For hundreds of years, the banking and insurance industries have struggled to balance innovation with stability and convention – with innovation suffering as a result. The popular verdict in the financial services industries is that what little innovation occurs is typically of little value.
But is this verdict true? And does it even matter? Arguably, modern economies could not function without the stabilizing services of banks and insurers, which include transforming uncertainty into economically manageable risk and pooling and transferring funds from market participants with excess capital to those that have a business proposition but no means to realize it. Would innovation enhance these basic services?
Our research shows that innovation programs in the banking and insurance industries do indeed exist – from small changes to large transformations. Large-scale changes, such as altering the business model, can have the most impact in improving operating margins, but are often difficult to implement. Smaller incremental – but continuous – operational innovation, however, can be a useful method for adapting to a changing environment and, in practice, is the main source of innovation in the financial services industry.
So how can structured innovation be generated in the financial services industry? Decision makers need to recognize and understand innovation triggers and develop a framework to help them consistently and reliably innovate. By better understanding innovation triggers, banks and insurers will be on the right path to developing an effective framework to help them offer radical – and useful – innovation to their clients.
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Global Insurance Leader, IBM Institute for Business Value
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