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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 © 2016-19 FT Forge, LLC, All rights reserved. | FTForge.com
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
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Threat of New Entry
Supplier Power
BuyerPower
Threat of Substitution
Competitive Rivalry
Porter’s Five Forces
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Experience Level
Tactical Level
Strategic Level
5 © 2016-19 FT Forge, LLC, All rights reserved. | FTForge.com
Launch
Growth
Decline
Innovation
Innovation
Paul Nunes & Tim Breene, 2011
Bank Business Cycle(adjusted for interest rate
and economic cycles)
Jumping the S Curve
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Project B/E/T O/D C I E
123456789
10
Your Project List
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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
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FastIterativeResponsiveExperiments
Shorten the gap between idea and results
Process of continuous improvement
Data drives subsequent iterations
Structured to maximize learning
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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
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Processes: Effective Execution
Structures: Tools and Frameworks
Culture: Beliefs and Behaviors
Programs: Change the state
Systems: Maintain the state
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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!
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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)
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“The facts lie outside the building.”
Steve Blank
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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
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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
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The Lean Startup
The Lean Startup by Eric Reis
Ideas
BUILD
MVP
MEASUREData
LEARN
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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
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Business(Viability)
Technology(Feasibility)
People(Desirability)
The Sweet Spot
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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.
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Horizon 1Extend and
Defend Core Businesses
Horizon 2Build
Emerging Businesses
Horizon 3Create Viable
Options
McKinsey, 1999
Three Horizons Model
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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
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Operational Excellence
Customer Intimacy
Product Leadership
“The Discipline of Market Leaders”Michael Treacy and Fred Wiersema, 1995
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Customer Relationship Management
Infrastructure Management
Product Innovation
“Unbundling the Corporation”Harvard Business Review– John Hagel and Marc Singer, 1999
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Customer Relationship Management
Infrastructure Management
Product Innovation
Efficiency/RenewalStrategies
Growth Maturity Decline
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Customer Relationship Management
Infrastructure Management
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
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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)
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Expense
Income Growth
Foundation
Current Future
Revenue
Strategic Allocation Map
Infrastructure
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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
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Transcend
Results Horizon MapNew
NewExisting Products/Services
Cus
tom
ers/
Ma
rket
s
70%
20%
10%
Risk
Extend
Bend
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TranscendNew
NewExisting Products/Services
Cus
tom
ers
/Ma
rke
ts
Return ON Innovation
10%
70%
Return
20%Extend
Bend
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Extend
Bend
Transcend
Your MapNew
NewExisting Products/Services
Cus
tom
ers
/Ma
rke
ts
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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
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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
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Parity Map
How
goo
d do
we
need
to b
e?
Situation/Objective1 2 3 4 5
5
4
3
2
1
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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
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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
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Empathy
Design Thinking
Define
Ideate
Prototype
Test
Dschool.stanford.edu
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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?
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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: ___________
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NEED TOAction(s)
USERSVery specific
BECAUSESurprising insights
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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?
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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
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Long-term, Big Picture Goal Best in class omni-channel account opening
Why should we focus on this opportunity?
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
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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
Why should we focus on this opportunity?
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
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Executive Leadership
FIRE Break™
Funding and Governance
Risk and Compliance
FIRE Teams™Test and Learn
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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.
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1 E F F O R T 5
1IM
PA
CT
5
Incremental
Easy Wins Big Bets
Money Pit
ICE Matrix
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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
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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
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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
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Kaizen Model
Standards
Improvement
Innovation
Front Line
Supervisors
Middle Mgmt
Senior Mgmt
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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
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Clear, compelling
case for change
Demonstrated leadership
commitment
Clear WIFM for all
Concrete implementation
planReinforcement
Skills, knowledge, tools in place
Demonstrated leadership
commitment
Clear WIFM for all
Concrete implementation
planReinforcement
Skills, knowledge, tools in place
Clear, compelling
case for change
Clear WIFM for all
Concrete implementation
planReinforcement
Skills, knowledge, tools in place
Clear, compelling
case for change
Demonstrated leadership
commitment
Concrete implementation
planReinforcement
Skills, knowledge, tools in place
Clear, compelling
case for change
Demonstrated leadership
commitment
Clear WIFM for all
ReinforcementSkills,
knowledge, tools in place
Clear, compelling
case for change
Demonstrated leadership
commitment
Clear WIFM for all
Concrete implementation
planReinforcement
Clear, compelling
case for change
Demonstrated leadership
commitment
Clear WIFM for all
Concrete implementation
plan
Skills, knowledge, tools in place
“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!”
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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
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