Innovation in Financial Services

Get the stakeholders involved

• ask for their ideas and suggestions
• find out what would make their lives easier
• run proposals past them, ask for their opinions and feedback

Go visit the people and teams that will be affected

• Never underestimate the power of a box of Krispy Kremes

Be careful what you change...

• Things are usually the way they are for a reason (although it's not necessarily a good reason)
• Find out why.
• It’s not a good idea to attempt to change something without understanding why it came to be the way it is currently
• Understand the thing you're planning to change fully before trying to change it
• Be inquisitive. Get under the skin of the status quo.

During consensus-building, make sure that all objections and concerns are noted

Peer pressure or groupthink can make people reluctant to speak up

You don't want an "unknown unknown" to derail the entire initiative

Donald Rumsfeld wasn't being an idiot when he talked about "known unknowns" and "unknown unknowns":

• A known unknown is a piece of information that you’re aware you don't know - something you know you need to investigate, a question you know you need to find an answer for, a risk you know need to assess or quantify

• An uknown unknown is something you don't realise you don't know - a question you don't know you needed to ask, a risk you never knew existed, an outside context problem you never even considered

Unknown unknowns come out of leftfield to bite you in the ass, turn your assumptions upside down and derail your plans

Solving problems in a complex system is like chopping a head off a hydra - two more grow in its place

Identify the dependencies

Define the limit of change and find out what lies beyond

Understand what limitations are imposed by systems/processes/departments/people that are outside your control

Find out what else is going to change - other projects or programmes

Don't try to change everything at once - increased risk of failure and fuck-up

If the Big Bang approach is unavoidable, make sure you have a clear back-out path

Plan change in iterative stages (Agile, not Waterfall)

The Freeze/Un-freeze/Change/Re-freeze model is dead

Gear up for constant change

What's likely to happen over the next five years?

Make sure you'll be able to deal with it

Ensure the technology/systems/products/processes you design are modular, extensible, flexible and scalable

Modular means that you can replace an individual sub-system or process without having to rebuild the entire thing

Extensible means that you can add new functionality and features easily

Flexible means that the system can be adapted as the business and commercial environment and priorities change and evolve

Scalable means that there are no limitations or speed-bumps to increasing capacity and that the cost per transaction declines as the number of transactions increases

Innovation

Reducing headcount should NEVER be an objective or a justification for innovation

Instead, the objective should be to do more with the same number of people

Two reasons:

• Turkeys don't vote for Christmas
• If you get rid of the people, you lose their experience, the institutional knowledge they possess, the relationships they've established and their troubleshooting capability

Given the choice, I'd rather increase revenues while growing costs at a slower rate, than reduce costs while maintaining the same revenues

Seven questions

“Innovative ideas meet unmet needs or meet already-met needs better.” - Mike Harris (First Direct, Egg)

“Fresh thinking that creates value.” - The Economist

“Innovation includes novel and creative ways to create value through new products or services, new business models, or new processes.” - Journal of Management Science

innovate

verb [intrans.]

make changes in something established, esp. by introducing new methods, ideas or products

[trans.] introduce (something new, esp. a product)

1. What are you trying to achieve?

• Needs a quantifiable answer, preferably one that equates to higher revenues, lower costs or better-managed risk
• Look for the strategic competitive advantage

2. Why are you trying to achieve that?

• What's wrong with the status quo?

3. How does it fit into the wider strategy?

4. Who is the sponsor?

• A good sponsor is someone everyone wants to impress or keep happy - e.g. profit centre owners

5. What is the sponsor trying to achieve? And why?

• Not always the same objective

6. Is there a time dependency?

7. Who needs to approve?

Definition

• University drop-out - went to work in the Internet industry
• Was CTO of a dot-com when the bubble burst - went to work in the City
• E-business consultant, then e-trading specialist
• Bridging the technology-business gap
• Ended up on the trading floor at Morgan Stanley, running a $2.5bn equity swaps book
• MBA from London Business School
• Now a freelance consultant in the City
• E-strategy, driving innovation, figuring out "2.0" business and operating models
• Designing trading systems; automating pricing, market-making & risk management
• Currently involved in a tech startup

Change is difficult

As organisations grow and mature, they become

resistant to change

Systems and processes evolve over time

People are key

People become comfortable with what they're doing and are nervous of the unknown

Modern matrix management structures mean that it can be difficult to successfully impose change from above

A crisis will often make people more receptive to change but it's preferable to change before the crisis!

Identify stakeholders, establish relationships, build consensus

Lack of consultation breeds disgruntlement

Disgruntlement leads to resentment

Resentment leads to resistance

Resistance leads to failure!

- General George S Patton

Context (or "About Me")

Never tell people how to do things. Tell them what to do and they will surprise you with their ingenuity.

• Increase Revenue
• Reduce Costs
• Manage Risk Better
• Gain a Strategic Competitive Advantage

• Pick someone (or a team) you trust
• Give them a blank slate and a clear objective - it's important that they know what's expected of them

Look for:

• Leadership skills and a willingness to take responsibility
• Creativity, lateral thinking and problem-solving ability
• A willingness to ask questions, challenge the status quo and tell truth to power
• People skills (esp. empathy) and the ability to build relationships
• Clear, rational, logical thinking
• Commercial awareness, ability to see the big picture

A fresh perpsective with no baggage or preconceptions is good but they cannot work in isolation

• Change implies changing from one state to another
• They need to understand the environment and the status quo ante (more on this later)
• Make sure that they engage with the incumbent staff - they know how things work and will often contribute the best ideas

Monitor but don't micro-manage

Why innovate?

If you're the boss looking to drive innovation...

in Financial Services

Don't paint yourself into a corner

You don't want to have to throw the entire thing out in a few years time and start again from scratch

Keep your options open

Don't try to design/engineer the perfect solution

Aim for 80% max. - you're unlikely to understand the problem fully, so don't aim for 100%. Do 80%, see how it goes, fix any problems and then worry about the other 20%

Over-engineered systems are often brittle

KISS

Ensure that you never become hostage to the technology.

Always have a Plan B.

Worst-case scenario: System goes down, business grinds to a halt

Plan for outages

Need to be able to see what's going on under the bonnet and intervene if necessary

Design with business continuity and disaster recovery in mind