Innovation og IT - financial services - CFIR

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Innovation og IT - financial services - CFIR

Nordic Financial Services SectorInnovation og IT- financial servicesKim ØstrupJanuar, 2010© Copyright IBM Corporation 2005 2003


Nordic Financial Services SectorThe situation in the financial services industryNordic Financial Services SectorInnovation is clearlyan important aspectof the possibilitiesfor financial servicefirms to move intothe futureSource:IBM Global CEO Study2008Tomorrow’s enterprise and today’s “current state”Hungry for ChangeInnovative Beyond CustomerImaginationGlobally IntegratedDisruptive by Nature Business change and financial market volatility are accelerating Bank CEOs are indicating an increased need to embrace change –but are “behind the curve” New strategies, approaches, tools are required Customers worldwide are becoming more sophisticated, demanding,and disruptive Customers are becoming “co-developers” – investment incollaborative capabilities is a must Global integration is becoming a means for growth, talent, and riskmanagement Banks are “behind the pack” and must rethink their approach All banks can reap the benefits – if they can manage the risks Non-bank specialists are leapfrogging the “S” curve, delivering new,innovative business models Banks must become the disruptor – not the “disruptee”Genuine, not just Generous Customers expect CEOs to take ethical positions and advancecorporate social responsibility (CSR) initiatives Banks can ‘do well by doing good’4IBM Confidential© Copyright IBM Corporation 20052© Copyright IBM Corporation 2005


Nordic Financial Services SectorThe situation in the financial services industryThe financial sectorneeds to bemanaged in an ecosystemSource:The Yin and Yang offinancial disruption, IBMInstitute for Businessvalue, 2009Nordic Financial Services SectorThe financial system architecture must be co-created bygovernments and financial institutions1The financial system architecture must also be designed for changeOversightSource: IBM Institute for Business Value analysisRegulators(Public & private)FinancialInstitutions andIntermediaries(Public & Commercial)1Compliance54Surveillance &Monitoring5Supervisors(Public & private)End goal: Systemic health(vitality, soundness); systemicsafety (stability / risk)4Behaviors,issues, trendsthrough the lensof supervision2 32 Behaviors,issues, trendsthrough the lensLaws &Rules Standards3 Practices, enablers,constraints, limitsof regulationPolicy Makersand ImplementersToday’s financial system mustbe stabilized and reconstructedat the same time.6IBM Confidential© Copyright IBM Corporation 20053© Copyright IBM Corporation 2005


Nordic Financial Services SectorThe situation in the financial services industryFinancial institutionsneed to balananceinnovation withstabilizing forcesSource:The Yin and Yang offinancial disruption, IBMInstitute for Businessvalue, 2009Nordic Financial Services SectorExacerbated structural tensions are yet to be resolvedThe yin yang also represents two pillars of systemic structural tensionsGov’t interventionIntense oversightCredit under-extensionStimulus measuresFinancial StabilityFinancial StabilityFree marketsMarket disciplineCommoditization vs. unbridled opportunismCredit over- extensionWide-scale deleveragingEconomic contraction vs. asset bubblesPro-cyclicalitySpeculationCounter-cyclicalityVolatility bufferExtreme volatility vs. extreme counter measuresYin-yangTensionStatus quoProduct innovationHealthy InnovationHealthy InnovationStagnation vs. cannibalizationConsolidationto be ‘big’DiversificationComplexity vs. possible irrelevancyProduct focusBoom-bust growthAdjacent spacesBusiness model innovationConsolidationto be ‘effective’Specialized diversificationClient focusSustainable growthShort-sightedness vs. innovation myopiaBalkanismProtectionismHarmonizationCohesive standards‘Do it myself’Vertical IntegrationPartnerHorizontal IntegrationRegulatory arbitrage vs. herd mentalityScale squander vs. reputation riskOpacityInvisibleTransparencyExposedLegendStructural tensionTactical focusShort-term profitsStrategic focusSustainable returnsCrisis of confidence vs. reduced flexibilityA[aspect of the tension]B[aspect of the tension]Innovation gaps vs. near-term performance gapsSource: IBM Institute for Business Value[Potential unintended consequence]7IBM Confidential© Copyright IBM Corporation 20054© Copyright IBM Corporation 2005


Nordic Financial Services Sector16th International Product DevelopmentExcerpt from presentation to theThe study identified five key findings regarding innovationmanagement (both on firm – and industry level)Management Conferenceby Freij / Sköld1. Innovation can be many different things, and you needto manage accordingly2. When radical innovation occurs in FSS it is usuallytriggered by technology3. Laws and regulations are co-evolved with the companiesin the industry, and can both hinder as well as createopportunity for innovation4. Financial services firms in struggle with organizing forinnovation5. Information – and Business process managementinitiatives needs better linking to Innovation work5© Copyright IBM Corporation 2005


Nordic Financial Services Sector1What is the most successful innovation in the sector since 1980?InternetCashmachineIndexbondsOther The majority will answer ”Internet”(banking, commerce, self service) Reasons:- Customer convenience- Cost reduction- Transparency and clarity- Information access The innovation journey driven by internettechnology has just started... No one has yet gained any sustainedcompetitive advantage...6© Copyright IBM Corporation 2005


Nordic Financial Services Sector1Innovation can be different things, but still be “innovation”, and manylabels exist for categorizationTotally new things for new markets and / or new customersRadical innovationIndustry model innovationBusiness model innovationRevenue model innovationDisruptive innovationArchitectural innovationModular innovationEnterprise model innovationProduct – and service innovationIncremental innovationOperational innovationImprove the existing processes, products and service for existing customers7© Copyright IBM Corporation 2005


Nordic Financial Services Sector1Selected key innovation types in the IBM terminologyTotally new things for new markets and / or new customersBusiness model innovationProduct – and service innovationOperational innovationImprove the existing processes, products and service for existing customers8© Copyright IBM Corporation 2005


Nordic Financial Services Sector1What does the industry consider as “innovation” ?Innovation cases on a “sliding scale” from incremental to radicalTotally new things for new markets and / or new customersOver 40 examples of innovationsrecorded (and categorized)from the interviewsNew mandatory liability insurance for motorLow latency tradingBank ID (security)Share index bondsHealth care servicesInternet bankingCash withdrawal machines (Bankomat)Fund linked insuranceImprove the existing processes, products and service for existing customers9© Copyright IBM Corporation 2005


Nordic Financial Services Sector1Innovation examples by the categories in the extended IBM frameworkBusiness model innovationIndustry modelInternet bankingRevenue modelElectronic trading – andsecurities brokerageEnterprise modelCommunity rating ofproducts – andservicesThe use of a new technologicalplatform – and standards toexchange information andperform transactions thatup until then had to beperformed in the bankoffice or in the branchoffice.Trading of securities overcomputer based network,avoiding personal brokercontact or paper handling.Due to the difficulty tounderstand andevaluate financialservices products, thetrust in peers toevaluate providers hasbeen aided by newcommunicationtechnology.10© Copyright IBM Corporation 2005


Nordic Financial Services Sector1Innovation examples by the categories in the extended IBM frameworkComponent innovationInfrastructureComputer aided needsanalysisCustomer and channelWhite labellingProduct and serviceCredit swapsThe use of technologicalsoftware solutions toperform the analysis ofcustomer purchasingrequirements.Develop products with theflavour of detailedcustomization to (eg)affinity groups,communities, etc.Requests fromcustomer groups to tailorproducts and services to aspecific association orprofession. The tailoringhas more to do with “lookand feel” than the productcontent as such.An option to change the rateperiod and conditions ofa loan arrangement.More flexible solutionswas needed forcompanies engaging inadvanced financingarrangements inconnection with theircore business.11© Copyright IBM Corporation 2005


Nordic Financial Services Sector1Innovation examples by the categories in the extended IBM frameworkOperational innovationOperating proceduresBusiness processautomationSupply chainPayment platforms –and solutionsTechnology and toolingLow latency tradingAny improvement in the existingprocesses by eliminating orautomating tasks.Formation of joint servicesfor transactingpayments (“girosystems”).Bankgirot is an agreementto form a jointly ownedcompany to create andhandle a commonformat for payments.The company is ownedby the major banks onthe market, and offer awide range of servicesand products to handlepayments.Use of upgradedinfrastructure toperform quickertransactions on thecapital market.12© Copyright IBM Corporation 2005


Nordic Financial Services Sector2What triggers “innovation” in the financial sector?Totally new things for new markets and / or new customersA simplified pattern based on40 examples of innovationsrecorded (and categorized)from the interviewsExternal influenceRegulationsTechnologyFirm processesCustomersImprove the existing processes, products and service for existing customers13© Copyright IBM Corporation 2005


Nordic Financial Services SectorWhat triggers “innovation” in the financial sector?Internal processes Involved actors: legal personnel, actuaries, mathematicians, IT, marketing personnel and business developers Described by respondents as a “stroke of luck” or a “marginal source” triggering innovationCustomers Large customers: the most demanding and creative clients, and it is of essence to follow and meet their requirements Small customers: to an increasing degree influencing innovation through the use of new ways to communicate andshare information.External influence Practicies in other countries Solutions from other industries Rules and regulations Driven by external factors (like EU directives) but also proactively triggered by the firms in the industry Firms are not acting purely as individual units, but sometimes act through common business associations and interestgroups Technology Use of solutions developed by software companies with special purpose applications Diffused into the industry in two main ways:1. from “laboratories” and the most advanced research institutions and firms to the commercial use by operating procedures and customers(e.g. advanced calculation procedures)2. from experimental use of consumer electronics to gradual standardization and industrialization (e.g. community based lending).14© Copyright IBM Corporation 2005


Nordic Financial Services Sector3Laws and regulations are co-evolved with the companies in the industry,and can both hinder as well as create opportunity for innovationHindering“It is not an option to fail with theimplementation”“The minimum cost for advice isincreasing”“The largest threat we feel now isthe regulatory requirements”ImplicationsAll money is spent on mandatoryprojectsWorse service to clients(?)Risk averse behaviorsOpportunities “Changed rules creates windows ofopportunity” “The customers will understandwhat they buy” “The innovator will always be stepsahead of the authorities”Responsiveness pays offIncreased satisfaction and trustQuestionable value ofregulations15© Copyright IBM Corporation 2005


Nordic Financial Services SectorFuture innovation areas: examplesProductsValue chainSimplificationPerspectivesTrustGuarantees: freedom, but with a floorSMS insurance for motorcyclesUse of video to access specialistsSmart order routingSmart cash machinesNext generation benefit portalReal time pricing of life insuranceGet inside the ”orange envelope” (public pension statement)Innovation blogs for rating and rankingCentral counter party management16(Infra)StructureReform the credit card structureNew plat forms for digtal cash and credit -Peer to Peer ?Global business structure© Copyright IBM Corporation 2005


Nordic Financial Services SectorSuggested further reading from the IBM library:Yin and Yang of financial disruption – IBV (see selected slides enclosed)Innovation Jam executive report (see selected slides enclosed)Paths to Success: Three Ways to Innovate Your Business Model – IBVInnovating on your own terms – IBVDriving Operational Innovation Using Lean Six Sigma – IBVIBM Global CEO study (see selected slides enclosed)Rethinking innovation - Book from IBM / IBVA good start on the IBM Intranet:http://w3.ibm.com/innovation/clients.html17© Copyright IBM Corporation 2005

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