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Banks lag manufacturers and telcos in race to build innovation centres

24 July 2015  |  10650 views  |  3 Innovation

The financial services sector is trailing rival industries in the race to set up innovation centres in technology hubs such as Silicon Valley, according to a report issued by consultants CapGemini and Altimeter Group.

Major organisations are increasingly establishing a base in the home of software invention in a bid to fix what is deemed to be a broken R&D model, says the report titled 'The Innovation Game: Why and How Businesses are Investing in Innovation Centres'.

The report shows that while 38% of the world's biggest 200 companies have made such a step, only 28% of financial services have done so, leaving it trailing all other sectors with manufacturing topping the poll at 58%.

The survey picked the top 40 companies in five sectors - manufacturing, automotive, consumer, telecoms and financial services - and analysed 309 innovation centres, examining the rationale behind their establishment and the challenges they face.

According to the report, major companies feel that their traditional R&D departments are ill-equipped to deal with disruption from digital-savvy competitors and are therefore looking to set up innovation centres that cultivate a startup mentality.

Yet despite facing the same threats from digital disruption as the manufacturing industry, the financial services sector lags some way behind.

One of the reasons cited for the poor showing is the perception that banks have a low tolerance for unsuccessful ventures. The report quotes an unnamed senior bank executive as saying: "About 80 to 90 percent of innovation centres fail and end up being a massive waste of resources."

The report does however include testimony from Debbie Brackeen, global head of Citi's innovation network who says that the bank's Paolo Alto-based Citi Ventures has been given a mandate to "pioneer and test new disruptive solutions" and to make "a significant impact to the overall business and not just incremental changes".

The main areas of focus for the innovation centres included in the report are mobility (63%) and big data analytics (51%). In terms of destinations, Silicon Valley still dominates and is home to 53% the innovation centres included in the report, followed by London (10%) and Paris (9%). However the top ten cities cover just 35% if the total centres suggesting that new hubs are likely to emerge.

Comments: (3)

Balasubramaniam Gd
Balasubramaniam Gd - DBS - singapore | 24 July, 2015, 02:52

Very informative and relevant, i view that each orgnaisation is first getting to know how to innovate, what to innovate and finally how to contniue to keep innovating.  First i guess is to understand the problem, admit it and find the budgets and the expertise which is scarce especially when not trying to be similar and differenciation is Key and Challengeing.

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Igor Ageyev
Igor Ageyev - GMIA - London | 25 July, 2015, 22:15

Innovation as well as mobility (or sometime digital), bid data and some other like cloud are buzz words.

The key question is not what to innovate but why. An even what is an innovation. There are some types of innovations with different drivers, required efforts and potential results.

Finance sector is obviously different from manufacturing, automotive, consumer, telecoms and expect that the same approach and measure of innovation is suitable for all of them would oversimplify the problem.

Finance sector needs innovations, no doubts, but ways of how to identify and deliver those changes may be different.

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Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune | 27 July, 2015, 09:33

Enough proof that innovation center does not necessarily equal innovation:

  1. TELCOs squandered away their early efforts to build a nonbanking rail via carrier billing products.
  2. Mobile money products haven't achieved mainstream adoption. In extreme cases - hopefully - like mine, they haven't even onboarded customers several months after signing up.
  3. A couple of days ago, I received an email from my MNO / ISP saying I'd busted my free download quota for the month and asked me to click a hyperlink in the email to buy a "booster pack" if I wanted to continue getting high speeds. I clicked the link and was taken to a website that showed everything except how to order this booster pack.

On the other hand, after trying out different mobile wallets including one from an MNO, I've settled on PayZapp as the best solution for my bill payment woes. As a payor / customer, I neither know nor care whether HDFC Bank had set up an innovation center in coming up with PayZapp.

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