6 ways financial services firms can industrialize innovation

2.  Innovation takes on many forms

The survey addressed the various forms of innovation and the specific actions that firms take to promote it. Those actions included a wide range of common techniques and tactics, from the strategic (like creating a “NewCo” business model independent of legacy) to the more tactical (such as creating innovation labs and teams and dedicated “test-and-learn” environments), as well as both internal teams and external partners (including FinTechs).

Further, the most popular actions include both technology and organizational dimensions. Indeed, in terms of expanding efforts in the future, measuring innovation and creating more leadership accountability were the top two answers. Steps such as these help make innovation an inherent part of operations, which lays the groundwork for industrial-strength capabilities.

Digital leaders show the practices and actions that have the most impact. It’s noteworthy that the biggest gaps are in the organizational factors, such as measuring innovation (which 88% of leaders do, vs. 41% of laggards). A similar gap (84% vs. 42%) exists when it comes to identifying executives with accountability and budget for innovation. They are purposeful and holistic in formalizing innovation, which is guided from the top levels of the organization.

3.  Innovation priorities will shift moving forward

The survey also asked what companies have done recently and where they plan to focus in the next 12–24 months. Compared to their top three areas of focus over the last 24 months, leaders will place greater emphasis on improving efficiency and productivity, improving the customer experience and implementing new ways of working. The implication is that leaders anticipate great progress in terms of deploying platform-based business models.

The views of CIOs are very similar to those of the most mature firms. More than two-thirds, or 68%, are focused on improving efficiency and productivity. Improving the customer experience (58%) and implementing new ways of working (56%) are other top priorities.

4.  Investments are targeted toward current business models

While innovation can be applied to nearly every part of the business, most investments are still focused close to current business models and on sustaining innovation. Nearly half, or 43%, of respondents say innovation investments are focused on improving the core business by innovating around known industry capabilities, markets or existing business models. Another 35% are establishing new capabilities to extend the current business. Only one-fifth are seeking disruptive or transformative innovation that will redefine current ways of doing business. Interestingly, CIO responses are consistent with those of all respondents.

“Near-horizon” innovations that are designed to enhance or extend current business models are more likely to deliver 10% returns than they are to deliver 10x returns, which only come from more ambitious efforts designed for disruption. The implication is clear: firms seeking breakthrough performance gains or stronger market positions must think bigger and act bolder.

6.  CXOs are not fully aligned on the role of innovation

When it comes to transformation goals, business benefits and future priorities, there are significant gaps between the views of CIOs and their C-level colleagues. For instance, CDOs and CIOs are more closely aligned with each other than with CTOs.

On one level, the lack of alignment is not surprising. Naturally, chief innovation officers are more focused on driving innovation, while CTOs want to prepare the organization for new technologies. However, the gaps raise three important issues:

1. Need for C-suite alignment: The entire C-suite needs to be in synch in driving innovation. As technology evolves at a constant and increasing pace following Moore’s law, chief technology officers have a critical role to play, not only in keeping up with, but — more importantly — also in promoting and enabling innovation through a robust digital infrastructure.
2. An underlying cause of innovation struggles: All firms have access to powerful technology, but perhaps a lack of coordination and consensus among senior leaders holds back returns on investments.
3. A need to clarify strategic goals for innovation at the highest levels of the organization: Senior leaders must work together to build consensus where it matters — especially relative to goals, target outcomes and metrics. A sense of shared purpose is particularly important for companies seeking to accelerate and scale innovation.