By Rebecca Crook, chief growth office, Somo
By looking through the history books, we can see that crises inspire innovation. It was in the trenches of WW1 that soldiers used what materials they could to keep machinery running and even recently during the Great Recession, Amazon invested in research and product innovation to launch the Kindle, a cheaper alternative to tablets. Both were a direct consequence of needing to think differently and come up with solutions that helped serve a need. The crisis we are in now is no different.
The pandemic spurred innovation and accelerated processes to produce alternative products that remedy business revenue concerns and solve the problems society is facing. Many companies over the last several months have examined their current product portfolio and investigated how they can leverage certain elements, services or processes within the businesses to develop new adjacent products.
We only have to look at the many business pivots to PPE production to know that this is true. Brands like Gap and Adidas began producing facemasks, GM and Dyson produced ventilators and Diageo and BrewDog began hand gel production. The same can be said of digital businesses too. Netflix introduced Netflix Parties to simulate friends and families getting together to watch a film through synchronised video playback and a group chat function. It is clear that those that can innovate at scale with speed are unlocking important alternative revenue streams in increasingly difficult business markets.
For the financial sector, it found its pre-crisis revenue streams already drying up in the first three months of the year. Before lockdown, the UK financial sector suffered a drop in profits and a spike in bad debts, alongside low customer trust prohibiting retail banks from capitalising on new revenue streams through advisory services, for example. Now survival, if not expansion, depends on identifying these fresh opportunities and investing in pivots that aid business growth. But to do this, they must adopt the right mindset. Whilst there needs to be a doubling-down on momentum within the core business, there also needs to be a company-wide culture of innovation that unearths and nurtures those alternative products and offerings into potential revenue streams.
So how can the financial industry enter this mindset and reframe their business output for the context of the current crisis?
Adopting an ‘always on’ innovation practice
The traditional model of innovation is no longer best practice in this new business environment. Innovation for many companies, particularly those in the legacy financial services space, tends to consist of singular major leaps forward over a period of years in order to offset the potential decline in growth of a core product offering. Driven heavily by FinTech start-ups who have taken traditional products and services and applied new, innovative models, legacy services have sought to keep up by improving their own. We’ve seen long-term investments in digital structures like online banking services and increasing digitisation of physical offerings but these have mainly been a response to the competitive landscape and the increasing shift online.
Instead, companies should be continually innovating and iterating to develop new products that fulfil unmet customer needs. Embracing an ‘always on’ innovation practice is crucial to developing multiple revenue stream resilience. We’re starting to see this pick up as a consequence of the pandemic with 81% of banks saying that they are now using agile practices to increase the pace of new product and service delivery in order to speed up their traditional innovation processes.
By investing in a culture of innovation, financial companies are best prepared to open new channels for revenue when cost-cutting reaches the top of the agenda, like we’re seeing across the sector today. If new product research and testing is already an integrated part of the businesses, banks and beyond will be able to survive future shocks by already being in a position of efficiency and delivering against shifting consumer demand.
Innovation is an issue for the top but it needs to be embraced by those on the front line too
As digital transformation has taken hold of every sector, financial institutions have tried to adjust. Further driven by the arrival of agile FinTechs, digital banking has been a key focus for innovators and, as a consequence, we’ve seen the rise of ‘labs’ and ‘accelerators’ within the sector to solely focus on programmes that nurture innovative product development. However, these entities within banking organisations like Deutsche Bank’s innovation offshoot, Deutsche Bank Innovation Labs, or Visa’s London Innovation Centre, which dedicates a space to product experimentation, whilst important should not be side-lined as an adjunct division in a company.
Innovation needs to be embraced by all levels and within all disciplines in the company to maximise the opportunity for co-creation. Effective innovation doesn’t take place in silos. It relies on transparent communication across departments and business structure which legacy architecture within financial organisations doesn’t allow. Removing these barriers is the first step.
It’s also essential that innovation is an agenda held at the highest levels. The C-suite needs to drive and champion this innovation agenda cross-company. Having buy-in from the top will ensure that adequate resources are allocated for driving innovation efforts. However, it’s often the case that CEOs and CTOs will focus on existing clients and services and devote less time to future opportunities. Innovation requires attention but, of course, this needs to be balanced against existing business demands. Therefore, having an engaged set of top-level executives pushing for both will help manage this balance and speed up the pace at which the agenda passes down the organisation through management to all employees in all departments.
As the pandemic continues alongside the need to rethink and reshape financial offerings, companies within the sector need to engage with the idea that innovation is a mindset that manifests a culture. By moving beyond the idea that innovation is separate to day-to-day functions, the sector will be able to adapt much more quickly to changes and build a much more agile and diverse revenue pipeline. This means training those on the front line- the people in branches, call centres and on the other end of the online chat function, to use the tools that result from innovation to create a true end-to-end customer experience. It’s ultimately about a willingness across the business to imagine and execute innovations and then continuing to nurture that environment.