actively pursuing innovation, about half have a documented strategy or

roadmap. Not surprisingly, those with a documented strategy are also more likely to have

the policies, practices and tools in place to support and advance innovation. This com-

mitment compounds over time. Organizations who invest — time, money and culture — in

innovation show the best results and sit at the front of the cutting edge, but making the

right investments is critical.

• Customer experience is the primary goal driving most innovation initiatives. Far fewer

prioritize efforts aimed at delivering operational or business model innovations. This leads

to potential misalignments for many organizations as those back-office, foundational

areas will be key to delivering the flexibility and agility needed to sustain and advance

customer-facing innovation.

• Significantly, 6 out of 10 innovation stakeholders admit their organizations have not

aligned their technology roadmap and investments with key areas of innovation, a critical

gap that could undermine future success. Technologies most widely perceived to be critical

to advancing innovation include big data, analytics, security, cloud, digital payments, APIs

and AI.

• The adoption of corporate innovation programs is still relatively nascent. The establishment

of dedicated innovation teams is the most commonly adopted course of action today by just

Why read this report?

As competitive,

regulatory and

financial pressures

mount, organizations

are being forced to

innovate to stay ahead

of the competition and

drive their businesses

forward. This report

provides business

leaders with new

insights into how their

peers are organizing

their internal cultures,

teams and processes to

deliver innovation.

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under half of those surveyed. Only a minority of innovation stakeholders report

implementing open innovation programs like hackathons, demo days or establishing a

dedicated innovation lab. On the investment front, technology education/university

partnerships are the most widely adopted course of action.

• That minority looks poised for growth, with innovation lab or external accelerator

partnership investments doubling from around 10% today to 20% in the next two years.

This shouldn’t come at the expense of other programs as long-term considerations

revealed spiking organizational interest in both internally oriented projects — like centers

of excellence or intrapreneur programs — and outside investment/acquisitions.

Research methodology

To deliver on this objective, Arizent conducted a survey of innovation leaders from March 19 to

April 5, 2021. Respondents were screened for employment at companies pursuing innovation

initiatives and personal involvement with or knowledge of those programs.

It resulted in 287 qualified participants representing perspectives across the financial services

ecosystem including banks, credit unions, mortgage brokers, insurance carriers, wealth

managers, financial planners, accountants and fintech firms.

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The innovation waterfall and its cascading effects

Technological cliques

The survey results found a scattered distribution of where these financial services firms land

relative to innovation. Two out of ten respondents, or 19.5%, classified themselves as “early

adopters,” those innovationally inclined and among the first to accept emerging technologies.

A larger 54.7% share — picked “early majority,” because they adopt new digital channels after

evident success occurs. Behind them come 18.1% — who fall into the “late majority,” those

skeptical of change who wait until a technology is adopted by a majority of companies before

investing. The remaining 7.7% are “laggards” bound by tradition, holding a more conservative

posture in technology adoption.

Further, the extent to which organizations implement policies and practices key to facilitating

innovation breaks down to three categories and follows a nearly perfect bell curve.

Innovation-readiness aided by early tech adopters % of respondents at each stage of the tech adoption life cycle

Q: Which of the following best describes your organization as it relates to the adoption of new digital channels or emerging technologies?Source: Arizent Innovation-Readiness, Research, 2021

8%

Laggards: we need pressure before we adopt new digital channels or emerging technologies

18%Late majority: skeptical of change, generally wait until a digital channel or technology has been adopted by most before we proceed

55%Early majority: we need

evidence of success before adopting new digital

channels or emerging technologies

20%Early adopters: among the first to adopt new digital channels or

emerging technologies

Responding companies fall into one of 3 categories for innovation-readiness:

Guiding: indicates companies who are outpacing their peers with the extent of their commitment to innovation policies and practices.

Following: includes companies who are moving along with the masses with their innovation decisions.

Trailing: describes companies who are behind their peers with respect to adoption of innovation policies and practices.

23% Trailing

Q: To what extent has your organization adopted the following approaches, policies, practices?Source: Arizent Innovation-Readiness, Research, 2021

Majority of innovation decision makers follow the leaders

Following 52%

Guiding 24%

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It comes from the top

The overall digitization of the world continues to grow at a rapid pace, something the COVID-19

pandemic expedited exponentially. Suddenly, every process needed to be mobile and paperless.

Now that consumers adapted to engaging via digital channels, the old ways of conducting

business aren’t coming back. Those companies on the forefront of innovation are more likely to

hold a competitive advantage.

For financial services trying to push the envelope, it starts by putting a plan in place and

executing on it. Just under half of the respondents said their companies have a documented

innovation strategy or roadmap. However, the existence of a plan increases significantly to

nearly three quarters of early adopters of new technology before precipitously dropping off

among the later factions.

Establishing a culture of embracing change and organizational training for new technologies

lays down a strong foundation for innovating and can have compounding effects over time.

If you’re not trying, you’re not innovating

As the saying goes, “you miss 100% of the shots you don’t take.” That rings true for innovation

as well, where trying is half the battle.

Companies with broader adoptions of innovation policies and practices have greater likelihood

to reach their goals and set the pace for their peers. The data shows 64% of those “guiding”

companies said they were very successful in advancing their top innovation goal over the past

two years, compared to 27% of “following” and 4% of “trailing” companies.

73%

46%

31%36%

A clear strategy is key to success% with a documented innovation strategy or roadmap

Q: How would you describe your organization’s approach to innovation?Source: Arizent Innovation-Readiness, Research, 2021

LaggardsLate majorityEarly majorityEarly adopters

64% of those “guiding” companies said they were very successful in advancing their top innovation goal over the past two years.

64% of t

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Moreover, those companies guiding their sectors have nearly twice the chance of holding

patents and successfully commercialized IP from their programs ahead of those behind.

However, they only represent about a quarter of the industry.

Size matters

If you’re a small company, you’re likely already starting from behind.

Insufficient bandwidth and money stand as stumbling blocks to organizational success in

driving innovation. Finding the time to put dedicated efforts toward advancing technology came

up as a common answer from those representing companies not on the frontlines of success.

They also face greater likelihoods of shifting their limited resources out of necessity to other

areas in need of attention. Due to sheer size and greater capital, bigger companies have double

the chance of possessing their own innovation strategy roadmap.

Commitment to best practices leads to innovation-readinessChart subtitle: % realizing each outcome

Q: Has your organization realized any of the following outcomes as a result of work done in its innovation programs?Source: Arizent Innovation-Readiness, Research, 2021

TrailingGuiding Following

64%

27%

4%

40%

21%15%

43%

26%21%

Commercialized solutions from corporate innovation programs

Hold patents from corporateinnovation programs

Very successful at advancing top innovation goal

Documented innovation roadmaps are more common at larger organizations% with a documented innovation strategy or roadmap

Q: How would you describe your organization’s approach to innovation?Source: Arizent Innovation-Readiness, Research, 2021

Note: Large firms defined as national banks or companies with $1B+ in AUM or revenue

72%

36%

81%

50%

42%Credit unions

Regional/community banks

National banks

Small/mid-sized firms

Large firms

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Money talks

Where the resources fall

While interest and commitment to innovation is widespread, only a minority of companies are

investing in corporate innovation programs beyond the 46% establishing dedicated innovation

teams. Having an innovation center of excellence followed at 29%, while 25% had open

innovation policies.

On the other end of the spectrum, only 10% of responding companies either acquired fintechs

and startups, had an external accelerator or an innovation lab.

Gardens only grow where they’re watered

Just over a quarter of organizations have a corporate venture arm pumping capital into

innovation. However, that share jumps to 59% at national banks, before dropping to 30% at the

regional bank level and 21% for credit unions. Overall, a 43% share of large firms have a venture

arm compared to 19% of small and medium firms.

Q: Which of the following corporate innovation programs are in use at your organization?Source: Arizent Innovation-Readiness, Research, 2021

Adoption of many corporate innovation programs is still nascent% with corporate innovation programs in use today

Dedicated innovation

team

Innovation Center of

Excellence

Internally-driven programs Externally-driven programs

Intrapreneur program

Open innovation

Innovation excursions

Innovation outpost or innovation

lab

Technology education/University

Partnership

External accelerator partnership

Fintech/startup

investment

Fintech/startup

acquisition

Other partnerships/joint ventures

None of the above

46%

29%

19%

25%

18%

10%

24%

10%

18%

10%

21%

15%

Commitment to corporate venture arms scales with size% with a corporate venture arm

Q: Does your organization have a corporate venture arm?Source: Arizent Innovation-Readiness, Research, 2021

26%

59%

30%

21%

43%

19%Small/mid-sized firms

Large firms

Credit unions

Regional/community banks

National banks

Overall

43% share of large firms have a venture arm compared to 19% of small and medium firms.

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The average commitment from an organization to its corporate venture arm of those surveyed

reached $2.1 billion. These huge investments pour into advancing technology and unearthing

the next great startup. Inadequate funding holds back many companies from seeing more

success. As the saying goes, “gotta spend money to make money.”

Going deeper, an even smaller faction has a dedicated innovation lab. Only 10% of the

companies currently boasted one but that’s expected to double within the next two years. The

median innovation lab has been running for four years.

Staffing for these labs fell at a fairly level distribution, either with permanent employees (36%),

a rotation of employees and external subject matter experts (36%) or a combination of the two

(28%).

Q: To what extent has your organization adopted the following approaches, policies, practices?Source: Arizent Innovation-Readiness, Research, 2021

Firms are committing an average of $2.1B to corporate venture arms% investing at each level

22%

9%

3%0

4%

15%

19% 20%

8%

Not sure $25 billionor more

$10 billion -$24.9 billion



$500 million -$999 million

$250 million -$499 million

$50 million - $249 million

Under $50 million

29%Both of the above

36%We have a number of

employees who are permanently assigned

to the lab36%Employees (or other subject matter experts external to our organization) rotate in for a specific amount of time or tasks

Q: How is your organization’s innovation lab sta�ed?Source: Arizent Innovation-Readiness, Research, 2021

A mix of internal employees and outsides SMEs powers innovation labs% sta�ng innovation lab with each approach

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Dedicated efforts bring dedicated results

Those with innovation labs in place saw high levels of efficacy in advancing their top outcomes.

While many even reported being extremely effective in reaching their upmost goal, the vast

majority credited the innovation lab in being very effective in doing so.

Only two services — enabling new business models (11%) and creating value through improved

knowledge (4%) — had proportions who failed in delivering the outcome.

Q: How e�ective has your organization’s innovation lab been at advancing the following outcomes?Source: Arizent Innovation-Readiness, Research, 2021

Innovation labs deliver good results% rating labs e�ective at advancing each outcome

Enabling new business models

Improving e�ciencies through new methods

Creating value through improved knowledge

Developing new products

Improving CX

Somewhat e�ective Not e�ectiveExtremely e�ective Very E�ective

36%

21%

11%

11%

7%

46% 18%

43% 36%

61% 25% 4%

54% 36%

43% 11%39%

Innovation labs, while not broadly adopted, generally deliver good results for those making the commitment to these programs.

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Funneling the resources

The customer’s always right… and they come first

Customer experience stands as the top strength for innovation design and development,

with two thirds of companies strongly agreeing with the sentiment. A 65% share said senior

leadership encourages and oversees the efforts while 63% said innovation is key to their

company’s mission and long-term success.

Additionally, 53% of those surveyed said CX is the paramount goal driving innovation, more than

products, operations or business models combined. This especially holds at regional banks

(60%) and credit unions (84%) whose smaller reach means they need to go the extra mile or

face losing business to the national behemoths.

Customer satisfaction also topped the charts in how organizations measured success. 52%

pointed to greater customer satisfaction, 40% said improved operational efficiencies, 36%

accounted for customer growth, with 33% and 31% more concerned with revenue gains or

65% share said senior leadership encourages and oversees the efforts while 63% said innovation is key to their company’s mission and long-term success.

Many take a customer-centric and top down approach to innovation% strongly agree

Q: Please indicate the degree to which you agree with each statement as it relates to your organization and its approach to innovation?Source: Arizent Innovation-Readiness, Research, 2021

67%

65%

63%Innovation is key to our organizationalmission and long-term success

Senior leadership is involved in encouragingand overseeing innovation e�orts

Innovations are designed with thecustomer experience in mind

Q: Please rank, in order of importance, the goals driving your organization’s innovation strategy or initiatives?Source: Arizent Innovation-Readiness, Research, 2021

CX ranks as top innovation driver % ranking in order of importance

Most important Second Third Least important

53%

15%

24%

8% 17%34%

21%

28%29%

23%

31%

16% 14%

19%

35%

33%

Customer experience Products Operations

Business model

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reduced operating costs. Notably just 12% use improved time to market as one of their top three

innovation KPIs.

Lack of focus on the back office

Innovation can be a zero-sum game, so if the light gets shone on one part of the company, others fall to

the shadows. Primarily focusing on consumers makes sense because companies can’t grow or sustain

business without attracting and retaining customers. It’s low-hanging fruit but with good reason.

However, a balance must be struck with foundational platforms to avoid a house of cards. Operational

procedures landed as a tertiary driver for innovation behind CX and products.

Operational innovations also had the least amount of success in the past two years. Among the four

drivers, only 19% of companies said they were very successful with accomplishing its top goal within it

and 13% — more than the other three combined — said they weren’t successful at all.

Businesses also need to also remember to keep internal clients (their employees) equipped with

sufficient technologies that align with external products. Having top-of-the-line customer-facing

technology matched with outdated, crumbling systems would be like dropping a go-kart engine into

a Ferrari.

Q: How is your organization monitoring or measuring the success of your corporate innovation programs?Source: Arizent Innovation-Readiness, Research, 2021

Measuring innovation success: top KPIs

52%

40%

36%

33%

31%

21%

15%

12%

10%

9%

6%Break even timeline for investments

Greater number of ideas generated

More projects moving along the innovation pipeline

Faster time to market for new products or improvements

More focused culture of innovation

Increase in customer referrals

Reduced operating costs

Financial impact (i.e., EBITDAor revenue growth)

Growth in number of customers/users

Improved operational e�ciencies

Greater customer satisfaction

Organizations report some success advancing key innovation goals

Q: How successful hasyour organization been at advancing its top innovation goal over the last 2 years?Source: Arizent Innovation-Readiness, Research, 2021Customer

experience Products Operations Business model

Very successful Somewhat successful Not successful

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In need of a unified front

Playing the politics

In addition to budget and resource shortfalls, divided leadership is the fastest way to muddle

advancements. For those who couldn’t advance their top goal in the last two years, many

pointed to organizational misalignment as a main detriment.

Silos between teams leads to a dearth of collaboration and fragmentation. A scattershot

approach ends up with incompatibility instead of an orchestra of products. Fear of change or

lacking vision from senior management brings about slow acceptance and being cemented into

legacy processes.

While playing into the politics of a lagging company is difficult, those trailing their peers in

adoption documented the highest rate of non-success in meeting their goals at 15%. They also

had the lowest rate of being very successful at merely 4%.

Those trailing their peers in adoption of innovation policies and practices are the least successful in advancing top innovation goals.

Gaps in innovation-readines% strongly agree

Q: Please indicate the degree to which you agree with each statement as it relates to your organization and its approach to innovation?Source: Arizent Innovation-Readiness, Research, 2021

41%

41%

40%

37%

35%

34%

Our technology roadmap is aligned with key areas of innovation

There is legal support to protect, build IP

We are actively leveraging data/analytics to identify innovation opportunities

Our innovation initiatives have clearly defined outcomes

Employees are rewarded for bringing forward innovations

There is a clear path to transition innovation from ideation into practice

Firms addressing gaps have more success advancing top innovation goals

Q: How successful has your organization been at advancing its top innovation goal over the last 2 years?Source: Arizent Innovation-Readiness, Research, 2021

Trailing Following Guiding

Very successful Somewhat successful Not successful

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Perception is reality

When it comes to which forms of technology will propel companies into the next stratosphere

of innovation, it’s a lineup of the usual suspects. Perception at nearly half of financial service

firms believe big data and analytics are the best way to go. Identifying patterns and drawing

conclusions through huge sets of numbers can predict consumer behavior and show

businesses the best way forward.

Beefing up security and mitigating fraud trailed closely behind, followed by cloud computing.

Digital payments, application programming interfaces and artificial intelligence/machine

learning rounded out the answers with shares over 30%.

Biometric authentication technologies, the internet of things and augmented/virtual reality

don’t garner as much universal popularity, and fewer than 15% of surveyees deemed them

critical.

Technology will play a key role in advancing innovation% identified as critical

Q: What technologies do you feel are critical to advancing your organization’s innovation strategy or initiatives?Source: Arizent Innovation-Readiness, Research, 2021

AI and MLAPIs/API platforms

Digital payments

Cloud computing

Enhanced securityand fraud mitigation

Big data and analytics

49% 49%44%

39%37% 37%

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Innovation happens everywhere

A common misconception is that only certain parts of a company can develop new ideas or

products. Conversely, every functional area has different experience with internal systems and

can get diverse insight from customers as well.

Giving each sector a seat at the table ensures representation and no pocket of the business

gets overlooked or left behind. Only a quarter of those surveyed have open innovation programs

currently in use, 19% have an intrapreneur program and 18% conduct innovation excursions-all

programs that could help to facilitate participation from a broader set of stakeholders.

Q: How would you describe your involvement with your organization’s innovation initiatives?Source: Arizent Innovation-Readiness, Research, 2021

Innovation stakeholders are found in a variety of functional roles% leading or participating in innovation

22%19% 19%

12% 12%8%

5%

IT/techCompliance/legal/HR

Innovation/strategy

Finance/operations

CX/customer service/product

management

Marketing/salesExecutive management

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Conclusions

• Discipline and commitment are key to facilitating innovation. Creative problem solving

and generating new ideas require listening to employees and giving them the freedom

to innovate. A cultural commitment to innovation starts from the top-down but gets

supported from the bottom-up through established processes and practices. It’s

a symbiotic relationship between enabling creativity by providing the right tools of

facilitation.

• Innovation requires a 360 degree approach. The financial services ecosystem

steadily marched to digital transformation before COVID-19 poured fuel on the fire.

Not catching up meant possibly facing the pitfall of fading into obsolescence. Many

organizations responded by focusing on driving customer experience. But the best

innovation doesn’t happen in silos. Companies need to also recognize the value of

innovating internal products, to keep all processes efficient and compatible.

• Technology will be key to advancing innovation — both tech developed through

partnerships or acquired through investment strategies — as well as a commitment

to innovating within the organization’s own tech stack. The majority of organizations

surveyed admit a misalignment between their technology strategy and innovation

goals, while they are not leveraging data to inform and drive innovation. Innovation

doesn’t just miraculously happen. Organizations need to take the proper, connected

steps to ensure it does.

• Talk is cheap. Companies riding the cutting edge put the time, capital, and resources

into making it a reality. While drawing a strategic roadmap is the start, executing on it

is just as important. For example, those pushing to commercialize IP could try a more

aggressive approach to M&A. Firms with larger employee rosters could drive internal

improvements by focusing more on intrapreneur programs and encouraging open

innovation and risk taking.

• Still relatively nascent, leveraging corporate innovation programs can drive results.

Only a tenth of those surveyed had innovation labs, but those who did reported highly

positive outcomes in reaching their goals. However, that small proportion is ripe

for growth in the near future — and possible innovation acceleration along with it.

Within the next two years, those investing in innovation labs or establishing external

accelerator partnerships should double to 20%, according to the survey. Moreover,

the companies adding to their investments won’t be at the detriment of others.

Every type of innovation program had higher long-term planning considerations than

current usage rates.

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About Arizent Research

Arizent delivers actionable insights through full-service research solutions that tap into their

first-party data, industry SMEs, and highly engaged communities across banking, payments, mortgage,

insurance, municipal finance, accounting, HR/employee benefits and wealth management. They have

leading brands in financial services including American Banker, The Bond Buyer, Financial Planning, National

Mortgage News, and in professional services, such as Accounting Today, Employee Benefits News, and Digital

Insurance. For more information, please visit www.arizent.com

Interested in learning more about how to put Arizent’s full-service research capabilities to work for your

company? Please contact: Janet King, Vice President Research, [email protected], 207-807-4806.

INNOVATION-READINESS 2021 Rebooting innovation

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