• Daniel Fasnacht

The Way Forward — 21 Notes for the 21st Century Business Model

Aktualisiert: Jan 8

Dr. Daniel Fasnacht

MEDIUM, 23 March 2020.

In the hardest times, there is always a way to get better. The Way Forward explains disruptive changes that shape industries, businesses, and societies in the context of financial services. The 21 notes synthesise the findings of openness, flexibility, and customer-centricity in a digital world driven by platform business models and ecosystems.


1. Invite Challenges to Renew the Organization!

Disruptive innovation is essential to understand as we are currently experiencing years in which many industries are transforming more radically as they have over the past decades. With the arrival in the digital services economy, banking is going to change and impact other industries, economies, and societies. Examples like Wells Fargo made us aware that large organisations with rich history must continuously innovate, adapt to the changing environment, and collaborate to renew themselves. The rise of UBS to the largest wealth manager before the financial crisis followed other drivers of growths. Thought, the bank was bailed out by the Swiss government in 2009, it complies to new measures like Common Equity Tier 1 (CET1) or Liquidity Coverage Ratio (LCR) to ensure that a bank is adequately supplied with liquid funds in a short-term crisis scenario. UBS among other banks had no other choice than to renew the organisation. It has penetrated Asia, co-innovated with clients and proved among the nimblest in reaching out to the young. Since 2012, the bank is back on track again and today still the largest wealth manager with over US$ 2bn assets under management. Key was to shift its focus from cost measures and regulations to innovation through a network of collaboration partners. Wells Fargo and UBS prove how vital dynamic capabilities for organisational renewal are and how they can win by leveraging knowledge from their research and innovation labs, think tanks, and fintech partnerships, incorporated into their innovation ecosystem.

2. Encourage Growth and Remain Profitable!

Growth is the most crucial driver of value in the capital markets, and we suggest a systematic approach to growth, in which short-term financial pressure does not undermine innovation initiatives that will pay off in the longer term. The innovations that satisfy stockholders demand economic growth and require risk-taking. By understanding the drivers that shape innovation, you can grow while embracing innovation and new business models. Mastering change, growth, and innovation, and keeping track of costs and risks, is challenging, and large organisations that employ chief growth officers may have an advantage. One rationale is that growth and profitability must be on top of the corporate agenda. We discussed a traditional Swiss private bank, namely, Julius Baer, on its route to becoming a relevant pure private bank with a key market in Switzerland and second home market in Asia and other institutions that followed an acquisition strategy. Long-term empirical studies showed that profitable growth can be achieved if the firm maintains a flexible architecture that facilitates the integration of new businesses.

“Profitable growth requires a flexible architecture that facilitates the integration of new businesses.”

3. Understand the Macroeconomic Changes!

From the market, we expect increasing global competition, not only among financial centres where New York, London, Singapore, or Switzerland is fighting against emerging financial centres, mainly in Asia. What is more, growth initiatives like the Belt and Road as the global development strategy by the Chinese government, generate new wealth spots in Asia. With the diffusion of economic power, young entrepreneurs, also with the support of demographic shifts, are evolving in favour of “old” money of wealthy European families. Especially the wealth shift from baby boomers to millennials is a significant concern of many wealth managers as there will be new needs and behaviours that cause a transition of assets. This will affect many businesses in the financial services industry. Particularly traditional banks must find ways to stay relevant to a younger generation of investors and connecting with the next generation using digital tools. The whole financial services industry is challenged to develop the ability to offer innovative and relevant solutions based on demographics and goals.

New client service models are urgently needed as the new clientele have different and diverse behaviours on how they purchase financial solutions. The shift of client expectations to individual empowerment with more self-direction, sharing, collaboration, or gamification leads to new client experiences. You must adapt traditional business models, collaborate, and develop a partner network to satisfy the next generation of clients.

4. Embrace Disruption!

As different developments lead to volatility, uncertainty, complexity and ambiguity (VUCA), they hit all at the same time as we never experienced before. This has a tremendous, transformational impact on the banking, wealth, and asset management industry. We see these developments as a chance with many opportunities to be developed. Those that do not stay ahead of the trends will be left behind. Established and large organisations should not overvalue their core business models, as many are approaching the end of its life cycle. A swift adaptation and releasing resources and money to explore new business models with new revenue streams while maintaining the core business are vital. Create new or develop underserved markets and displace existing business models with innovative products and services, while considering digital platforms is the way to go. Throughout this transformation, incumbents should build upon their core competencies and strengths like stability, history, client data, global footprints, relationships, and trust. Understand that disruption is not destroying businesses, but lack of innovation does. Be a thoughtful leader by embracing disruption and innovation and meeting the challenges to stay competitive for the future’s dynamic market.

“Disruption is not destroying businesses, but lack of innovation does”

5. Learn from the Challengers!

The three peer groups in the financial services, namely, incumbents, fintechs, and technology firms can only benefit from each other, if we understand their distinguishing characteristics. Incumbents are established financial institutions that profit from their legacy, client base, and trust and many from financial stability. Fintechs are startups that combine financial knowledge and technology focusing to improve the client experience. Incumbents and fintechs complement each other, and they increasingly collaborate and co-create value in ecosystems. The reason is that incumbents seek rapid financial innovation and technology, while fintechs are confronted with the high cost of client acquisition and trust issues. Our research found that the most significant change in the competitive landscape comes from technology firms from the United States and Asia. Their platform business models are characterised by agility, flexibility, open culture, and high innovation speed and technology. They are all coming for incumbent banks disrupting their traditional business models with their own ecosystems, offering financial and non-financial products and services. Those technology giants with substantial client bases, use artificial intelligence to understand client needs and behaviour of the next generation. It is no question that they do this better and more efficient than many established firms or fintech startups with little experience. And as they come from rising wealth territories with a young and well-educated workforce, these developments should be worrisome to any traditional bank.

“Break out of your comfort zone and learn from your challengers”

Reviewing your setup and breaking out of your comfort zone is crucial as we believe that the balance of power between incumbents and e-commerce, Internet, and technology firms will change rapidly. Western financial institutions have a window of opportunity for the next 5 years to learn from challenger banks, collaborate, and adapt their business models.

6. Comply with the Rules!

Globalisation, emerging markets, tax heavens, new complex investments, and finally, the financial crisis triggered many new regulations with the aim to better identify and protect clients. The Foreign Account Tax Compliance Act (FATCA) enacted in 2010 promotes cross-border tax compliance by implementing an international standard for the automatic exchange of information related to U.S. taxpayers. Based on that the OECD developed the Common Reporting Standard (CRS) for the global automatic exchange of information between tax authorities. Also, note the General Data Protection Regulation (GDPR), a European law to protect the privacy of individuals and investor protection laws like the Undertakings for the Collective Investment of Transferable Securities (UCITS) and the law for Markets in Financial Instruments Directive (MiFID). The latest revision of Payment Service Directive 2 (PSD2) on sharing client data proclaims to open payment services to new entrants. Its scope will create vast opportunities for fintech firms and platform providers to access account data held at traditional banks. As this law will make payments safer, more secure, and cost-efficient by cutting intermediaries, it will shake traditional banks with new competition. Also, shadow banking is under observation, and we may soon see new regulations here to stabilise the fintech market. What is in evidence is that most of these regulatory initiatives have been launched in the past 10 years. They are not only complex and arduous challenges for financial institutions around the world, but they also absorb resources and money. Open banking helps to cope with the developments in regulation as they link specialised service providers with incumbents, fintechs, and many other players.

7. Don’t Be Afraid of Robots!

People have always viewed new machines and robots with hesitation and processed their fear in films and books. In Fritz Lang’s “Metropolis” from 1926, Maria the main actor was even mixed up with a robot, and the workers of the factory that had to operate the underground machines that power the city of the wealthy industrialists (Metropolis) did not understand the deception until the fire reveals her to be a robot. Charlie Chaplin probably got inspired by Metropolis. In his film “Modern Times” from 1936, workers are not shown as individuals; they are not human beings, the more they represent parts of a production unit called Section 5. It shall show the tyranny of technology and constant surveillance to increase production. Perhaps, the mundaneness and regularity of bureaucratic and corporate life were best described in William Whyte’s “The Organizational Man” from 1956, in which the individual is taken over by the bureaucratic machine in the name of efficiency. The rise of robots in the financial services industry is inflaming threats like a century ago. However, many chances and opportunities are arising out as history endorsed.

“Cognitive business robotics will accelerate technology-led human-enabled business models”

Cognitive intelligence will get introduced to more and more virtual agents, and that is why we explored and tested “Alexa”, “Amelia”, “Erica”, and “Rose”. We found that all along, these first virtual (female) agents are in the process of learning how to do new things, by watching how humans do them. Some even indicate human qualities such as emotional awareness — probably because they pretend to be women. They seem to recognise, for instance, when people are irritated or frustrated. But it needs much more effort and time to exchange humans. Though, for the next generation, virtual agents may be an accepted help for their financial matters. It is a fact that client advisors must fit with robo-advisors and artificial agents as they will be pervasive in a digital society. We are in the process of a human-led technology-enabled model to a technology-led human-enabled business model in financial services.

8. Invest in Artificial Intelligence!

The most impactful trend is technology where cognitive technologies can become game-changers in the next 5–10 years. Artificial intelligence and machine learning built upon distributed datasets and shared information are used for dynamic and psychographic client segmentation based on behaviour and automated investment services. The adoption of such technology will become pivotal for large financial institutions to manage their client base and investment portfolios efficiently. The combination of predictive and cognitive capabilities is a trend that involves technology partners as we observed with the cases of IBM’s Watson and Google’s AlphaGo. The first movers to collaborate with technology firms in an ecosystem will change the game looking forward to the next generation of quantum computing. IBM stated that processing power of quantum computing is far more than its famous Watson infrastructure. Google is building a quantum computer likewise, and if it works reliably, we can expect to see artificial intelligence and machine learning take place exponentially faster. Although explaining why it is so powerful would fill another book, it is hard to specify what quantum mechanics means at all. We leave it like this and assume that quantum computers will in the next few years turn into ultra-fast and robust cloud computing services that accelerate simulation, optimisation, and automated investments among many other services. It will change the world and how things are done and impact our industry as those machines will be integrated into the financial services ecosystem.

“Quantum computing is entirely different from classical binary computers and will change the world”

Artificial intelligence must be understood within the context of other technological advancements like blockchain and quantum computing as they all interact. AI is the strongest force and will transform many industries. Firms should now invest and integrate collaborative artificial intelligence into its ecosystem strategy.

9. Evaluate Peer-to-Peer Platforms for Lending and Funding!

Although peer-to-peer platforms for funding are something new, they already face competition from the blockchain. The two technologies may merge or find each other somehow, but that is not the discussion. Crowdinvesting is already a sophisticated method to raise equity (capital) for small projects and as an incubator for seed-stage firms. Even more accepted are alternative lending platforms that use the same technology. Crowdlending is an easy, cheap, and convenient way for personal lending, small business loans, student loans, and mortgages. Alternative lending platforms directly link borrowers and lenders, which they have in common; hence they are just virtual brokers.

With alternative financing and lending, traditional intermediaries like investment banks, venture capital, or private equity will lose ground. At the same time, crowdlending has already disrupted the loan businesses of many corporate and commercial banks. The digital lending industry has the capacity to take over traditional business models if banks do not move and incorporate this technology. We see investments of some incumbent banks into peer-to-peer platform providers, while others collaborate with them in ecosystems.

10. Find Monetization Opportunities with Blockchain!

Blockchain (DLT) technology is predestined for certain financial services because it is digital and cryptographically sealed, designed to be distributed, and synchronised across networks. Further, it is immutable, which means that once you have agreed on a transaction and recorded it, it can never be changed. The blockchain can prove itself to be a widely distributed, though autarky, ecosystem in many fields by providing transparency, efficiency, and decreasing the risk of deals with third parties. There is a growing adoption from private investors and businesses, and with providers falling in number, the systems get decentralised and thus become more secure and transparent. Blockchain is transforming money, payment, and wealth management; with many use cases, namely, cryptocurrencies, smart contracts, trade finance, money transfer. Blockchain asset management solutions can become an alternative to offshore banking because there are substantial efficiency gains for cross-border transactions, for both private clients and businesses.

Digital money drives a disruptive trend for payments as in future all sales involve the real-time transfer of funds with the business having instant access to cash at transaction costs to near zero. In wealth management, ownership of assets would be clear, and money laundering difficult. And with growing world merchandise trade exports for global trade and supply chain finance, blockchain represents the open paradigm. Herewith counterparties collectively manage a shared database (distributed ledger) rather than rely on various intermediaries to maintain, validate, control, reconcile, etc. which makes the traditional paper-based process much more efficient. Another opportunity is raising capital through initial coin offerings (ICO’s), in contrast to bank loans or sourcing funds from venture capitalists. Offering digital tokens to finance a startup or conducting investments in smaller businesses is premature and legally doubtful. The newly born industry with one dominant centre, the Crypto Valley in Switzerland, will find best practices that comply with the regulatory and legal framework for token sales. Developing common blockchain standards now and finding best practices that comply with the regulatory and legal framework for token sales is critical.

“Blockchain is one of the most disruptive technology in the digital economy”

Blockchain asset management solutions are an alternative to offshore banking because there are substantial efficiency gains for cross-border transactions, for both private clients and businesses. Traditional banking and blockchain solutions will converge over the next decade with blockchain to become a commonly used technology in financial services. The newly born industry is evolving with hubs where the business conditions are best. Mean-while, leaders should develop their skills and gain experiences by collaborating with partners on specific use cases.

11. Define and Measure Open Innovation!

Leaders should prevent aimless activism and grasp at quick-fix measures. Instead, they should focus on the quality of innovation, as it has important implications for performance-related outcomes such as client satisfaction and client retention. This is because the client is part of the service delivery process, and therefore, client participation is crucial. Set measurable targets related to your open innovation ecosystem strategy, starting with a mission statement that — even if it may be a big bold idea — needs to be concise and specific. It shall make it clear to all stakeholders why your organisation needs an open innovation ecosystem. John F. Kennedy’s speech on 25 May 1961 in front of the Congress made that clear: “. . . before this decade is turning out . . . landing a man on the moon . . . and returning him safely to the earth”. This mission statement tells everything and does not need further explanation. Never communicate a programme that is confusing. Formulating a unique open innovation manifesto is the first step; however, never copy a statement for yourself. “Connecting and collaborating with the Fintech community to bring amazing to the hands of the customers” fits perfectly to BBVA, but it may not have any meaning for your organisation. The statement has to be tailored to suit your purposes; otherwise, it is useless. Executives must always live the way openness is announced — delegating to business units, departments, and teams are not sufficient.

12. Bring Innovation to Your Ecosystem!

It is not the financial product itself the clients are interested in, but services, which the product can provide, create real value. As products and services are intangible, innovation and testing are a challenge. Bank of America showed as one of the first in banking how new services could be tested in a laboratory environment. Open innovation suggests the integration of external resources from ideation to research and development to distribution to increase a firm’s innovation power. The central proposition is that ideas can originate from inside the organisation but also come from outside the organisation.

On the other hand, ideas can start outside the organisational boundaries and then later move inside for research, development, or commercialisation. Overall, we support a coupled process that combines purposive inflows and outflows of knowledge to collaboratively develop and commercialise innovation through an alliance, cooperation, joint venture, or platform. Another good example that illustrates open innovation at its best is the offering of robo-advisory as a service for other wealth and asset managers as the case of Deutsche Bank explains.

“Thriving innovation ecosystems include a nucleus of high-quality partners”

It is paramount that innovation strategies are flexible to respond to changing circumstances. With open innovation, you can grow through flexibility, collaboration, and client integration. Given the open innovation imperative, we suggest considering whether you have contributed to bridging the innovation gap between your intent and the actual level of collaboration within the ecosystem. A network of high-quality partners is the prerequisites for a thriving innovation ecosystem. In less than 10 years, the level of competition will shift from the company level to the ecosystem level. With just a couple of dozens of ecosystems worldwide, your firm needs to open up and engage in an ecosystem at an early stage so that you can shape and negotiate your values and objectives.

“Competition will shift from the company level to the ecosystem level”

13. Create and Capture Value in the Ecosystem!

We defined an innovation ecosystem as a network of interrelated businesses linked through a digital infrastructure or platform that facilitates the sharing of knowledge, ideas, and capabilities to co-create value. It is the next dimension of innovation reflected by the extent to which firms collaborate internally and externally and leverage open innovation. Hyperconnectivity, with its person-to-person and person-to-machine communication in networked organisations and societies and Metcalf’s Law of the network effect, nurture our innovation ecosystem. We state that value is created across a constellation of members in an ecosystem that produce areas of interactions. Hence, firms in ecosystems should do more than just add value for their purposes, the more they should reinvent and disseminate it. Value is created within the individual firm’s value chain, and if the firm is interacting with their partners in the ecosystem, the focus shifts to the value-creating system itself. Firms in an ecosystem must exchange knowledge and collaborate to leverage innovation.

Ecosystems provide an optimal platform where startups, fintechs, and non-banks, among many other players, can contribute to the whole with their specialised knowledge and technology. Thus, the diversity of ecosystem members is vital for the self-reinforcing process. Managing all the interdependent interactions, diverse cultures, flatter structures, and informal ties in an ecosystem require skills like that of a conductor as he or she is responsible to bring all together to leverage value constellations fully.

“Diversity is vital for co-creation value and the self-reinforcing process of an ecosystem”

14. Focus on Data in the Ecosystem!

The Silicon Valley is the mother of a regional ecosystem derived from the technology, computer, and Internet industry. Smaller regional and specific ecosystems like the Crypto Valley in Switzerland recently emerged and build a crucial global blockchain hub. The financial inclusion ecosystem of Ningbo in China discloses the positive impact an ecosystem approach can have for a financially underserved and poor area. Technology-based, cross-sector ecosystems such as Alibaba and Ant Financial will dominate global trading. Interestingly, these pioneering ecosystems emerged outside the financial services industry initially from e-commerce platforms. With the smart use of cognitive technology, Alibaba was able to understand better and bind a considerable client base, increasingly offering non-financial as well as financial products and services. These financial technology firms are very fast and innovative, and they will soon seriously threat many business areas of established financial institutions.

Cross-sector ecosystems made aware that first and foremost clients don’t seek financial products and advice since they are busy living their lives. Sophisticated consumers seek lifestyle-apps with financial features. Some may buy financial services once they made positive experiences with other purchases, be it music, movies, luxury goods, travel arrangements, food delivery, health-care products, or medical services. The ambition of linking data from health to wealth will accelerate services in both directions.

Data and resources, incorporated into ecosystems, become more important than people and money. Once technology giants use quantum computers, the opportunities for data aggregation and predictive analyses are exploding and opening up new spheres of client experiences. Understanding the collective power of data to address efficiency and sophisticated client needs is of utmost importance in the future. It will become increasingly difficult to protect the competitive value of proprietary data in a shared economy where data must be shared with ecosystem partners to deliver the best performance.

“The most powerful ecosystems link e-commerce, finance and logistics”

Understand the growing importance of consumer data and insight as a wake-up call. Forward-looking firms must adapt best practices from technology firms and start now to create client-centric data platform business models and integrate them into an ecosystem.

15. Treat Data with Utmost Care!

Data is one strategic business driver in the open banking paradigm. However, if it comes to financial data of clients, privacy laws and data sharing agreements are always part of the game. This book does not proclaim complete openness towards client data. Even if some fintechs go into the direction of mass data aggregation and machine learning and using data for indefinite purposes, full transparency is, as of today, disliked if it comes to one’s money matters. The movie The Circle based on a novel by Dave Eggers, shows critically parallels to the data aggregation of technology titans. We should consider such irreversible practices with care. Accumulating data is just one side of the coin, the thoughtful use of data the other. In particular, as the process of generating information out of personal data is often performed by a third-party provider in the ecosystem. Although the overall purpose is to add value to the originator of the data and data protection laws are in place, it is a balancing act not to threaten privacy.

Yes, data is vital; however, client data in banking must always be treated with an exceptional sensitivity. Incumbent banks, considered as the client data file owner, must assure that every member of their ecosystem is handling client information with complete care. For non-banks, data is part of their business model; however, some lacking respect for their asset. Especially data from social media networks and communities disclose psychological attributes of their users. Besides the fact that it can create powerful political messages, such additional information is precious to complete a profile of a potential consumer to be used in an ecosystem that offers all kinds of products and services.

It might be too early to say if there is descending sensitivity of generation Y and Z to their data. For the time being, observations show that the younger the client is, the laxer they are with sharing personal information on various business and social networks. We are not privacy advocates, but suppose that with increasing fraud cases, privacy laws and financial consumer protection for digital platforms and ecosystems need to be negotiated. On the other hand, the next generation in Asia is losing data authority to government institutions with social credit systems as well as technology firms that made data processing and analyses focal to their business model.

“Millennials are losing data authority to conglomerates and government institutions”

You may either want to become a trusted data ecosystem provider (platform company), a specialist in data analysis (fintech), a data-driven product provider or a wealth manager creating an outstanding digital client experience with the help of the named actors in the ecosystem.

16. Realise Businesses with an Ecosystem Mindset!

Adaptation, agility, and flexibility are the building blocks for organisational renewal and leveraging innovation for profitable growth. Develop underserved client segments and differentiate with new business models to better serve; for instance, the growing Muslim community is decisive. Another untapped clientele are women, and by harnessing the power of women, leveraging the ecosystem to educate, inspire, and connect women in business may be a lucrative niche market. The more as the wealth of both client segments is growing above average. We suggest business development with an ecosystem mindset in which the firm deploys an agile prototyping approach and tests new business models and innovations in a dedicated environment together with clients among other partners. Other examples of open innovation present five large banks and IBM that together with industry experts and globally distributed clients of the banks collaboratively develop a global trade platform based on blockchain technology. The new global trade financing platform, called Batavia, will help organisations more easily build multiparty, cross-border trading networks worldwide. Another co-development project with the involvement of nine European banks is the Digital Trade Chain (DTC) that recently launched “we.trade”, a blockchain trade platform for commercial clients and their banks available in the market.

Stable incumbents and agile fintech must complement each other and increasingly find together in partnerships in an ecosystem. The role of non-bank entrants like technology, Internet, and e-commerce giants in the changing competitive landscape is at the time not clear. Despite the rapidly evolving cross-sectoral ecosystems in Asia, it looks like American technology firms like Amazon, Apple, and Facebook are currently experimenting with financial offerings, Libra respectively, partnering with a few banks.

“Co-innovating within an ecosystem means transcending organisational boundaries”

To co-innovate with actors in an ecosystem, the mindset must dynamically transcend organisational boundaries. As with blockchain consortia, some banks cannibalise their businesses or share knowledge and collaborate even with competitors. That is finally how open innovation can leverage ecosystems. Developing and running businesses with an ecosystem mindset mean to turn competitors into partners, bring their clients together, and trust in collaboration to transform traditional banking business models.

17. Provide an Open and Innovative Environment!

To navigate successfully in an ecosystem as well as being the architect or driving force, we suggest various new dynamic capabilities represented in what we call ecosystem services, namely, openness, ambidexterity, and social capital. Openness represents creative thinking techniques, diversity, sharing, and knowledge exchange. As such culture emerges over time and cannot be created short-time in rigid organisations; the leadership has to install flat hierarchies and to empower employees to embrace open innovation and client centricity. Equally important is the development of ambidextrous innovation capabilities aiming to foster efficiency and innovation or exploitation and exploration. Empowering employees and developing intrapreneurs for innovation purposes within the firm, including managing the ecosystem partners, is vital. Banking will be in transformation for the next decade, and it is the responsibility of everyone to keep up with the trends or as Sergio Ermotti, Group CEO of UBS, claimed, “first of all, innovate yourself”.

Partnering with universities that support entrepreneurship in their curriculum or act as an incubator for startups is another route to consider. New ideas can come from dedicated innovation labs or partners in the ecosystem as well as from clients and the industrial or social community.

To create an ecosystem or actively engage in an ecosystem, strong management commitment is required. It is evident that partnering is a shared responsibility; accordingly, the entire leadership of the firm is responsible. Leadership must encourage those ecosystem services in striving to discover something new continuously.

18. Think Differently!

Openness is the basis for diversity and tolerance of ideas and has the power to democratise collective imagination. One trend is that firms deploy open innovation by essentially putting forth a question or problem they are facing to their clients and the broader community. We advocate integrating communities since a group of individuals is an important supporting actor for creativity. The idea of a contest where individuals compete to develop the best solution to the innovation challenge of a firm is becoming increasingly popular with the rise of social media. This approach extends innovation beyond organisational boundaries and captures value from the diverse community of the ecosystem. The innothon that literally refers to innovation and focuses on the client journey and new business models may be a practical option for financial services. It is a creative thinking method for services with the aim to present a prototype in the form of a showcase of an innovative and disruptive concept. As the client is always part of the value-creating process for services, he or she should support a dedicated business target that can be a breakthrough service, seamless processing, or just boosting growth. An innothon is characterised by openness, sharing, and collaboration, all intangibles; hence, the outcome must be formulated and implemented in projects, including progress monitoring, among other measures.

The outcome of creative and design thinking methods can affect strategic initiatives mid-term. To grasp the future of banking services that are impacting the business model and revenue streams radically in 20 or 30 years, firms need more systematic, albeit visionary, approaches.

19. Foster Social Capital!

Social capital is vital to build collaborative intelligence. Developing good relationships between intrapreneurial staff in the organisation and players of the ecosystem foster trust and trustworthiness rooted in these relationships. Integrating communities to share and exchange ideas is not just a significant enabler for relationship building, the more it allows firms to develop strong communities of external innovators. And with increasing social interactions, the potential social capital is growing. Lastly, the cognitive dimension of social capital is required as it provides a set of norms of acceptable behaviours such as shared values and beliefs that allow a shared understanding of appropriate ways of acting. In sum, social capital provides a service to ecosystems that helps to leverage the firm’s existing knowledge and supports the transformation into new dynamic capabilities required in the digital age. Note that intangibles are difficult to identify and hard to copy. Therefore, informal and formal ties help to determine what skills are useful for the future. In any case, social capital represents a sticky competitive advantage.

“Social capital is the clue and lubricant for an open innovation ecosystem”

By interacting with partners outside your organisation, you may be better prepared to anticipate disruptive trends and respond with innovative solutions. As it depends on the connectedness between the participants in the ecosystem, leadership must ensure that their staff engage in the ecosystem with the appropriate mindset and intrapreneurial attitude. Acknowledge that the ecosystem as such is more valuable than its constituent members with their individual outputs. Relationship and trust-building are about learning together. Thus, leaders must facilitate collaborative learning processes at individual, group, and ecosystem levels to allow the organisation to transform itself continuously in a direction that is beneficial to all its partners.

20. Develop Blueprints of the Futures!

Meanwhile, you may understand the drivers of the disruptive trends. Now you need to extrapolate future scenarios for product development and distribution. Explore opportunities and find innovative views on how the banking, wealth, and asset management business is going to look like in the next decade. For the far future, firms should not focus on prediction as these are merely qualified guesses. What is more compelling is applying a systematic process with the attempt to explore shifts and breakthroughs that will transform our society and financial services industry in the twenty-first century as a whole and a global perspective coming decades. We discussed how UBS Y, an independent think tank of UBS Group, is trying to understand those needs. The process that the very diverse team members deploy is reverse engineering of time in which they also use design-thinking techniques like scenario-based thinking. Overall, with such an approach, it is possible to create situations and scenarios that help banks to understand possible futures. You must share your views with other business units, and once they are evaluated, you can formulate a suggestion to senior executives. Scenarios help you to continually review the firm’s visions and adjust the long-term strategy in an iterative process. Creating scenarios through the lens of the ecosystem theory help you to review the firm’s vision and improve the long-term strategy in an agile and iterative process.

21. Adopt Trailblazing Ecosystem Strategies!

Seven of the ten largest firms by market capitalisation, i.e. Microsoft, Amazon, Apple, Alphabet, Facebook, Alibaba, Tencent, spend massive resources in business development activities from legal and compliance to marketing to offer their products and services over digital platforms. Asian challenger firms across industries are champions in partnering with local firms for global expansion, utilising the local legal setup, infrastructure and client data. Through that flexible strategy, they can easily adapt to the local environment and supply solutions to client-specific needs. We learned that Alibaba, for instance, is collaborating with a myriad of other firms. Its high stake in startups and unicorns that operate under their origin brand, not only increases the group’s bottom-line. The more its financial arm, Ant Financial, accumulates client transaction data, including biometrical data, social media data among data generated from activities in other sectors. Divers data increase the knowledge required to develop innovative financial products and services and holistically advice clients.

Cross-sector ecosystems leverage business model innovation. We learned that with artificial intelligence — as one key innovation driver — the more diverse the dataset is, the better the predictive capabilities become. In other words, machine learning algorithms need not only large quantities of data but also non-financial data. Based on that, new data partnerships must be established. Enhance your view beyond the network effects of Western platform companies and deepen cross-ecosystem collaboration based on the examples of Asian challenger banks. And while adapting the strategies of agile innovators and scale players outside your comfort zone and sector, you will find efficient ways to grow your ecosystem that creates value through its partnerships rather than own resources. The union of talent and technology and your full commitment drives your organisation’s relationships in the ecosystem. Working together and sharing is imperative and eventually makes the open innovation ecosystem work.

“Leaders must develop strategies through the lens of the ecosystem theory”

In future, banks must learn from tech-giants and open up for new ideas from Asia juggernauts. Never forget, it is all about time: once an ecosystem already has major financial services partners, bounded with tech companies, it becomes hard to negotiate the membership. Those who can turn themselves swiftly into key ecosystem players that significantly contribute value will be the winners of the digital transformation, because — the winner takes it all!


This article is an excerpt from chapter 9 of my book Open Innovation Ecosystems: Creating New Value Constellations in the Financial Services, Springer, Management for Professionals, December 2018.

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