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More Financial Service Ideas of 2006
Continuing where the previous post left off, here are the remaining entries from Springwise’s Top 10 Financial Service Ideas in 2006.
Green insurance. Ecoinsurance (www.ecoinsurance.co.uk), a service provided by Co-operative Insurance, offers a 10% discount on insurance for vehicles that emit less than 100 grams of CO2 per kilometer. Co-operative invests in reforestation and renewable energy projects to offset 20% of the CO2 produced by each vehicle covered by ecoinsurance (based on an average passenger car with average annual mileage).
Ultra personalized banking. Flexi Cards (www.flexicard.com.tr), provided by Garanti Bank, allow customers to personalize the look of their bank cards and a whole lot more. When applying for a card, customers can manipulate over ten different parameters, including reward rates and types, interest rates, and card fees.
Banking for women. Raiffeisenbank Gastein (www.gastein.raiffeisen.at) is Austria's first bank designed exclusively for women. The concept is based on studies showing that women approach finances differently than men do. The bank features a lounge-like interior with a play area for children. Female employees take time to explain products and build strong relationships with customers.
Pay-as-you-go computing. Microsoft FlexGo (www.microsoft.com/whdc/flexgo) makes it easier for people with modest incomes to acquire a computer. Customers pay a portion of the purchase price up front. Computing time can be purchased only as needed, using prepaid cards. When a certain amount of computing time has been purchased, the customer owns the computer outright.
Sharing home ownership. SharedSpaces (www.sharedspaces.co.uk) is an online network designed to help co-buyers find each other. Homebuyers join forces to purchase homes they could otherwise not afford. Shared ownership reduces individual purchasing and maintenance costs, enabling users to enjoy the benefits of home ownership sooner rather than later.
Springwise has published Top 10 ideas for 2006 in these additional categories: automotive, tourism & travel, life-hacking, eco business, fashion & beauty, telecom & mobile. Look for additional categories to be added over the next few days. When ideas are good, they often adapt and spread from one industry to others.
Top Financial Service Ideas of 2006
The final days of December – time to reflect momentarily on the year that was, before turning our attention to that which lies ahead. You’ve probably been inundated with end-of-year lists featuring the top movies, songs, books and news events of 2006. Top financial service ideas typically don’t get as much coverage, so I thought I would share some with you.
Springwise, a Dutch company that tracks “new business ideas for entrepreneurial minds,” just published a list of Top 10 Financial Service Ideas in 2006. If you’re having trouble generating ideas for the Next Great Innovator Challenge, some of these might jump-start your creativity. The top five ideas appear below. The remaining five will be summarized in my next post.
Person-to-person micro lending. Kiva (www.kiva.org) is an online service that connects desktop philanthropists with entrepreneurs in developing countries. Users provide interest-free loans for as little as $25 to entrepreneurs of their choice. Along with routine loan payments, sponsors receive updates on the progress of the businesses they support.
Entrepreneurial children. Dutch Postbank (www.postbank.nl) launched a campaign to support budding entrepreneurs. A dedicated website suggests possible business ideas, ranging from mowing lawns to washing cars. The website guides children through the process of choosing a name, designing a logo, and printing promotional material. Kids can even create invoices and have customers transfer money directly into their bank accounts.
Group fundraising. ChipIn (www.chipin.com) is an online service that automates the task of collecting money for group purchases. Users invite their friends, family or co-workers to chip in for a particular cause, such as a birthday gift or office lunch. This creates a dedicated Web page, which participants can use to make contributions and track progress.
Person-to-person lending. Prosper (www.prosper.com), which was mentioned in the entry titled Web 2.0 Finance, is an online person-to-person money-lending marketplace. People who need money request it, and other people bid for the privilege of lending it to them. Lenders offering the lowest interest rates are combined to provide the requested amount of financing.
Selling what you say. Ether (www.ether.com) is a service that helps individuals sell expertise or advice over the telephone. Users receive a 1-888 number, which can be forwarded to the personal phone number of their choice. They set a rate and the hours when they are willing to take calls. Customers who dial the number are connected only when they have prepaid the set amount.
Submission Deadline Fast Approaching
It’s Boxing Day, which means there is precisely one month to go before the deadline for final submissions in the RBC Next Great Innovator Challenge.
In order to be eligible for a prize, submissions must be received before Friday January 26, 2007 11:59 PM (Eastern Time).
Many of you have probably been busy with exams over the last few weeks. The holiday season typically adds additional time pressures. Take advantage of the relative calm in the New Year to further develop your team’s proposal.
Be sure to reserve enough time to prepare your final documentation – presentation quality is just as important as the idea itself. The last thing you want is for poor presentation to distract from your carefully honed innovations.
As we approach the submission deadline, I can tell you that anticipation is building at RBC. Not a day goes by without at least one colleague asking me about the competition. We look forward to reviewing all of your proposals.
Web 2.0 Finance
If you’re active online, chances are you’ve heard a lot about Web 2.0. As buzzwords go, this one is approaching superstar status. It’s currently riding a wave of hype that should propel it to a spot alongside “e-commerce” and “e-business” in the annals of Internet history. When a new concept generates this much buzz, its definition can easily morph as numerous parties weigh in with their thoughts. This has certainly been the case with Web 2.0.
I’m not interested in arriving at a precise definition for Web 2.0. I would rather focus on two of the defining principles identified by Tim O’Reilly, President and CEO of O’Reilly Media – the firm that introduced the term at an industry conference in 2004. These principles are:
- Trusting users as co-developers
- Harnessing collective intelligence
The Web applications cited by TIME Magazine in its 2006 Person of the Year story certainly align with these principles. Community and collaboration are integral components of websites such as Wikipedia, YouTube, MySpace, and Flickr. Notably, the TIME article did not mention any Web apps for financial services. Are we to assume that financial services do not lend themselves to these particular principles?
I don’t think so. They may not enjoy as many users as Wikipedia or YouTube, but Web 2.0 applications for financial services do exist. Jim Bruene, founder and editor of Online Banking Report, recently blogged about the top 25 Web 2.0 financial sites.
The list includes loan sites Zopa and Prosper, personal finance sites DimeWise and iOWEYOU, investment sites BullPoo and FeelingBullish, and real estate sites Homethinking and Zillow. It’s a great launching pad for exploring the future of Web-based financial services. Jim even provides links to previous coverage of some of these sites.
Which of these have the greatest staying-power? Only time will tell.
The Person of the Year is You
I clicked on a link to read the latest TIME Magazine cover story when I was confronted by an interstitial ad for the 2007 Chrysler Sebring. The ad copy read, “You might not be TIME Person of the Year, but you can drive like you are.” The funny thing is, you is TIME Person of the Year. Who is? No, you is. Huh? With apologies to Abbott & Costello, allow me to explain.
In 2006, the World Wide Web became a vehicle for unprecedented community and collaboration. Wikipedia emerged as a global repository of knowledge. YouTube hosted millions of user-created videos, while Flickr did the same for personal photos. MySpace allowed millions more to customize and share personalized Web spaces. Ordinary people like you and I created Facebook profiles, Second Life avatars, and Amazon reviews. They blogged about politics or the family pet, recorded podcasts, and built open-source software. For doing all of this, TIME selected you as the 2006 Person of the Year.
Not since 1982, when TIME editors chose the computer as Machine of the Year, has technology featured so prominently in the magazine’s annual selection. Intel CEO Andrew Grove and Amazon CEO Jeffrey Bezos received the honour in 1997 and 1999 respectively, but this year’s choice is very different. Shining the spotlight on ordinary citizens and their online communities focuses attention on the evolving Web, or Web 2.0 as referred to by an increasing number of pundits. Debate has swirled over the precise meaning of the term, but the concept of users as co-developers has a place in most definitions.
What implications will Web 2.0 have for financial institutions? Financial examples were notably absent from the TIME article. Does this imply that the financial services industry will remain untouched by this phenomenon? In my next post, I’ll illustrate why I don’t think so.
Money Can’t Buy Innovation
Strategy + Business Magazine has published a thorough summary of results from the Global Innovation 1000, an annual study by Booz Allen Hamilton. Now in its second year, the study analyzes the financial performance of companies that spend the most on research & development worldwide. Reinforcing last year’s conclusion, the study found no simple relationship between level of R&D spending and corporate performance. Companies with (relatively) modest R&D budgets can perform as well or better than their billion dollar counterparts. When it comes to innovation, quality is simply more rewarding than quantity.
Among the findings from this year’s study:
Deep pockets don’t matter much. There are no significant statistical relationships between R&D spending and the primary measures of financial performance: sales and earnings growth, gross and operating profitability, market capitalization growth, and total shareholder returns. Gross profits as a percentage of sales (gross margin) is the only performance variable with a statistical relationship to R&D spending.
Scale provides one key advantage. For the 500 companies with the greatest revenue, median R&D spending was just 3.5 percent of sales, compared to 7.6 percent for the remaining 500. Despite a lower R&D-to-sales ratio, the financial performance of large companies is statistically indistinguishable from that of smaller, relatively higher-spending firms.
High-leverage innovators are rare. Only 94 of the companies on the Global Innovation 1000 were considered “high-leverage” innovators. These companies outperform their peers in seven key performance measures while spending less on R&D as a percentage of sales than their industry medians.
Patents don’t produce profits. Increased spending on R&D can boost the number of patents controlled by a company, but there is no statistical relationship between the number of patents held by a company and its overall financial performance.
Innovation masters know what counts. High-leverage innovators and overall performance leaders do not distinguish themselves by spending a lot of money. They do so by developing capabilities in ideation, project selection, development and commercialization.
The part of the study I found most intriguing was the list of 94 high-leverage innovators, comprised of very diverse companies, including: Adidas, Apple Computer, Black & Decker, Cadbury Schweppes, Caterpillar, Christian Dior, Dell, eBay, Exxon Mobil, Google, Kellogg, Petro-Canada, Research in Motion, Suncor Energy, Samsung Electronics, Symantec, Toyota Motor, Volvo Group, and Yahoo. In this subset alone, 2005 R&D spending ranged from US$46 million to more than US$7 billion, proving that superior corporate performance can take place at any point on the R&D spending scale.
The lesson: Innovation is not about what you spend, but how you spend it.
Companies Keep it Virtual
While collecting some background info for my last post, I discovered that Philips is one of the real-world companies that have established a presence in Second Life, the 3-D virtual world developed by Linden Lab, featuring avatars, digital creations and a real economy. I’ve been following Second Life with mild curiosity for about two years, but things have gotten really interesting in the past two months. During that time, registered accounts have increased significantly, along with the number of participating real-world companies.
On October 18, 2006, the number of registered accounts in Second Life reached one million. A mere eight weeks later, on December 14, 2006, that number reached two million. The figure does not represent unique users (a single user can create multiple accounts) but the growth is still impressive. Even more so, is the number and variety of companies jumping into the space. Why do they do it? I’ve compiled a partial list of real-world companies that are involved (or have been involved) in Second Life and some of their reasons for entering this virtual world, culled from press releases and other material on their own websites.
ABN AMRO (Dec 1, 2006) – “ABN AMRO will be organising seminars on Second Life for specific target groups, such as business starters or new graduates (Young Professionals) and Preferred Banking clients. ABN AMRO will also use the virtual world of Second Life to recruit new staff.”
Philips (Nov 29, 2006) – “Philips Design intends to use it’s presence in Second Life to gain feedback on innovation concepts, engage residents in co-creation and gain a deeper understanding of potential opportunities in this virtual environment.”
Dell (November 2006) – “Innovation has always been at the core of Dell. Innovation coupled with the idea of working directly with its customers has now led Dell to participate in Second Life…”
IBM (Oct 25, 2006) – “IBM has more than 230 researchers, consultants and developers using virtual worlds like Second Life to experiment with everything from new social networking tools, to the design of hospitals, schools, and businesses. Already, IBM actively uses Second Life to help alumni and current IBMers connect and collaborate…”
Reuters (Oct 16, 2006) – “Reuters, the global information company, is opening the world’s first virtual news bureau in Second Life.” “The opening of the bureau is part of Reuters strategy to embrace new digital platforms to deliver next generation news and information.”
Sun Microsystems (Oct 10, 2006) – Sun Microsystems launched its presence in Second Life with a press conference at the company's virtual Sun Pavilion. Sun Chief Researcher, John Gage, “pointed to the opportunities for experimentation with new forms of communication, collaboration and economic activity in the virtual world as a driver behind the creation of Sun's new facility.”
Wells Fargo (Sep 14, 2005) – “Wells Fargo today introduced Stagecoach Island, a free, multi-player, online role-playing game developed to teach young adults important lessons in financial literacy.” (Author's Note: Stagecoach Island subsequently moved from Second Life to an alternative platform)
Other companies that have experimented with Second Life include: American Apparel, Adidas, Toyota, Nissan, Sony BMG, Warner Music, and Starwood Hotels.
As the virtual universe matures, it will be interesting to see how these and other companies adapt their strategies. I’m also anxious to see how ordinary Second Life residents react to the presence of more and more companies in their metaverse. Do any of you take part in virtual communities like Second Life? What are your thoughts?
Simplicity vs Customization
On a recent trip to Halifax, I found myself with time to spare at Toronto Pearson Airport. With a double-double (coffee) in one hand, and a fruit explosion (muffin) in the other, I looked for a comfortable seat near my departure gate. I chose one that was attached to a side table, figuring it would be a convenient place to rest my coffee, muffin and napkins. As it turned out, the surface of the table was also an advertisement for Philips, the Dutch maker of domestic appliances, consumer electronics, and more.
I don’t recall the exact wording of the ad – suffice to say it reminded viewers how a simple piece of wood (the table) could serve such a useful purpose. It’s all part of “sense and simplicity” – the brand promise launched by Philips in September 2004. The company’s latest advertising campaign echoes this promise, reinforcing the notion that technology should be simple. Philips has even created a Simplicity Advisory Board to suggest ways of delivering on the brand promise. Comprised of experts from the worlds of healthcare, lifestyle and technology, the board provides external counsel on a range of Philips projects.
Before going any further, I have to confess my love for simplicity. As an engineering undergrad, I was intrigued by simplicity as an element of good design. To this day, when I think about designing products, environments, processes or communications, usability and human factors feature prominently. I shake my head every time I encounter something that is unnecessarily complex, so the Philips approach really resonates with me.
During my flight, I began thinking about customization and how it is potentially at odds with the notion of simplicity. Why customization? Well, you hear a lot about it these days. Companies eager to satisfy individualistic needs tout the ability to customize offerings. Why settle for generic coffee when you can select a favourite from thirty different blends and have it prepared with your choice of skim, whole or soy milk? Once you’ve decided whether you want the milk steamed or foamed, you can choose from a plethora of toppings including whipped cream, flavoured syrups, cinnamon, and so on. It’s the ultimate in choice, but hardly simple.
With virtual goods, the conflict between customization and simplicity is even more pronounced. The reach of the Internet makes it economically feasible for companies to produce custom offerings at the individual level. Think about iTunes, which offers hundreds of thousands of song titles to satisfy even the most obscure musical tastes. Individual songs may not sell in significant quantities, but collectively they add up to a viable business. Chris Anderson described this phenomenon as the “long tail” in an October 2004 article for Wired Magazine. Trend spotters at trendwatching.com use the term “nouveau niche” to describe the same thing.
Customization is great, but you often give up some simplicity to get it. Nothing beats the look and comfort of a made-to-measure suit, but getting that perfect fit requires a few fittings and probably a couple weeks time. To be worthwhile, the benefits of that suit must outweigh the convenience and simplicity of buying off the rack. In a perfect situation, you can have the best of both worlds. Think of luxury cars that enable owners to adjust every last element of the driver’s seat: forward position, height, backrest angle, lumbar support, etc. If the car is driven by more than one person, re-establishing personal settings can be a real nightmare. Recognizing this challenge, automakers devised seats with built-in memory. Press a single button and the seat conforms to previously established settings. Now there’s a solution that’s customized and simple.
Go Ahead: Squeeze the Charmin
Imagine you are the CEO of a major consumer goods company. Customers love your products, your manufacturing processes are top-notch, and your distribution system works like a well-oiled machine. Despite all this, your firm is losing market share to a rival company, which also has great products and matching capabilities in manufacturing and distribution. Your VP of Marketing suggests that the company needs to create a stronger brand in order to distinguish itself from the competition.
That sounds reasonable, but you’re not convinced that a spiffy new ad campaign will do the trick. After all, customers are confronted by marketing messages at every turn. How do you craft a message that rises above the noise? One thing you might try is experiential marketing, also known as customer experience marketing. The idea is to create relevant, sensory experiences for your audience, enabling deep interaction with your products, services and brand. Traditional marketing tells people about offerings; experiential marketing allows people to experience them.
I came across a brilliant example recently from the makers of Charmin bathroom tissue. Procter & Gamble has leased space in New York’s bustling Times Square, and converted it into the ultimate public restroom – twenty pristine stalls decked out in white porcelain where tourists and locals alike can…ahem…answer nature’s call. Thirty staff members ensure that stalls are cleaned after every use, and that they are fully stocked with Charmin tissue. A waiting room features flat screen TVs, fireplace, comfortable white couches – even a dance floor for kids!
The initiative builds on Charmin’s Pottypalooza program, which has been providing super-clean, portable restrooms at state fairs and other special events since 2000. Featuring a bevy of P&G products and diligent staff that clean up after each patron, these units are a far cry from the miserable porta-potties you may have been forced to endure at an outdoor rock concert or local soccer game.
What’s not to like about this idea? It allows people to experience Charmin firsthand in a way that is meaningful and relevant. Anyone who has ever struggled to find a clean public restroom knows this is a much-needed service and leaves with a positive impression. (I’m reminded of the Seinfeld episode where Kramer frantically scours New York City in vain for a public restroom.) Charmin also generates a significant number of media impressions, not to mention positive word-of-mouth. And what about the bottom line? According to an article in Exhibitor magazine, 14 percent of Pottypalooza users buy more Charmin. So, there you go.
Read more about Charmin’s NYC restrooms at the Futurelab Blog.
To Hit Home, Put Clients First
If you are entered in the Next Great Innovator Challenge, it’s a good idea to do some homework on RBC Financial Group. In order to develop a final submission that resonates with RBC judges, you should really try to understand what makes the organization tick. A good place to start is with the company vision and values. The vision is powerful and focused:
“Always earning the right to be our clients’ first choice”
As an RBC employee, I can tell you that this is more than a statement that gets printed in annual reports or on posters that hang in company meeting rooms. The vision guides the daily efforts of all RBC employees, whether they provide services directly to clients in a branch or contact center, or they work in corporate functions ranging from human resources to technology.
If you propose an innovation with the potential to delight clients, I think you stand a good chance of impressing the judges in this competition. Figure out what clients want from their financial services provider and you’ll be on your way. Deepen your understanding of client needs and you’ll generate ideas that truly strike a chord.
To uncover valuable client insights, use the same techniques employed by market researchers:
Ask questions – Sometimes the direct approach is best. Poll your family and friends about their financial needs. Almost everyone has used banking, investment or insurance services at some point in their lives – they are immediately qualified to provide suggestions. Keep your questions open-ended in order to avoid leading respondents down a particular line of thought.
Observe behaviour – Asking questions can be very useful, but to uncover latent needs you have to observe client behaviour in real-life situations. Watch how people pay for goods at department stores, fast food outlets, gas stations or vending machines. Do they fumble with purses and wallets? Look over their shoulders nervously? Keep others waiting while counting exact change? How would you design a payment system to alleviate these problems?
Observations made in the field this way are the basis of a research methodology known as ethnography. Whether you use this method or rely on simple questions, stay focused on the client and you can’t go wrong.
Mid-Term Report Card
This is the 20th post I’ve written for the Innovator Blog since it was launched a little more than a month ago. That’s enough posts and enough time for most readers to form an initial opinion of the blog, at least in general.
So tell me, how am I doing? To gather all of your feedback, I am extending an open invitation. Tell me what you like about the blog, and what can be improved. If you’re a student registered in the Next Great Innovator Challenge, has it been useful? All comments are welcome, but I’m interested primarily in two things:
1. Has the early content been interesting or helpful in developing your final submission?
2. What topics would you like to see covered in future Innovator Blog posts?
I’ve already done a quick self-assessment, based on some goals we had when we launched the Innovator Blog. Our objectives were to:
A. Maximize the relevance of final submissions by providing useful advice and guidance.
B. Supply information equitably to all challenge participants.
C. Invite discussion about the competition and related issues.
Whether the guidance provided helps to maximize the relevance of your submissions will only be seen after the submission deadline, but I have every confidence it will. Meanwhile, it’s clear that the blog format has allowed me to provide information to all participants quickly and easily. As a result, I believe we are tracking well on the first two objectives.
If there is room for improvement, it relates to the third objective. Frankly, the blog has yet to generate much in the way of comments. We are dealing with a competition, so I understand why some students might be reluctant to discuss their ideas. On the other hand, I believe it’s possible to have good discussion without revealing any secrets.
My personal goal moving forward is to encourage more comments. This is one of the reasons I’m keenly interested in your suggestions for future posts.
Money, Me, Myself and I
I work in the financial services industry, so I naturally spend a lot of time thinking about money and financial matters. It never occurred to me that thoughts of money might affect my behaviour, until I read an article at ScienceNOW titled Money and Me, Me, Me. According to the article, experimental psychologists have found that thinking about money causes people to act more independently. While this makes them more self-sufficient, it also makes them less collaborative.
Kathleen Vohs, a psychologist at the University of Minnesota, led the team that made the discovery. Vohs and colleagues recruited college students for a series of experiments. In each experiment, students were subtly reminded of money before being put in a social situation. For example, volunteers were seated facing a poster depicting different types of currency before being given a difficult puzzle to solve. Though they were told they could ask for help at any time, those who had been primed with thoughts of money waited 70% longer to ask for help than those who had not. Volunteers reminded of money also spent 50% less time helping another person solve a word problem.
The findings are fascinating, with implications for individuals and organizations alike. As a parent, would you continue to give your child an allowance, knowing this? Is it better to teach the child self-sufficiency or the value of cooperation? That’s a tough one. As a business, would this affect the way you promote your offerings? Are money themes in advertising overused? What if money is your business?
The study certainly raises a lot of good questions. I’ll have to spend more time thinking about them – alone, thank you.
Eight Most Valuable Banking Experiences
A whopping 94% of banking executives surveyed in a project known as The Relationship Experience agree that retail banking is either completely or partially commoditized. More importantly, over 80% of them feel that customer experience innovation is the key to solving the commodity quagmire. If that’s the case, how can banks create experiences that truly resonate with customers?
To find out, BAI and Strategic Horizons LLP developed something known as the Customer Sacrifice Index. Unlike customer satisfaction, which measures the difference between what customers expect and what they get, customer sacrifice measures the gap between what customers actually want and what they settle for. If you understand where customers make the greatest sacrifice, you can take positive steps to reduce or eliminate it.
The study found high levels of customer sacrifice across eight specific banking experiences. Presumably, organizations that find ways to improve these experiences stand the greatest chance of creating differentiation. Following is a list of the eight experiences with the greatest customer sacrifice index scores, as indicated in parentheses.
1. Bank rewards me for size/length of business (100)
2. Branches are open evenings and weekends (99)
3. Staff can negotiate fees and rates on their own (96)
4. Decisions about my account are made locally (84)
5. The bank offers excellent, in-person service (72)
6. Branch staff has been there a long time (70)
7. Branch staff knows about all products (68)
8. The staff at the branch knows me (66)
Looking at the list, two things immediately stand out. First is the fact that most of these involve customer interactions at the branch. If the project scope included all customer experiences, then this observation is significant; it suggests that the greatest gains in customer experience can be made in the branch as opposed to other channels. In other words, it’s harder to create a differentiated customer experience on the telephone, online, or at the ATM. Of course, if the project scope was limited to branch experiences, as I suspect it was, the same conclusion could not be drawn.
The second thing that stands out is the absence of certain branch experiences from the top eight. A few years ago, much was being said about “innovative” branch designs featuring: lounge areas where customers could sit and read; computers with free Internet access; large screen televisions displaying financial news; coffee, tea or other beverages; play areas for children; and so on. Among these, it was interesting to see that coffee/beverages had a customer sacrifice index of 45, while the rest scored no higher than 35. I dare say this proves the fact that bells and whistles are no substitute for knowledgeable, tenured staff that know their clients and are empowered to serve them.
The Innovation Hierarchy
In previous posts, I introduced the notion of innovation types – various business dimensions along which innovation is possible. So far, I haven’t said anything about their relative value. Scholars and others generally agree that some types of innovation produce more sustainable competitive advantage than others. For instance, Gary Hamel, Visiting Professor at London Business School and author of numerous management publications, has talked about a hierarchy of innovation:
“There's a hierarchy of innovation. Economic progress is driven by three forms of innovation: institutional innovation, which includes the legal and institutional framework for business; technological innovation, which creates the possibility of new products, services, and production methods; and management innovation, which changes the way organizations are structured and administered. Management innovation has produced the most profound shifts [in business productivity].”
I fully agree that some types of innovation produce more lasting benefits than others, but I do not believe the innovation hierarchy is static. It’s fairly obvious that the position of innovation types within a hierarchy varies by industry.
Consider the pharmaceutical industry, which invests heavily in research and development to uncover, test and bring new drugs to market. Product innovation is clearly the primary source of competitive advantage for pharmaceutical companies. They sustain this advantage by obtaining and defending patents, which prevent rival companies from copying their products. For pharma companies therefore, product innovation ranks high on the innovation hierarchy.
Compare this to the financial services industry, which some have described as a commodity business. If you consider products alone, it’s hard to argue with this characterization. Products from one institution have little differentiation from those of another. When new products are actually introduced, they are quickly and easily copied. For financial institutions therefore, product innovation ranks fairly low on the innovation hierarchy.
Of course, this begs an obvious question. If not product innovation, which type of innovation ranks high on the hierarchy for financial institutions? A research project known as The Relationship Experience, conducted recently by BAI and Strategic Horizons LLP, may provide an answer. The study suggests that customer experience innovation is the best way to avoid product commoditization and produce sustained differentiation.
I’ll take a closer look at findings from that study in the next post.
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About
The Innovator Blog is your inside source for advice and guidance on the RBC Next Great Innovator Challenge™.
Recent Posts
- More Financial Service Ideas of 2006
- Top Financial Service Ideas of 2006
- Submission Deadline Fast Approaching
- Web 2.0 Finance
- The Person of the Year is You
- Money Can’t Buy Innovation
- Companies Keep it Virtual
- Simplicity vs Customization
- Go Ahead: Squeeze the Charmin
- To Hit Home, Put Clients First
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