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Investing in innovation- IT needs to think lean

Banking IT leaders need to think “Lean”.

For nearly a decade, banking IT has been trying to transform from a back-office implementor to a business enabler. With banks almost always in crisis in the last five years, budget restrictions and a strict cost-control regime are the order of the day. So is IT just going to keep the “lights on”?

If IT leaders wants to rock in these times, they got to go one step further- instead of projects and initiatives that promise innovation or transformation at big budgets over a longer period of time, they need to think start thinking "lean" too.

This means, much like the concepts in Eric Ries' book, IT leaders need to put themselves in the shoes of their business and figure out which IT investments will help grow revenues or deliver cost savings that will justify expenses in the short term!

For every key IT initiative, banks need to make two types of assumptions essential for the success of the "venture"- value hypothesis and growth hypothesis.

  • The value hypothesis refers to what the clients (either the bank's internal users or customers) will find valuable and want to pay for versus what they find useless and hence a "waste".
  • The growth hypothesis in this context translates to how the IT project proposal will be taken to and sold to the clients.

Eric stresses the need for startups to test these hypotheses as quickly as possible using a Minimum Viable Product- which in this context can be taken as a "pilot" or proof of concept.

Taking the lean and start-up thinking further, what we arrive at are basically self-funding models, or projects that can generate savings enough to fund the next stages.

On the other hand, the pilot or first phase can reveal shortcomings or learnings. The build-measure-learn loop amounts to using past experience and current results to decide whether the project goes forward and, if needed, a pivot to decide in what form.

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Comments: (3)

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 27 June, 2012, 03:31Be the first to give this comment the thumbs up 0 likes

"Lean" and "MVP" are perhaps ideal for startups. I'm sure many nonbanking FSPs already follow them. But, it's not clear if they're fundamentally compatible with the basic DNA of decades-old traditional banks.

Samarth Shekhar
Samarth Shekhar - SixThirty Ventures - Amsterdam 27 June, 2012, 10:31Be the first to give this comment the thumbs up 0 likes

Ketharaman, thanks for your comment. I agree, but the point is that "traditional banks" in tough times are increasingly demanding their IT to deliver more for less. With cost cuts and compliance requirements squeezing out innovation/change-the-bank budgets, IT needs a start-up mindset to justify this spend.

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 28 June, 2012, 14:15Be the first to give this comment the thumbs up 0 likes

Even if IT budgets of traditional Tier-1 banks get slashed by 10-20% in these tough times, they'll still have many hundreds of millions to spend. So, they're a far cry from startups, most of whom have to manage with a few millions or even less. Besides, there's enough evidence to support the claim that, when traditional banks implement technology right, they can gain massive business benefits. This is unlike startups where only 2 out of 10 are truly innovative / successful. Therefore, MVP / Lean are almost indispensable for startups whereas tried-and-tested methodologies that are fully compatible with their organizational DNA make more sense for traditional banks.