banking in an era of digital disruption€¦ · banking in an era of digital disruption . j p...

BANKING IN AN ERA OF DIGITAL DISRUPTION

J P Nicols Managing Director

FinTech Forge Bellevue, Washington

[email protected] 425-522-3579

August 1-3, 2019

1 © 2016-19 FT Forge, LLC, All rights reserved. | FTForge.com

Banking In an Era of Digital Disruption

August 1-3, 2019

JP Nicols


2.Engagement

• Efforts are ad-hoc, informal, or inconsistent• Change mandate

may be new• Need internal

alignment

4.Effectiveness

• Putting innovation into regular practice• Current program

ineffective or stalled• Extending and

defending core products/services• Need experienced

resources and curated fintech partners to get to ROI faster

3.Emphasis

• Tackling a lot of things at once• Often playing

catch-up from underinvestment• Need to prioritize

competing projects• Need frameworks

for funding, governance, and risk management for innovation

5.Efficiency

• Typically more advanced teams• Want to focus on

big strategic or proprietary ideas• Creating viable

options and building emerging businesses• Need efficiency

and network effects

The Innovation Maturity CurveWhere is your organization today?

1.Exclusion

• Efforts are non-existent• Need for change

not recognized or prioritized


Threat of New Entry

Supplier Power

BuyerPower

Threat of Substitution

Competitive Rivalry

Porter’s Five Forces


Experience Level

Tactical Level

Strategic Level


Launch

Growth

Decline

Innovation

Innovation

Paul Nunes & Tim Breene, 2011

Bank Business Cycle(adjusted for interest rate

and economic cycles)

Jumping the S Curve


Project B/E/T O/D C I E

123456789

10

Your Project List


Innovation is implementing new ideas that create value.

9 © 2016-19 FT Forge, LLC, All rights reserved. | FTForge.comFIRE™

Empathy

Define

Ideate

Prototype

Test

Business(Viability)

Technology(Feasibility)

People(Desirability)

Discovery Validation

Modern agile business methods

Risk Management Compliance Infrastructure

Culture Core Processes

Custom tailored for a highly regulated environment


FastIterativeResponsiveExperiments

Shorten the gap between idea and results

Process of continuous improvement

Data drives subsequent iterations

Structured to maximize learning


Area of existing

expertise?

Sufficient return profile from

existing tactics?

Predict results of any tactic +/- 10%?

Unlikely area of

disruption in mid to

long term?

Do you want to

play defense

vs. offense?

Use Existing

Strategies, Tactics & Processes

Use FIRE™Fast, Iterative, Responsive Experiments

Exhausted learning

potential?

Sufficient return to

maintain in core biz?

Identifiable hypothesis

to test?

Capture data &

mothballSTOP

Yes Yes Yes Yes Yes

Yes Yes

Yes

No

No

No

FIRE™ Filter Map


Processes: Effective Execution

Structures: Tools and Frameworks

Culture: Beliefs and Behaviors

Programs: Change the state

Systems: Maintain the state


Early Majority

34%

LateMajority

34%Laggards

16%MIL

Early Adopters

13.5%Innovators

2.5%

Chasm

Diffusion of Innovation

Everett Rogers, 1957 Geoffrey Moore, 1993

14 © 2016-19 FT Forge, LLC, All rights reserved. | FTForge.com14

Minimum Viable Product (MVP)

Must be able to test along the way

Iterations help build value at every stage

Not this…

But this!


http://vincentjordan.comWhere to Test and Learn

Minimum ViableCrappy products no one wants to

use

Products built by companies

better financed than you

Minimum Viable Product (MVP)


“The facts lie outside the building.”

Steve Blank


Sales? •Hire sales manager• Initial sales hires

• Build sales organization• Build sales plan/strategy

• Sales activity and management

Marketing? •Create materials•Create positioning

•Hire PR Agency•Create early buzz

•Create Demand• Splashy launch• “Branding”

Finance? • Initial forecast: revenue and expenses

• Finalize budget•Managerial commitment

•Measure/ analyze/ report results

What does this mean for:

Adapted from Steve Blank, 2007

Business Plan/ Requirements

Product Development

Alpha/Beta Tests Launch


Customer Development

Customer Discovery

Customer Validation

Customer Creation

Company Building

STOP STOP STOP

Turn Hypotheses into Facts

Identify Scalable and Repeatable Sales Model

Exploration Execution

Steve Blank, 2007


The Lean Startup

The Lean Startup by Eric Reis

Ideas

BUILD

MVP

MEASUREData

LEARN


Types of Innovation Trials

Trials can start anywhere in the process and steps can be jumped; an MVP can take many different forms

Assessment & Development External

Opportunity

Launch

Evaluation Proof of Concept(Feasibility)

Prototype(Desirability)

Pilot(Viability)

Phased Rollout

Flush out idea, organize team,

develop action plan


Business(Viability)

Technology(Feasibility)

People(Desirability)

The Sweet Spot


Desired Outcomes of a Trial• Both failure and success are expected.• Goal is to reach a quick decision.• After everything necessary has been learned, it’s a waste of

time to continue with the same trial.• Success cannot be viewed as consistently moving along with

the same idea.• It is desirable to have trials that don’t work. That means we

are learning.


Horizon 1Extend and

Defend Core Businesses

Horizon 2Build

Emerging Businesses

Horizon 3Create Viable

Options

McKinsey, 1999

Three Horizons Model


Time FrameHorizon 1

(0-12 Mos.)Horizon 2

(12-36 Mos.)Horizon 3

(36-72 Mos.)

Driving Goal Maximize Economic Returns

Become a Going Concern

Create a Category

Key Performance Indicators

• Revenue vs. Plan• Bookings• Contribution

Margin• Market share• Wallet share

• Target accounts vs plan

• Sales velocity• Deal size• Segment share• Time to tipping

point

• Name-brand customers

• Deal size• Name-brand

partners• PR buzz• Flagship projects

OPEX TIMEX CAPEXPrecious Commodity:

Goals and Metrics: Three Horizons

Escape Velocity, Geoffrey Moore, 2011


Operational Excellence

Customer Intimacy

Product Leadership

“The Discipline of Market Leaders”Michael Treacy and Fred Wiersema, 1995


Customer Relationship Management

Infrastructure Management

Product Innovation

“Unbundling the Corporation”Harvard Business Review– John Hagel and Marc Singer, 1999




Product Innovation

Efficiency/RenewalStrategies

Growth Maturity Decline




Product Innovation

Efficiency/RenewalStrategies

Disruptive Innovation

Application Innovation

Value Engineering Innovation

Integration Innovation

Process Innovation

Value Migration

Innovation

Product Innovation

Platform Innovation

Line Extension

Innovation

Enhancement Innovation

Marketing Innovation

Experiential Innovation

Renewal Innovation

Acquisition Innovation

Adapted fromDealing with Darwin: How Great Companies Innovate at Every Phase of Their Evolution, byGeoffrey Moore, 2005


Adapted from Dealing with Darwin, Geoffrey Moore, 2005

Product Leadership

Disruptive Innovation Horseless Carriage, Napster, iTunes

Application Innovation Delivery vans, Desktop Publishing

Product Innovation Auto transmission, Hybrid engines

Platform Innovation Assembly line, Microsoft Windows

Customer Intimacy

Line-Extension Innovation SUVs, ESPN2

Enhancement Innovation Anti-lock brakes, airbags,

Marketing Innovation Ford Mustang, Tesla, IKEA

Experiential Innovation Lexus, Tesla, Uber, Disney

OperationalExcellence

Value-Engineering Innovation Toyota, Hyundai, Flat screen TVs, computers

Integration Innovation Printer/scanners, Mutual funds

Process Innovation Toyota, Dell, IKEA

Value-Migration Innovation Uber, Salesforce

CategoryRenewal

Organic Innovation IBM, Apple

Acquisition Innovation Cisco, Daimler (Car2Go)


Expense

Income Growth

Foundation

Current Future

Revenue

Strategic Allocation Map

Infrastructure


MarketShare

Market Development

Uncharted Territory

ProductDevelopment

New

New

Growth Vectors Map

Existing Products/Services

Cus

tom

ers

/Ma

rke

ts

Based on the Ansoff Matrix,Igor Ansoff, 1957


Transcend

Results Horizon MapNew

NewExisting Products/Services

Cus

tom

ers/

Ma

rket

s

70%

20%

10%

Risk

Extend

Bend


TranscendNew


Cus

tom

ers

/Ma

rke

ts

Return ON Innovation

10%

70%

Return

20%Extend

Bend


Extend

Bend

Transcend

Your MapNew


Cus

tom

ers

/Ma

rke

ts


Offense/Defense

5) We want to attract new customers/segments

4) We want to deepen relationships with existing customers

3) We’re not attracting enough new customers

2) We’re losing parts of existing customer relationships

1) We’re losing existing customers


Competitiveness (How Good Do We Need to Be?)

5) Create a clear and sustainable differentiation

4) Competitive with top tier players

3) Undifferentiated within the mainstream

2) No ability or advantage to differentiate

1) Divest or phase out over time


Parity Map

How

goo

d do

we

need

to b

e?

Situation/Objective1 2 3 4 5

5

4

3

2

1


Blue Ocean Strategy MapPr

ice

Star

Per

form

erA

nim

al S

how

Ais

le C

once

ssio

nsM

ultip

le S

how

…Fu

n &

Hum

orTh

rills

& D

ange

rU

niqu

e Ve

nue

Them

e

Refin

ed…

Mul

tiple

…A

rtist

ic M

usic

&…

Ringling Brothers and Barnum & Bailey Regional Circuses Cirque du Soleil


Understand Diverge HypothesisDefine Decide

1 UNDERSTAND user needs, business value, and technology capacity

3

DEFINE the problem, key strategy, and focus2

DIVERGE from a single potential solution to create a diverse set of options to explore

4 DECIDE on the most promising ideas from the range of options

5 HYPOTHESIS of a problem statement and solution that can be tested


Empathy

Design Thinking

Define

Ideate

Prototype

Test

Dschool.stanford.edu


Pains, Gains, and Jobs to be Done

• Pains get in the way of the job to be done• Annoyances• May cause work-arounds

• Gains can be well understood and consciously sought out• May be hidden or unexpected• Often involve tradeoffs

• Customers ”hire” products to do jobs for them• What is the job the customer needs done?• What are the other products have hired to get the job done?


Pains, Gains, and Jobs to be Done

What job does the user need done?

What pain(s) is the user trying to avoid?

What gain(s) is the user trying to achieve?

Project: ___________


NEED TOAction(s)

USERSVery specific

BECAUSESurprising insights


How Might We…? “How might we…?” – Harvard Business Review calls it “The Secret Phrase Top Innovators Use”, and it’s a well worn tool for everyone from IDEO to Google Ventures to the Stanford design school.

Other Examples:•How might we onboard new customers completely with just their mobile device?•How might we reduce the time from application to funding small business loans?•How might we create custom reports for our commercial clients?

•How might we meet AML/KYC/BSA requirements more efficiently?

HMW…Get more

customers to open accounts

online?


High Level ObjectivesWhat is the problem or

opportunity?

Why should we focus on this opportunity?

How Might We solve this (HMW?) .

Desired outcome: what will be different 3-5 years from now?

What will be different 6-12 months from now?

Project: ___________WS 1

Define


Long-term, Big Picture Goal Best in class omni-channel account opening


Competitors moving this direction. Millennials are digital. We don’t have a good solution today

How Might We solve this (HMW?)

Partner with a fintech startup

Desired outcome: What will be different 3-5 years from now?

Customers are happier. Better UX. Integrated with our Core provider

What will be different 6-12 months from now? Finish PoC with new vendor

Cheetah*Bad example*High Level ObjectivesWS 1

Define


What is the problem or opportunity?

New customers often get stuck in account opening or become “zombie” accounts; opportunity to get them using the account before

exerting more effort


Losing ground to new competition; Online abandon rates too high (67.3% for desktop, not currently for possible mobile); 13% of new accounts are not funded within 90 days. Heavy involvement from

branch and call center to complete.

How Might We solve this (HMW?)

Collect just enough information to open account. Allow the customer to do it on their own time (start/stop/x-channel). Collect other info

(aka deeper diligence for txrs or marketing) over time.

Desired outcome: what will be different 3-5 years from now?

Reduce abandonment across all channels to <30%. Improve net core balance growth from 3% to 7%; Reduce service costs 20%

What will be different 6-12 months from now?

Reduce calls to CS for help opening by 10%; online abandon rates down to 50%; benchmark accounts funded and used within 30 days

Project: ___________CheetahHigh Level ObjectivesWS 1Define


Executive Leadership

FIRE Break™

Funding and Governance

Risk and Compliance

FIRE Teams™Test and Learn


Responsible for actually completing the task.

Accountable for the completion of the task. Delegates work to those responsible.

Resources allocated to responsible to actually support completion of the task.

Consult with opinions on project via two-way communication.

Kept up-to-date on progress, often only on completion; one-way communication

ACCOUNTABLE

RESPONSIBLE

SUPPORT

CONSULTED

INFORMED

ARSCI Matrix: Framework helps assign and display responsibilities for individuals within an organization. Everyone on the team has a role.


1 E F F O R T 5

1IM

PA

CT

5

Incremental

Easy Wins Big Bets

Money Pit

ICE Matrix


IMPACT 1 2 3 4 5

What is the long-term strategic value? Low Low-Med Medium Med-High High

How rare is this in the marketplace?

Very Common

Fairly Common

Medium Fairly Rare Very Difficult

How difficult would it be to replicate? Very Easy Fairly Easy Medium Fairly

DifficultExtremely Difficult

Realistically, how ready, willing and able are we to organize the company around this as a core differentiator central to our brand?

No way Doubtful

About as much as our

other initiatives

We could commit to this higher than most

other things

We could be extremely

committed to this, above

all else

Is this oriented more towards generating revenue, or is it all infrastructure (or savings/ efficiency)?

All expense (or savings/

efficiency), little to no revenue

Mostly expense/

efficiency, but some revenue

Equal amounts expense/ revenue

Mostly revenue, but

some infrastructure

All revenue, little to no

infrastructure

How long until we see full results? 0-6 months 6-12 months 12-24

months24-36

months36+ months


EFFORT 1 2 3 4 5

How much will it cost to implement?

Very nominal expense

Less than average

Average expense

More than average

Very large expense

How BROAD will the demands be from across the organization (IT, Legal, Compliance, other LOBs, etc.) ?

Can be implemented within a single business unit

Minimal involvement from other

business units

Normal amount of

involvement from other

business units

More than average

involvement from other

business units

Major involvement from other

business units

How much managerial attention will this require from the ELT and/or board to be successful?

None Less than average

About as much as our

other initiatives

More than average

Intensive attention

Honestly, how much experience do we have with projects like this, and how have we done?

This is very routine for us,

and we are excellent at it

Above average experience and

track record

Average experience and

track record

Some limited experience/ mixed track

record

Little to no experience and/or poor track record

How long will it take to fully implement? 0-6 months 6-12 months 12-24

months24-36

months36+ months


Easy Wins

Incremental Money Pit

Current Income

Current Expense

Future Growth

Foundational Investments

Idea Effort Impact ICE Index

Project Golf 1.41 2.01 142.7

Project India 2.49 3.12 125.6

Project Juliet 1.89 2.34 123.7

Project Foxtrot 1.39 1.57 112.3

Project Alpha 2.56 2.50 97.7

Project Charlie 2.30 2.16 94.1

Project Delta 2.65 2.49 93.7

Project Bravo 4.86 4.27 87.8

Project Echo 3.01 2.39 79.5

Project Hotel 3.38 2.69 50.0

Big Bets

DashboardIdeas Prioritized Impact vs. Effort

Portfolio View


Kaizen Model

Standards

Improvement

Innovation

Front Line

Supervisors

Middle Mgmt

Senior Mgmt


Low Directive Behavior High

Low

S

upp

orti

ve B

eha

vio

r H

igh

Hersey and Blanchard, c.1975

Delegating

Supporting

Directing

Coaching

Situational Leadership


Clear, compelling

case for change

Demonstrated leadership

commitment

Clear WIFM for all

Concrete implementation

planReinforcement

Skills, knowledge, tools in place


commitment

Clear WIFM for all


planReinforcement


Clear, compelling

case for change

Clear WIFM for all


planReinforcement


Clear, compelling

case for change


commitment


planReinforcement


Clear, compelling

case for change


commitment

Clear WIFM for all

ReinforcementSkills,

knowledge, tools in place

Clear, compelling

case for change


commitment

Clear WIFM for all


planReinforcement

Clear, compelling

case for change


commitment

Clear WIFM for all


plan


“See It” “Own It” “Do It”

Moving from Strategy to Results through People - @1999 AchieveGlobal

“It’s not urgent”

“It’s not real”

“It’s not worth it”

“It’s not going anywhere”

“It’s not possible”

“It’s not for long”

“It’s working!”


Implementing & Sustaining Change

Engaging & Enabling the Whole Organization

Creating a Climate for Change

Kotter’s Change Management Model

1 2 3 4 5 6 7 8Create

UrgencyBuild a

CoalitionDevelop Vision/

Strategy

Enlist Volunteers

Empower Action

Get Quick Wins

Sustain Acceleration

Embed in Culture


[email protected]

425-522-3579

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