The concept of open innovation has raised significant attention across industries. Since open innovation implies the use of internal as well as external resources it confronts its principles to a closed model that is only orientated on internal resources.
The Open innovation is therefore an innovation process that manages knowledge flows across organisational boundaries. To a large extent it is dependent on technology, specifically internet technology that facilitates collaboration between organisations and their environments globally. Which consequently leads to a reduced life cycle of products and services, and rises pressure on companies to innovate.
Internet technology was not the only one of the digital enablers of change in innovation processes. Other digital technologies continued to merge with the physical world allowing further discovery of opportunities for new services, products and business models. This is especially true for AI that is increasingly being developed to address tasks that have traditionally required human sophistication. For that reason, we can soon expect AI to be used in diagnosing diseases, as translators for languages, to drive cars; but also in the financial sector.
Said that, the finance industry already started applying AI for customer focused uses (credit scoring, pricing, marketing and managing insurance policies as well as client facing chatbots or virtual assistance programs), operation focused uses (capital optimisation, model risk management and stress testing, market impact analysis), trading and portfolio management as well as for regulatory compliance and supervision. Such a huge impact of technology on business processes necessarily leads to a change in approach to innovation, but also to another important aspect of organisation, the organisational culture.
Firstly I will address the concept of innovation in the financial industry. When it comes to innovation, financial service firms mostly depend on external knowledge inputs. But who among internal and external stakeholders presents the most important source of knowledge and innovation for the financial industry? What are the most important external sources of knowledge, representing the Open innovation practices, for the financial industry? A recent study has shown that the entities belonging to the same bank’s group, consultants, equipment, material and software suppliers, clients, professional associations and government or public authorities are of medium importance. Contrasting to other industries there are no universities or research institutes among the high or medium important sources.
As for internal sources of innovation, frontline employees, teams responsible for service development, CEO and board, as well as other backstage employees are considered as the most important. Putting it all together, the most important sources are internal or coming from entities belonging to the same bank’s group. When it comes to merges and acquisitions of existing firms or patents, trademarks or copyrights as well as joint ventures, they are all considered as the low important modes of knowledge inflows. Interestingly, what addresses HR practices the most is at the same time considered as the most important mode of knowledge inflow. If it was not for the technology supply process, the most important modes would completely reside within internal human resource interactions.
It certainly seems that the financial industry behaves differently than other industries where innovation and technology sourcing relies more on practices such as patenting, joint ventures, venture capital investment or cooperation to private and public R&D. Managerial practices, such as Open innovation practice, are an important manifestation of organisational culture. are framed by technology. Therefore they present a point of intersection between those three concepts; organisational culture, open innovation and technology.
There are a few good examples of how the financial industry exploits an opportunity to practice Open innovation, and address external stakeholders from a different angle. BeeOne, Erste Group and Deutche Bank have multiple Innovation Labs projects at the same time. Which allows them to explore new technologies, discover new business models as well as for appearance of separate organisational culture. Both projects imply a formation of separate, spin off organisations. Those spin offs have a purpose to discover innovative technologies in local or global eco systems and to develop those technologies that can directly be applied to financial industry through tools, processes or people. Those examples illustrate how important it is for mother organisations to allow separate young organisations to appear. Where a new organisational culture, strategies and technologies can be applied efficiently, and then transferred back to the founder organisation. This model also allows knowledge sourcing that can more efficiently involve external stakeholders that are not typical for the financial industry, such as start ups, universities, institutes, VC’s etc.
One can therefore easily imagine how new approaches to technologies will, in the near future, influence managerial practices and cause change in the financial industry. This will become more evident as the financial industry starts to increasingly utilise AI, for example collecting data and communicating with customers, in trading, or even in challenging own business models. Will the financial industry become more opened towards taking control over technology? Will it start to invest in AI start ups, and in spin offs? Or will it still rely on suppliers of that technology? It is all the matter of organisational culture.
In the future, firms will need to harmonise and manage organisational culture with technological and innovation strategies to keep the pace with technologies and markets. How can the financial industry prepare itself for the new trend? Join us at the AI conference and Emir will give you all the ins and outs about open innovation and the impact on the financial industry.
1 Martovoy, A., Mention, A. L., & Torkkeli, M. (2015). Inbound open innovation in financial services. Journal of technology management & innovation, 10(1), 117-131.
Download the Artificial Intelligence brochure
Click the button below to download your digital copy.
Geplaatst op: 26 februari 2018