What if every bank had its own Skunk Works, an innovation lab capable of solving hard problems quickly, quietly and affordably? It would be an organization within the organization where innovators are given resources and space to get their hands on the newest technology, add their research and creativity, and develop radical new products. Whether virtual or a physical lab, this would be a place where free thinking and a pioneering spirit can flourish, safe from the very different pressures and incentives of the parent firm’s BAU.
What do these innovation labs and accelerators look like in practice, and how can they be set up and run for maximum success?
FintechOS asked four experts for their insights, starting with Richard Turrin, a well-known fintech advisor based in China, and author of Innovation Lab Excellence, a book which provides the example of Lockheed Martin’s innovation lab, “Skunk Works”:
“Please look at Kelly’s 14 Rules and Practices. They essentially lay down how innovation was done at Lockheed Martin’s innovation lab to build some of the world’s most advanced aircraft from WWII to the Cold War, and beyond.” These include the SR-71, the world’s fastest manned aircraft; the F-117 Nighthawk, the original “Stealth Fighter”; and the F-22, the first 5th Generation fighter jet.
In Lockheed Martin’s words “the Skunk Works never shies away from seemingly unsolvable challenges and has a reputation for solving hard problems quickly, quietly and affordably”.
Kelly’s rules include:
Turrin argues the ideas followed in Skunk Works are well suited to digital. In his book, Turrin offers his own list of 12 best practices for financial innovation labs. “You can’t follow a cookie-cutter approach, and say ‘Here are the rules’”, he says. “It doesn’t work like that. What I have are best practices. Find the ones which work best for your institution, and leave the others.”
A standout best practice is Buy, Don’t Build. “It’s the most controversial,” concedes Turrin. “I saw a lot of innovation teams spend tremendous amounts of hours trying to build production-level code. And it’s really hard in banking or any large corporate environment to justify the time and the hours to build this, when you can buy it on the open market. So I am a strong proponent of making partnerships and buying what you need, rather than building internally.”
The human element
Another best practice is to focus on people. After all, implementing new tech can trigger redundancies, or change roles in a flash. Clearly, this can work against those pushing for bolder innovation.
“One of my clients was a call center, and they wanted chatbots. Do you think the employees will like you for doing that? They’ll hate you! My point is, you need to think about the interaction with people and technology, more than you think about the technology.”
Alexandru Bita, Chief Technology Innovation Officer at Libra Internet Bank, agreed with the emphasis on people, adding that it takes a special mindset to thrive in highly innovative teams.
“Talent is scarce,” he said. “With our own hiring we look outside the banking sector. And we look for attitude. The environment can be similar to a startup, and it can be stressful. So you need to be able to adapt continuously. Some people prefer to work with a clear roadmap. Others are comfortable with constant change. So this is something we look for, not just expertise.”
Another key factor is to cultivate a flat culture, where ideas can be sourced from anywhere. Bita: “Innovation is not something that comes from a single guy. It’s a team effort.” This means a role like his, as Chief Technology Innovation Officer, is one where inspiring others is a main trait. “It’s where you need to have broad impact. Because doing something new is not easy. You are walking unchartered paths.”
Improving your chances of success
Like startups, teams and their projects within innovation labs need to be prepared to fail and be undeterred by it. Jonas Thürig, Head of F10 Singapore, the startup incubator and accelerator headquartered in Zurich, identifies two pitfalls.
“If you put all of your eggs into one basket, into one innovation project that needs to succeed, this can easily go wrong. All the hopes and dreams are basically linked to one project. If it doesn’t work out everyone is disappointed.” Instead, he recommends an innovation pipeline, where multiple projects of varying sizes are worked on.
A second common pitfall highlighted by Thürig: failure to connect to the wider business. “Usually the people who reach out to us are very excited by the technologies they are working on. But they can’t get buy-in or sell it to the business units. There are various reasons for this. Whether it’s fear of losing their jobs, or are just swamped by their daily work. The result, unfortunately, is that you get nowhere.”
The answer? “Having the right incentives, starting work with the right buy-in from the business units.” Established banks and stock exchange groups are currently working with F10 on joint ventures with fintechs and startups in areas such as DeFi and CBDCs, proving that with the right assistance longer-established and perhaps rather conservative financial institutions can successfully work at the cutting edge.
Banks and insurers which have not made a point of becoming active in digital and innovation communities may suffer from inertia. The answer might be to look outside for a more community-oriented or partnership-focused strategy. Mike Fullalove, SVP, Strategy and Business Development at FintechOS, views innovation labs or other technology ventures as a major opportunity for bringing in fresh ideas and energy. “Changing a larger organization with complicated technology is difficult. Just left to the people inside an organization it may not happen. So it makes sense to partner with an external technology company. They can bring in new tech, new ideas, and different ways of thinking. Not to mention more resources.”
The goal
The existential question for any innovation lab, accelerator, or similar construct is: what is the measure of success? Fullalove offers a radical proposal:
“Most people in banks and insurers really, really want to help the customer. If their setup doesn’t allow them to do that as fully and quickly as they want to, by partnering with organisations like FintechOS it’s easier to see what’s possible, to change and develop these solutions more quickly” — Mike Fullalove, SVP, Strategy and Business Development, FintechOS
“The ultimate aim is to change the business model. In many cases that means changing the technology to provide a better solution for the customer.” This may mean, first, reshaping the mentality of the company. “For it to be successful you probably have to change the culture, or at least partner with a company that has a different culture to help you on your way.”
An early goal is to shatter the myth that banks and insurers can’t innovate. Richard Turrin saw at first hand this negative view during his long career in innovation: “I headed IBM’s fintech innovation lab, and my clients were coming to IBM, many of them were young innovators, and they would talk to me, saying, ‘Oh my god, the bank just says No. All they ever say is No.’ And I laughed, because I’ve been doing this for 20 years, and that’s what bankers do. They say No to stuff. Innovation does not come naturally to them.”
In the end, banks and insurers survive or die on their ability to innovate. A Skunk Works, incubator, or accelerator may seem like an extravagance to people who are focused on regular daily business, but – when run well – they offer a strong boost to technical rejuvenation.
***
MAIN PHOTO Credit: Unsplash
