Case Study Product Innovation at Bank of America

BANKING STRATEGIES Case Study Product Innovation at depose of the States By Cindy Murray What ? nancial institutions backside learn from inventions and stirversions in former(a) industries. owhere is conversion more than essential to choice than in the briming industry. In the payments domain, for example, nonbank competitors less constrained by bank regulations and therefore more agile atomic number 18 changing the banking industrys grip on the public perception of banks as the plainly certain brand for holding and moving money. However, innovation is ch altogetherenging for banks. Many merchandises, standardised payments, are a commodity.A huge number of products and a complex infrastructure require continual upgrades to keep apace with technology advancements and fall show up with evolving regulations and security requirements. This article describes how desire of the States fosters a culture of innovation. Pivotal to an advanced(a) culture is the assume engagem ent of guests in the innovation change. We highlight some of the ways that Bank of America achieves this. But ? rst well compute at the role of innovation process in building brand loyalty. N Build instigator Equity Through Progressive Transformation Change brush aside occur by rede? ning a job or rede? ing a solution. According to Robert Sternberg, a leading creativity expert,1 creativity is the ability to rede? ne a problem. Innovation can be viewed as the ability to rede? ne a solution. Successful innovation is a process over clippingone that typically happens in increments rather than leaps. Rarely is a adept innovation a game changer. In banking, 90 percent of innovation focuses on core competencies (that is, business-as-usual innovation), septet percent on game-changing innovation MAYJUNE 2009 within core competencies and only three percent on leaps that signi? cantly shift the guest experience.Outside of banking, an evolutionary approach to innovation is also the rule , not the exception. Continual improvements throughout a products life cycle build brand equity. Take the case of Nabiscos oreo cooky cookie, the bestselling cookie in the United States. In 1912, Nabisco came up with the approximation of devil chocolate disks with cream ? lling in between. Since so it has released Double Stuff cookies with more ? lling fudge-covered Oreos holiday cookies, including Halloween and Christmas cookies bite-sized Oreos for children and reduced-fat Oreos. Oreos illustrate two important aspects of product innovation.First, Nabisco stayed impede to its clients. It understood how needs varied among consumers and changed over time. The attach to developed its product to meet the needs of a continually broader set of consumers. Second, the example illustrates an incremental approach to innovation that focuses on advancing core products. The iPod was at once the next smell in an evolutionary process and also a creative leap. This product integrated a num ber of capabilities in a portable device, but it was not the ? rst MP3 player. However, the excogitation of iTunes was a peeled business model that changed the way consumers could store and listen to music.The iPod was transformative, too, because it aligned with changing consumer conduct re? ected in trends of mobility and customization. Technology enabled a tipping point. Consumers were ready to embrace a leap. Cindy Murray is Head of Product Innovation at Bank of America. Contact her at cindy. emailprotected com. commercialised LENDING retread 35 Banking Strategies way that stays shoemakers last to customers evolving needs. For example, through ethnographic research, we discovered a common practice among consumers of rounding up when writing check-out procedures. We took the approximation of rounding up and turned it on its headrede? ing Innovation is a process over timean evolutionary the problem by associating payments with de functionrances. path. An incremental approa ch to innovation mirrors How can we foster change magnitude saving? With Keep the the gradual way in which people change. Consumer Change, distributively time a customer pays use a Bank of behavior tends to change gradually. Successful innovation is customer driven. It gets as America check card, the bank rounds the payment close as possible to the customers current process. to the nearest sawbuck and transfers the extra change A deep understanding of how customers operate to the customers savings account. odayand wherefore they do what they dogives inNow, instead of check writers rounding up, the sight into how to improve the process how to create bank does it for thembut in a way that builds their a step forward for the customer. savings. The solution also facilitates increased use of Further, by directly engaging customers in the indebit cards, thereby supporting retailers efforts to novation process, they become deeply perpetrate discourage check payments. It was also a ti mely soluto, and invested in, a solution, which took advantage tions evolutionary path. f evolving consumer beThis makes innovation a havior toward increased primary variousiator, ancard usage. Change can occur by rede? ning a other way of creating value Ethnographic research problem or rede? ning a solution. for customers by enriching has also been chance on to improvtheir experience and reining our electronic banking forcing loyalty over time. course of study, CashPro, over Staying close to the customer is one of the close to importime. For example, we intentional an enhancement based tant attributes of a successful innovation process. on a typical client clear ? ow for handling exceptions.By closely watching how 15 companies were posting their receivables, we identi? ed a common practice of bug out Close to the Customer placing a cohesive note on invoices when they did not match payment. Staff would then fax an invoice to At Bank of America, customers play a underlying r ole at the sales representative to inquire about the discrepancy. We every stage of the product innovation process. There incorporated an electronic sticky note with email capaare a number of ways in which we directly engage bility in CashPro, so that clients could maintain their our customers throughout product development. ork-? ow process in the online environment. We use a range of formal techniques for idea generation. Formal techniques focus on gaining deepened client insight and are important when Amplify the we have moderate training about an opportunity Voice of the Customer and the related customer need. Formal idea mining typically requires expertise through our internal innovation group or external specialized vendors. CashPro is a great example both of innovating in Ethnographic research is an important whoreson for increments to improve a product over time and of engenerating innovation ideas.Observation provides gaging clients in an evolutionary innovation proces s. insight into customer behavior and needs. ReturnWith CashPro, we established a customer advisory ing to the Oreo example, the idea for a bite-sized board, which has been closely involved in the prodcookie began to germinate when Nabisco researchers ucts development. With CashPro, the innovation watched young children grapple with dunking the process becomes part of the client experience, thereby full-sized cookie in smaller cups. increasing customer satisfaction.For example, with Ethnographic research helps Bank of America CashPro, clients prefer self-service for upgrades. understand how to advance our core products in a They are fully vested in the change process. shoot Clients in the Evolutionary Path 36 COMMERCIAL LENDING review MAYJUNE 2009 Banking Strategies Our strategic client program, exchequer Exchange, At the other end of the spectrum, responsibility serves to amplify our voice of the customer research. for innovation can be centralized in a shared serClients are long -term program members in elder vice center.At Bank of America, we have dedicated treasury and/or ? nance roles within their organizastaff focused on game-changing innovations. At tions. They meet regularlyat frequencies varying the same time, our entire organization recognizes from once per depict to yearly. The program enables the importance of ongoing process improvement participants to share insights on best practices and and enhancements. learn from each other, while helping us to better understand their challenges and needs. A detailed executive Work with Peers drumhead that identi? s key discussion themes helps pinpoint areas for deepening discussion and exploraTo maintain a competitive edge, banks more and more tion. Conference calls exploring priority topics serve allow for realize for ways to work with clients, technolas touch points between in person meetings. ogy companies and other ? nancial institutions We also look to Treasury Exchange members to to combine stren gths. For example, in May 2008, validate and ? esh out new product ideas and to Bank of America announced a partnership with provide validation at points in the product develWells Fargo called Pariter Solutions LLC.The opment cycle. Treasury 50-50 joint venture will Exchange members have operate the commercialsubmitted innovation ized ACH platform that ideas under the auspices will be leveraged by the An incremental approach to of the program. Customer two banks. The goal is to innovation mirrors the gradual way advisory boards and spegain economies of scale in which people change. cial client programs like and better position both Treasury Exchange augbanks to develop future ment our extensive voice products with a single of the customer research. nvestment in the underlying processing engine instead of duplicative investments. Its a platform for growth and innovation. Cultivate a Culture of Innovation Its important to be open to ideas from all sources. Thats part of cultivating a culture of innovation. At Bank of America, all associates are invited to collaborate in the innovation process. For example, associates can submit their ideas online via IdeasZone, an internal intranet site. These ideas are funneled into the idea stream and receive equal fear within our innovation process.Collaborate with Technology Innovators In banking, technology is an enabler of innovation. Therefore, its important that banks collaborate with their technology providers. Bank of Americas collaboration with Microsoft is a great example of how we work with technology companies to develop sophisticated applications. Cash positioning and forecasting continue to be key client challenges. We spoke with clients to determine how they bring to pass money positioning and forecasting. Treasurers might use a treasury workstation, an Excel spreadsheet or a conspiracy of tools.However, treasurers who rely on treasury workstations typically supplement their process with an Excel spreadsheet . Our research also con? rmed that many clients have dif? culty building a historical database of information for trend compend to support forecasting. COMMERCIAL LENDING REVIEW Foster Employees There are different options for organizational structure to foster an innovative environment. At Google, its part of everyones job to innovate. There is a decentralized approach to innovation in which all employees are engaged and given incentives.Its built into their objectives and re? ected in their allowance increases and bonuses. MAYJUNE 2009 37 Banking Strategies Bank of America worked with Microsoft to develop CashPro Accelerate. This tool accepts information feeds across all of a clients bank accounts and automates the cash-positioning process. It also builds a historical database that clients can use for forecasting. Keep moving Forward I am not discouraged, because every wrong attempt discarded is another step forward. doubting Thomas Edison With an inventors mind-set, the idea o f failure is a fallacy.Some who know best have rase looked at failures as a continual path forward. Besides being the still-unrivaled record holder of 1,093 U. S. patents, Thomas Edison broadened the concept of the invention to whats known today as innovationinvention, R & D and commercialization. 3 advanced(a) companies ? nd ways to leverage new insights to keep moving forward. The creation of 3M Post-it notes is a classic study of turning failure on its head and using creativity to rede? ne a problem. Spencer Silver was work on developing a strong adhesive but invented a weak one instead.Silvers colleague Arthur Fry came up with a novel application for the weak adhesive, which became the basis for Post-it notesa new vehicle for communicationwhich Bank of America used in its CashPro innovation. Sometimes the leap is in how we look at things. Build a Brain Trust In a September 2008 discommode of H ARVARD BUSINESS REVIEW, Ed Catmull, cofounder of Pixar and the president of Pixar and Disney Animation Studios, talked about how Pixar fosters collective creativity. One of Pixar s core operate principles is that, We must stay close to innovations happening in the academic community. 2 Its part of the companys effort to eliminate boundaries between different disciplines. Earlier this year, Bank of America and MITs Media lab announced the creation of the Center for Future Banking. Over the next ? ve years, Bank of America will lend $3 million to $5 million annually. The center is a prototype for how business and academia can work together to invent the future of an entire industry. It will bring together researchers with radically different perspectives, including behavioral economists, social scientists, computer scientists, psychologists, contriveers and others.The goal is to trigger unexpected new ideas that lead to innovation leaps in banking. Test, Learn, Evolve This inventor mentality is at the heart of our testand-learn environment, in which we deploy an initial solution design to get ? rsthand feedback from clients on its usability and value. At this stage, the intent is to address any issues or opportunities in the next loop-the-loop of the design. The process enables us to evolve our product design before we get to the pilot stage. As an iterative aspect process, the test-andlearn environment is a microcosm of the broader innovation process focused at a certain point in the development process.The Intelligent Cash Manager, a new end-to-end Bank of America solution, gives a live example of the test-and-learn approach. The solution concept germinated in a series of Treasury Exchange meetings, where clients identi? ed cash handling and deposit as a major pain point. Its an ATM-like machine that counts cash, accepts it for deposit and provides safekeeping. An issue related to jamming surfaced in the test-and-learn environment, which will inform a solution redesign. MAYJUNE 2009 Choose engaging Concepts Vetting ideas and buildin g a business case are key steps in the innovation process.Bank of America uses a scoring technique as part of our process for vetting ideas. Scoring criteria include whether a concept matches to plan objectives, whether it has wide applicability, its level of innovativeness and complexity and the potential magnitude of its impact. At Bank of America, for example, out of 919 ideas stock this year, 10 have been submitted for funding in 2009. Building a business case is a key step. An effective business case must describe the opportunity and its alignment with strategy and also describes the steer client and market within the context of the competitive landscape.Finally, it outlines the proposed approach, the risk and the ? nancial opportunity. 38 COMMERCIAL LENDING REVIEW Banking Strategies Storyboarding is a creative technique used in the early stage of ? lmmaking. Storyboarding can help festinate time-to-market. By not building the entire productbut rather using storyboards and pr ototypes in a test-and-learn environmentwe retain ? exibility even as we move further into the product-development process. Flexibility enables us to prioritize the most important features and integrate feedback and new insights from customers.It helps us to make smart choices with our investment dollars as products take more tangible form. The Next take shape in the Innovation Process The ability to synthesize information into insights will be an increasingly important part of creating a valuable client experiencenot only banks connecting to customersbut of customers connecting to each other for insight. Incubation and the cross-fertilization of ideas are important to the creative process. Bank of America is integrating online networking into its innovation process. For example, we are connecting participants in the Treasury Exchange program to an online forum.Our long-term vision is to involvement our various Treasury Exchange client groupswhich are based on industry, function a nd geographyinto a clientcentric global collaborative network. We also plan to introduce online ideation as a way to collaborate with Treasury Exchange participants on innovation. More broadly, the idea of integrating social networking into the banks innovation process holds tremendous promise. With our consumer base of 59 million households, social networking can be a powerful tool for engaging customers ? rsthand in product development. hen the next step integrates multiple aspects to transform the end-to-end client experience. To cite an earlier example, the iPod integrates communication speed, mobility and storage capacity. All of these come together, along with consumer readiness for change and the ingress of the iTunes business model. Within the banking realm, clients increasingly want banking solutions to integrate into their flowwhether flow constitutes, for example, a mobile consumer or the workflow related to a treasurers broader financial processes.The need to integrate payments in the broader customer experience will involve mobile technology in some form and the analysis of information to provide insight. For corporate customers, banks are already exhibiting time-sensitive information to personal digital assistants (PDAs) and cell phones. Information analysis and synthesis could help treasurers to improve broader ? nancial processes (for example, accounts payable or receivable), help optimize working capital and minimise cost and use payment information to deepen insight into customer behavior.We are already comprehend merchants, for example, use consumer payment information to tailor coupons to a customer s buying preferences. Banks can deliver robust information to consumers, for example, to help them weigh product features and engage in ? nancial planning to evaluate a purchase within a desired spending budget. Perhaps, ultimately, clients will want to take their bank accounts with them, storing practical(prenominal) money inside their mob ile phones. Banks have an opportunity to reassert their unique role as the certain brand in storing and moving money.Innovation will be critical to our success. What Might Be the Next Leap in Banking? Successful innovation continuously improves aspects of the customers experience. Leaps occur Endnotes 1 2 3 Professor at Tufts University research focuses on creativity. How Pixar Fosters Collective Creativity, HARVARD BUS. REV. , Sept. 2008, at 71. The Edison Papers, http//edison. rutgers. edu/biogrphy. htm. MAYJUNE 2009 COMMERCIAL LENDING REVIEW 39 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.