Written by: Jake Chambers
The disruption facing whole industries and their incumbents, driven by changing customer needs and fuelled by technology, is well-known and well-covered. The impact on financial services is still nascent, but most people agree it will grow and transform the sector. That’s why it’s essential to embrace the change and nurture the talent that will lead it.
Innovation drives competition, and competition demands innovation. This cycle has always existed, but now it’s shorter than ever before. It is pushing industries harder, be that banking, utilities, telecoms or heath and fitness; industries Daryl and I have experience in and follow carefully. No product, service, process or technology is sacred. Wherever a new or latent need exists, it’s just a matter of (not very much) time until someone will come up with a solution. Embracing change will secure the future of businesses, differentiate brands, and result in success for the leaders who adapt.
Collaboration is the name of the game
The model of closed innovation in secretive R&D facilities, favoured by many large and traditional corporations, is also being challenged. Today the internet, social media and crowdfunding enable tiny organisations and ambitious individuals to raise money, find talent and resources and develop their own ideas. Innovation and business evolution have become team sports. Even Apple buys various pieces of the puzzle that make up its products from other businesses, including outsourcing the actual manufacturing. In such creative and fast-moving ecosystems, innovation thrives through collaboration, providing access to the best talent, intelligence and resources from across the whole market, not just in that organisation.
From little acorns…
The number of start-ups in the UK rocketed to over 580,000 in 2014, and this is powering further change, as established companies start to offer start-ups the help they need to grow and prosper, with the reciprocal benefit of the start-ups introducing the incumbents to new and exciting growth opportunities.
These initiatives - including Accelerators and Incubators - share the objective of bringing together traditional firms and new thinkers for mutually beneficial partnerships, but there are some differences:
The UK: global FinTech leaders
Turning to a market we have recently been immersed in, retail banking, all this holds true: the global investment in FinTech ventures from this sector tripled to over $12 billion in 2014. The UK and Ireland are at the forefront of this, accounting for 42 per cent of the European FinTech investment – worth a reported £20 billion to the UK economy this year alone. And as we edge in front in Europe, we’re also predicted to become global leaders before too long. As Eileen Burbidge, partner at early stage venture fund Passion Capital and the Mayor of London's tech ambassador, has pointed out, this is in no small part due to London’s unique ability to combine technological innovation with finance and policy making – all within the city walls. Innovation is more than a series of great ideas – to become impactful it relies on the development of those ideas into compelling propositions that drive growth – and this is where London’s combination of creativity and solid financial service foundations enables it to steal a march.
With this backdrop, and the conditions ripe for disruption, the future of FinTech is exciting. Funding Circle, World Remit and TransferWise have already netted investment totalling more than a combined £300 million in 2015, and there are plenty more FinTech entrepreneurs hot on their heels. Many financial institutions are trying to improve, or arguably secure, their futures by backing such FinTech start-ups, through collaborating and co-investing. These efforts often rely on the Incubators and Accelerators I described above, where the focus is on nurturing talent and giving start-ups the platforms to showcase their products. The weakness in this approach is that it is outside-in: the start-ups offer a solution but it typically wasn’t designed to address a challenge explicitly set and prioritised by the “sponsor”. It is a hit-and-miss approach to innovation.
This is where the Innovation Lab comes in to focus. Innovation Labs are the creative spaces within traditional organisations where new ideas are formed, unconstrained by day-to-day operational business priorities. But, importantly, the ideas that are formed in labs should be purposefully and explicitly focused on challenges that the organisation has prioritised. Some businesses have built their own labs, others have outsourced this capability. A few are starting to adopt a third way: open innovation, owned and led by their own people but augmented by external experts with experience of doing this before and a network of partners beside them.
Which option is the right one depends on what role innovation has in an organisation’s strategic objectives, and its strengths, assets and talent to deliver these in-house. Organisations that are great at spotting future growth champions might be well-placed to run Incubators and Accelerators offering investment. Companies with dominant market positions or advantageous access to resources might be better off by keeping innovation in-house and closed. But for many, access to a much wider pool of talent and fresh ideas, the opportunity to share resources and the stimulating exposure to competition is likely to make open innovation an increasingly attractive option.