Finance firms need to overcome their fears of regulation if they are to innovate and IT must be ready to support them when they do, according to IT leaders from the financial services sector who met at Computer Weekly’s inaugural CW500 in the City event.
IT leaders in financial services face a unique set of challenges: The web and mobile technologies are changing the face of sectors such as retail banking and insurance; the complexity of legacy IT systems remains a major consideration; and growing levels of industry regulation means that the job of IT decision-makers in the City is under ever-increasing scrutiny.
As a result, innovating with IT is an increasingly critical factor for success.
According to Mike Wright, global head of technology at asset management company Man Group, there are three key questions that have to be addressed: What is innovation?; Why does it matter?; And, what does “good” look like?
“Innovation is about doing something different, but is also about the process by which you get that different result,” Mike Wright told the meeting.
“But with the best will in the world it doesn’t often happen. Trying to work in management to foster an environment that encourages innovation is difficult.”
CW500 in the City - the experts
Mike Wright, global head of technology at asset management company Man Group
Click here to watch a video interview with Mike Wright
Jem Eskanazi, experienced financial services CIO, former CIO of Groupama Insurance
When innovation happens
Sometimes innovation happens even when experts do not expect it.
Wright quoted Ken Olson, founder of former industry giant Digital Equipment Corporation (DEC), who in 1977 said: “There is no reason why anyone would want a computer in their home.”
He went on to help make computers a household item.
Aviator Wilbur Wright famously said: “Man will not fly for 50 years” - just two years before he and his brother made their first flight.
Man Group’s Wright said the point was that even the people that have done it have been pessimistic.
“Innovation and experimentation is constantly being pooh-poohed and one of the joys of humanity is we constantly prove this wrong.”
But he said innovation matters more today than ever: “In the commercial environment, shareholders expect it.”
He said it is not just about shareholders but also staff, including the CIO: “If you want to work for a thriving organisation, you want to be doing something genuinely better than the competition and challenging yourself. You don’t want to just look at cost cutting.”
If anyone can achieve true innovation they will be held in high regard, said Wright: “Innovators will get celebrated.”
What is 'good' innovation?
But what does “good” innovation looks like?
”I am not sure you can define it,” he said, because it is specific to the industry you work in.
He did, however, give some pointers.
“Innovation seems better in smaller organisations probably because people working at smaller companies don’t follow the rules like those in big companies,” he said.
Innovation is about doing something different, but is also about the process by which you get that different result
Mike Wright, Man Group
“If you are going to have a real breakthrough, you need to have innovation on two or three dimensions simultaneously. [Insurance firm] Direct Line changed the channel to telephone and the way they were underwriting at the same time.
“Often it costs very little and the genuinely great innovations are surprisingly simple. But it is hard to mandate innovation.”
He said businesses have three basic options to becoming innovative. They can buy it in by acquiring innovative companies; use a network of partners to innovate; and you can incubate internally.
He also had some advice for those that try to innovate - don’t expect the wider firm to do anything to help you; be psychologically prepared to do it yourself; don’t expect a big budget; be persistent; and praise failure as well as success so people don’t feel personal risk.
Jem Eskenazi, an experienced financial services CIO, told the CW500 in the City audience that he doubted whether IT departments can lead innovation at all - they are there to support innovation.
“In financial services, IT is at the heart because we deal with information,” said Jem Eskenazi. But he said it is difficult for the IT department to be innovative by itself.
He took a different view of innovation to Man Group’s Wright.
“It is not good enough to describe anything new as an innovation. It is the process of translating an idea or invention into a good or service that creates value - that is innovation,” he said.
For example, a tablet computer is an invention but turning it into a device that people queue through the night to buy is innovation.
“I have heard CIOs say they are innovative by deploying iPads in the organisation. I don’t think this is innovative,” he said.
“Is there such a thing as IT innovation? I would argue almost that there is no such thing because innovation is a business idea or business process improvement. IT helps it but IT does not necessarily create it.”
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He said that mobile banking is an innovation; data mining and cross selling products is innovation; redesigning branches is innovation. But he added that few banks can raise their hand and say they came up with the idea - it was just a few leaders in the industry that did and the rest adopted it.
Eskenazi said fear is a huge hurdle to innovation: “Financial services fear regulators, fines and risks.”
He added that legal and compliance departments – which get to have the final say on ideas - are hurdles to coming up with and implementing innovative ideas.
To get real innovation in-house, businesses must set people free and not put time and money limitations on them, he said. But if you want to come up with good ideas – go and play.
“In financial services, we are not prepared to let go too often,” he said.
Eskenazi said IT can do great things without being innovative and IT departments need to be ready to support innovative ideas.
But does innovation always have to be disruptive and can it be incremental?
“You can innovate incrementally, but it is not that exciting and is really just business as usual. But this does not mean you shouldn’t do it. Innovation is more about bringing different things together,” said Wright.
For successful innovation, it is important to understand the problem you are solving in an industry context, with creative thinking thrown in.