Developing your own FinTech strategy (Part 2) - Established businesses.

"It is not the strongest of the species that survive, nor the most intelligent, but the one most responsive to change”, Charles Darwin.

Last time we looked at developing your own FinTech start-up strategy. This week we will look at trying to maintain your digital advantage in an ever-changing world. This by no means is a comprehensive guide, but instead focuses on a few suggestions for sustaining innovation. This article would be a useful reference for any business expecting to see ‘disruption’ over the coming years and its relevance extends well beyond those companies focused solely on the financial sector.

Established business

What is clear over the last few years is that the operating field in the Financial sector and indeed across the board has changed. In fact many industry analysts believe that as much as 40% of the currently listed Fortune 500 companies will cease to exist within the next decade. The previous business models that housed a stable line up of traditional players, with fairly predictable profits, has been disrupted across a plethora of industries. This is now being seen in the world of finance but I expect the pace to increase exponentially within the sector, encouraged by new competition laws and technological advances like the advent of digital stacking. No longer does it suffice to try and simply sustain a competitive advantage, companies need to be pioneering.

History is peppered with companies that haven’t taken development seriously and have gone by the weigh side. What has become clearly apparent in recent times is that you either adapt or fade away. A sensible approach I prescribe is a change of focus at times. Start thinking of yourself as much a technology company providing a financial service product rather than simply as a finance company. Additionally, accept and acknowledge that disruption is there and that it is coming. You have a chance then to batten down the hatches or adapt.  These choices are ours to make and a good question to raise in relation to the business’ direction; is it better to be on the outside looking in or the inside looking out? Creating an ongoing FinTech strategy is a valuable attempt to do the latter.

Strategies can be split between internal and external efforts. Internal factors can easily be implemented with some thought and dedication, and large established companies have a lot of advantages over startups. Firstly, they have the capital to pay for salaries and developments. Secondly, they then have the customers in place to test concepts and benefit from having existing legal teams to protect ideas that work.

Here are some basic steps that all companies should take to ensure they are still at the forefront of innovation.

Strategic Toolbox for FinTech Innovation – Internal

Set up a dedicated Innovation Enclave with the specific purpose of creating and testing innovation. These teams are known in the industry as Moonshot teams from the fact that they are tasked with shooting for the moon. On that basis, these teams should be allowed total control over ideas (not implementation), testing to see what doesn’t work as well as what does work. Much can be learned of course from failures. The teams and ideas by nature will be a little more leftfield and experimental. Google’s X is a prime example of a well-developed enclave and the team has been responsible for items such as balloon powered Internet, Googles Glass and the self-driven car.

Attempt to marry members from IT and Operations. Combine teams into an efficient unit referred to as DevOps or otherwise known as development and operations, which combines the forward thinking IT department with the present thinking operations department. This allows people with different roles to work together to better see how they can effectively combine new ideas with the practical implementations required in the current business model.

General organisational improvement and feedback loops. The above are all wonderful and extremely useful, but only as much as the ideas are adopted and implemented by the whole organisation. Therefore continual business improvement must be on the ongoing agenda from the top level of management down. Data loops need to be in place and data captured and used proficiently. This is such a vital part and so important the Japanese actually have a specific word just for this process of continuous improvement, Kaizen.

External

It is a fact that most innovation today comes from external sources, which indicates a great deal.  This is partly because companies often don’t implement the steps above to extend internal innovation and secondly, there are those that are exceptionally motivated to create change and define their own mark which leads them to start their own entities. Adopting a wait and see approach to what works, and what technologies are being developed that can enhance your business model is another key step to take. On the basis that we can’t always hire the world’s best brains, there are going to be times when we should certainly be looking to identify and acquire them through external means.

For example, in the case of a bank, developing a complete banking system can be time consuming and expensive, and it can be better to grab hold of an existing team and products and build on that. However, unless you allow the team the space and design to be productive and try to incorporate them into the core commercial business without breathing space, the chances are they will leave. One solution may be to integrate these people into a Moonshot hub and give them the tools to develop the product further. This is called the acquisition integration paradox.

Summary

It’s important to note that even if you apply the steps above, it doesn’t always go as planned. Look at Nokia with its work on Smart phones and Kodak with its work on digital cameras. Sometimes even with technology teams in place, the company structure can be set up to be prohibitive to the growth of tech. Kodak sales staff for example chose the traditional camera over digital because they were compensated by Kodak for selling all the additional equipment and add accessories such as camera film. If the business model is not set up to adapt along with new ideas, new ideas will simply not be adopted. Finance firms will fall victim to new entrants, if they fail to respond to change.

Companies such as Netflix are a great example of the philosophy encompassed in this article. Netflix started out as a logistics and distribution company but is now very much a world-renowned production company. In 2017 they apparently invested close to all their revenue,  $8bn on new production material; yet it has taken content producers like Disney a decade to enter the distribution fray. Companies should view enclaves as a way of not just staying ahead of innovation, but also as a way of potentially creating diversified revenue streams, reducing the overall risk of the company and in turn, creating shareholder wealth. As previously mentioned in this article, this disruptive process can be seen across many sectors.

N’Gunu Tiny