Open Innovation In Financial Services Innovation Summit 2009

www.themegallery.com

Presented by Maggie Fikkert

Open Innovation

In the Financial Services Sector

by Innovation in a Box (Pty) Ltd


Implications of Collaboration

Charles Darwin noted “In the long history of humankind

(and animalkind, too) those who learned to collaborate

and improvise most effectively have prevailed”

“Era of open innovation” is to seek knowledge iteratively

from various sources, such as suppliers, customers,

universities, research laboratories, consortia,

consultants, start-ups, new business units and

competitors



Financial Services

Service-driven, knowledge-intensive Economy affected

by Information and Communication Technology

Changing nature of demand

Knowledge sits beyond organisational boundaries

Business models – blend of Openness, flexibility, focus

on core business, customer in centre

[Growth, profitability] and risk management

Leverage Innovation for growth • Value Innovation



Financial Services


Financial Services (FS) typically enjoy little or no Intellectual Property protection.

• Merrill Lynch “Sweeping” innovation was rapidly copied

• Frequent people moves between Financial Services firms

• More solution integration (customers)

• Impossible to meet ALL customer needs – have to open up

FS has to embrace both “outside-in” and “inside-out” component of open innovation model. Open up architectures in view of adding value and superior performance for customers.


Journey from closed to open


Not an easy journey

• Shifts in Business Models will be required

• Cultural changes need to take place

• New reward systems will be needed

• New relationships with growing network of participants developed and

managed

Time, Money, Risk

Open Innovation manages real dangerous risk


Industry specific Innovation


Innovation System trait Manufacturing Services

Product Characteristics TangibleEasy to storeHigh transport & distribution costs

IntangibleEasy to multiply and transport

Intellectual property StrongPatents

WeakCopyright

Technology orientation Technology-pushScience & technology led

Technology/market pullConsumer/client led

Innovation form Attempt to be radical Mainly incremental

R & D approach SystematicScientific

Ad-hoc

Knowledge condition Make use of existing scientific knowledge

Create new service-specific knowledge


Financial Services Innovation

Innovation Generic Categorisation:• Product and Service Innovations• Process Innovations• Innovations common to organisational function and service

delivery• Open business models

Not strictly linear or sequential Ideas for new services emerge almost everywhere in the

organisation Customers, front office personnel and intermediaries

rarely involved in entire development process



Open Innovation

Innovative technology will be the centrepiece of customer-focused strategy – Nykredit

New management style that facilitates collaborative operating models for innovation

Focus on the customer Services added to products (may even be

supplied by third parties) Structures that aid responsiveness – more flat,

flexible, process-orientated and team-based with focus on collaboration across boundaries

New forms of innovation management



Externalisation of Innovation

Shift of particular set of products/services generation to outside organisation

Collaboration beyond boundaries for all phases of innovation process. Benefits being:• Multiplying building blocks of innovation• Resourcing strategy – leverages development of new

and existing knowledge• Knowledge that offers solution – internal and external

to organisation • Can concentrate on core competencies• Breaks down thought worlds



Open Architecture

“Open Architecture” popped up around Millennium as a disruptive business model in FS - fund distribution (Bank delivers funds from third-party providers)



Principles of Open Innovation


Not all smart people work for us and we need to work with smart people inside and outside the organisation

External R&D can create significant value and internal R&D is needed to claim some portion of the value

Generation of additional revenues from selling research outputs to other firms

We do not have to originate the research to profit from it Building a better business model is better than getting to the market

first Win by making the best use of internal & external ideas Constantly seek knowledge from others Open architecture is part of our thinking We invite the customer into the innovation process as a partner and

co-producer Network of collaboration partners from development to

distribution


Client Integration

360 degree view of clients needs Then apply solutions from across product and

service portfolio including third-party products Essential to generate value proposition for

customer first and then develop a value proposition for the innovation as such that satisfies the clients needs

Identify clients needs earlier than the competitors and react to the needs with innovative solutions



Meeting the challenge

Inter-organisational knowledge through alliances formed by customers, suppliers, distributors, and even competitors to share experiences and knowledge

• “coopetition” (Ray Noorda, Novell founder) Learn from other sectors and industries Cultural change which includes adapting of management

practices to dynamic practices (Ambidextrous thinking & intrapreneurial attitude)

Operating models that embrace flexible service-orientated architectures that align business and technology

Requires a set of new specific processes and capabilities to incorporate knowledge from business partners and customers



Ambidextrous Thinking

Dealing with contradicting phenomena Two business models Held together through leadership qualities (e.g.

balance closed innovation with open innovation, product focus with client focus, etc.) Midland bank example



Intrapreneurs

Act of innovation by the initiator of new business idea within the organisation

Integrates external environment and organisational context as well as individual processes into a business plan that produces value

Same capabilities as an entrepreneur – but is within the business



Final Thoughts

Open innovation in the context of the financial services must always be part of strategic thinking – at every managerial level

Industry and universities must improve partnerships



End?


“Now this is not the end. It is not even the beginning of the end.

But it is, perhaps, the end of the beginning."

Sir Winston Churchill

Economy & Finance

Open Innovation In Financial Services Innovation Summit 2009