A digital arms race is underway in the financial services industry. Customers are demanding new digital products, services, and business models. With competition mounting from both established players and disruptive new market entrants, traditional financial institutions are under pressure to innovate, and do it fast.
Consider the following real-world example: two large banks are vying to win, serve, and retain digitally savvy customers. Both decide to build a new mobile-enabled customer services application, the starter gun sounds, and the race is on. First to deliver, wins the market.
Bank #1 spent time in the design and development phase. Its application would be packed with every conceivable feature its customers might desire. It planned to launch its application with a “big bang.”
Bank #2 focused on a simple initial release that allowed customers to do one thing: check their account balance. It beat Bank #1 to the market by months, and from there, it iterated in small chunks, adding functionality users actually valued, based on real user feedback.
Can you guess which organisation went on to win multiple awards for application usability and customer satisfaction? Bank #2, of course.
Banks are Betting Big on Digital Transformation
IDC predicts that retail banks alone will spend nearly $16.6 billion implementing digital transformation initiatives in 2015. And this spending will grow at a compound annual growth rate (CAGR) of 10.4 per cent into 2019.
In order to invest most effectively, though, financial services organisations must come to terms with two critical aspects of digital innovation. First, speed wins in the marketplace. There are countless examples of companies and products that achieved a dominant position by virtue of being first to market. Nowadays, taking months or years to deliver an application just won’t cut the mustard.
Second, innovation is a process, not a project. Traditional projects have a beginning, and if they are lucky, a middle and an end. In contrast, digital applications are living and breathing entities. Like Bank #2’s mobile app, they continually evolve in response to user feedback, new business needs, and competitive threats.
Traditional IT is a Hammer but Digital Innovation Isn’t a Nail
Unfortunately, speed and agility aren’t the hallmarks of traditional IT teams. That’s no knock on them, more a recognition of what they’re set up to do: maintain the organisation’s core systems of record in a reliable, predictable, and safe way.
That doesn’t mean the same approach should be used to build applications designed to digitise customer engagement; deliver new products and services; and form the backbone of new business models. In contrast to systems of record, these systems of innovation represent new and experimental ideas that aren’t always well understood, yet must be delivered rapidly to gain competitive advantage.
To meet these two very different needs within their application portfolios, IT organisations must implement a bimodal or two-speed IT approach. As Gartner writes in Forbes, “In Mode 1, IT operates traditional IT services, emphasising safety and accuracy — what a traditional IT organisation does best. Mode 2 emphasises agility and speed, like a digital startup.”
Currently, 45 per cent of organisations have a second, fast mode of operation. By 2017, Gartner predicts that 75 per cent of IT organisations will have a bimodal capability.
Your Innovation Fast Lane Requires 3P’s
Where many financial services organisations fail is by attempting to put Mode 1 resources on Mode 2 initiatives. To successfully deliver new systems of innovation, a Mode 2 fast lane requires a different mix of people, processes, and platform from existing IT:
- People – a small, cross-functional team that’s focused exclusively on innovative digital applications. Typically, team members are tech-savvy business people or business-savvy tech people—the point being that they’re able to bridge the gap between business needs and technical possibilities to quickly transform ideas into applications.
- Process – because requirements for digital solutions are often fuzzy, teams should work in short, iterative cycles in close collaboration with end users. The key is to break an application into small components, creating functionality, releasing it, and iterating continually based on user feedback. This process should continue for as long as the application lives.
- Platform – modern cloud application platforms eliminate constraints associated with traditional development tools. The use of visual models to define an application’s data model, UI and logic creates a common language for business and IT to collaborate, while delivering big productivity gains over hand-coding. In addition, these platforms further shorten time to market through reusable components, one-click cloud deployment, and more.
Delivering Disruptive Innovation without Disrupting Your Organisation
The entire financial services industry is scrambling to figure out the formula for digital transformation. But many are doing digital a disservice by making it sound too big and too scary, as if it massive cultural change and multi-year, multi-million-dollar projects were the only way forward.
A bimodal IT approach allows you to embark upon your digital journey without completely changing everything. Mode 2 fast lanes sit alongside, and augment, existing IT, allowing each to focus on what they do best. In the process, you’re able to start small and get some quick wins under your belt, giving you the confidence and proof required to scale your innovation programme.
Interestingly, you deliver disruptive innovation without disrupting your organisation. You build a culture of innovation that spreads organically throughout the company, without forcing the massive organisational change that stops most initiatives dead in their tracks. In large, traditional, and risk-averse organisations, this is crucial to success.
With the pace of innovation accelerating, demand for new applications will only grow. The rallying call of this digital arms race is ‘Innovate or Die.’ To survive and thrive, financial services organisations must create a culture of continuous innovation where systems of innovation are built rapidly, deployed instantly, and changed easily.
By Kirby Wadsworth, CMO, Mendix