The Value of Disruptive Innovations in Banking and Finance

Would Steve Jobs have been that successful if he had created Apple’s innovative products only for other people and not for himself to use? Carrying thousands of songs on an iPod or using an iPad to experience new ways of enjoying entertainment would have been difficult to come up with if he had never used the product himself. He not only knew about the possibilities in IT, but also experienced and recognized what was missing from the user point of view.

According to Clayton M. Christensen and Michael E. Raynor (The Innovator's Solution: Creating and Sustaining Successful Growth, by Clayton M. Christensen and Michael E. Raynor; Summarized by permission of Harvard Business School Press; © 2003, Harvard Business School Publishing Corporation), the difference between sustainable and disruptive innovations is fundamental. Disruptive innovations are all of the sudden available in the market and change the market by affecting other available solutions. Innovative financial solutions often run on outdated technology, which was applied to the preceding generation of financial solutions where it was still adequate. This is what makes our banking infrastructure complicated, allows risks to emerge and causes high maintenance costs.

Although newly developed solutions can offer new functionalities, they can also affect available solutions negatively by creating additional risks. I think that a BOFB can also be developed in a way that measures the available data and allows only potentially successful innovations to be implemented.

I think that an AI solution can be developed in a way that an organization can be supported to become more innovative. According to Jeff Dyer, Hal Gregersen and Clayton M. Christensen (The Innovator's DNA: Mastering the Five Skills of Disruptive Innovators, by Jeff Dyer, Hal Gregersen and Clayton M. Christensen; Harvard Business Review Press, © 2011), we are able to improve our innovation techniques. The main skills that all successful innovators have had are the following: they practiced associative thinking, asked questions, observed, liked to network with people with a diversified background and experiment around what they did. The authors define these 5 skills as the innovator’s DNA.

This is what Steve Jobs did when he drove the invention of a range of new products at Apple. He made sure the entire company applied associative thinking by involving different areas of the organization to work on new solutions early on. How often do we experience this in a financial institution? I think that a BOFB will be surely set up to do so.


· A derivative trader has a preference for Monte Carlo simulations when pricing derivatives.

· He programmed the pricing methodology in C++ and implemented it in the test environment.

· Once the result is satisfying for the trading floor as well as a number of other areas that treasury has involved in the testing process, the IT department was asked to add this solution to production.

Steve Jobs probably would have set up a project where all critical areas, including internal audit, are involved at every level of the creation process and asked all to combine their efforts before implementing the solution.

In banking, the issue is that internal audit is acting more like a policeman and therefore a collaboration would have been more complicated. Another point is that the business cultures today do not appreciate IT at a level that it deserves. In most cases IT is seen as a back-office area. In the past as well as in the present, managers spent huge sums of money to ensure that the IT-risk is delegated to a suitable person, department or company. This is an approach that cannot be afforded anymore, as banking infrastructures become ever more complicated and generate consequences that are expensive to deal with.

In order to simplify the existing infrastructure, we need to involve all areas that are affected by a new solution right from the beginning in order to foster an associated thinking approach, which includes having open discussions with questions and answer sessions, observations, networking with people with a diversified background and experiments around a particular innovation. . .

Source: Banks of the Future, by Ella Thuiner; Published by Springer, © 2015

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