While disruption is a serious threat for the financial services industry, here is some advice for how best to turn disruption into an advantage:
- First, acknowledge that every industry is prone to disruptive innovation and talk about it. Some executives in financial services feel that because we are so highly regulated we are safe. They feel that the new entrants will never go to the trouble of getting a banking licence or dealing with the regulators. I am confident the disruptors of tomorrow will find a way. Disruptive organisations don’t follow the “rules” of traditional organisations and have a different view of barriers to success. Keep abreast of your own market but also of peripheral markets should disruptors come from outside. Encourage conversations about this in the boardroom.
- Be prepared to break your business model. It's tough work breaking the cash cow, but when your traditional market is being disrupted around you, breaking or changing your business model may be the best way or only way for you to survive and thrive. You can choose to be a Kodak and pretend the change isn’t going to affect you, or you can be a Fuji, (which diversified into movie production). Think of new business models as an opportunity.
- Don’t give in to the disruptors without a fight. Think about creating your own disruptor. Not just to protect your own businesses but to challenge other businesses. Incumbent organisations need to be more creative in this regard. Look to create a combined business and technology team and be ready to look at acquisitions or investments that may not be your core business. Westpac’s Reinventure investment is a great example here, as is CommBank’s Pi payments platform and the Albert point of sale device.
- Implement a dual approach to innovation: continuous and disruptive. Survival requires you to embed innovative thinking into all parts of your organisation. Continuous innovation is simply a hygiene factor - you just have to do it to stay afloat. You need to make continuous innovation part of the culture.
Business leaders should start by ensuring that they keep abreast of what is happening in the market. Consider setting up a reverse mentoring program where new hires mentor seasoned professionals and keep them up to date with the latest trends.
Consider adding a continuous innovation test into the investment review process to ensure spend is adding value for customers and is keeping you at pace or ahead of your competitors.
Another play is to instigate an innovation planning space where you can bring together people from all over the organisation to challenge the status quo and come up with short to medium term innovation ideas.
While these strategies can get you started, they tend not to challenge the business model entirely and it will not protect you from disruptive innovation. Even with the best processes large organisations put in place to facilitate innovative thinking, I am convinced that most innovation happens at the fringe rather than the core. Innovation tends to happen less through structured facilitation and more from just letting it happen.
As such, you may also consider establishing a “start-up” within your organisation to be your own disruptor. I am not referring to an R&D unit, more so a businesses that is allowed free reign to break the traditional business model and try a new approach.
My experience suggests that innovation is extremely difficult within large organisations if the start-up has to follow the same processes for funding and risk assessment as the core business. To ensure quick outcomes, use a different business model and rules of engagement.
A great example of an organisation that decided to embrace innovation and created a separate entity to do so is Wal-Mart.
A few years ago it created @WalmartLabs, an idea incubator, as part of the company’s growing ecommerce division in Silicon Valley—far removed from the company’s head office. One of the new group’s innovations was a new unified company-wide ecommerce platform that helped Wal-Mart increase online revenues by 30 percent in 2013, outpacing Amazon’s rate of growth.
The key point with creating a new entity is to focus on disruptive innovation, not continuous innovation, which otherwise should be embedded in the core business and become part of the day to day culture.
Protect yourself by focusing on the customer experience.
No matter what new innovations appear to challenge you in the market, you can always protect yourself by following the Apple approach. Don’t just focus on price and quality, focus on the overall way that your customers feel when they do business with you. Use the power of your brand to fight off challengers.
At the very minimum you will buy yourself some time to develop your own response to the disruptive innovators.
Jeff Jacobs is a Sydney-based technology executive and IT consultant with over 25 years experience in senior IT positions with AMP, Zurich, CBA and most recently as the CTO of Westpac.