Prof Hautamaki introduced the concept of global networking in value chain creation. With communication and technology globalization, resources are more easily accessed across borders and continents; value chains are becoming specialized and distributed all over the world. However, even so, within a country or state itself, resources are concentrated in knowledge hubs and Innovation Centres. Innovation Centres provide world-class ecosystems for innovation and global collaborations.Prof Hautamaki further elaborated on the characteristics of Innovation Centres. Many of these innovation centres have precedence of success in the regions and prominence (usually coupled to institutions). More often than not, these innovation centres embody a culture of creativity and openness that attracts for people, entrepreneurs to combine and flourish ideas, with easy access/ engagement of investors. A competitive innovation ecosystem that encompasses each innovation centre supports continuity in renewal of businesses. In fact, he proposed an emerging framework for innovation: global networks/ knowledge hubs as schematically reproduced below.Professor Hautmaki re-iterated that the crux of innovation does not lie within the hub itself, but rather, in the innovation ecosytems that surrounds the innovation centres/ hubs. Some of these factors of interplay in the ecosystem are shown in the schematic diagram below. He elaborated that it is critical to have a wide-enough market for new innovative products. If market is not large enough, one must be versatile to look for a ‘test-bed’ economy. To put it succinctly, an innovation system behaves like a community whereby successes are only possible when all components interplay well in a synergistic network.With an understanding of Innovation Hubs and Ecosystem that serves as the infrastructure for innovation, Professor Hautmaki introduced the 4i model of innovation, which entails the flow of Ideas to Innovation to Implementation and back to Ideas in a closed loop.Prof Hautmaki proceeded to explain the two modes of innovation. First, there was traditional model of innovation, starting with the birth of ideas, epitomized largely by MNCs and Co-operations. These innovations were driven by profit, economy and productivity based, driven by the values and demands of Capitalist societies for economic growth. What is of interest, is however the emerging model of sustainable innovation. Unlike traditional innovation, Sustainable Innovation sustainable innovation is driven by creativity and innovation in optimized harness of industrial capital, natural capital, human and cultural capital (encompassing diversity) to solve “wicked problems”. Prof Hautmaki quizzed that one does not have to look far to solve wicked problems; many of them are present in Millennium Development Goals, such as greying population, climate change, food security and poverty eradication.As one would have noticed, the design process of a product in line with philosophies of sustainable innovation would requires a major paradigm shift from conventional innovation modes. It entails a design reprioritization from usefulness of the product, often served by development/ material properties, performance and technology to one which builds on the perceived value of the product, driven by user’s desires and what it means to their concept of life. Henceforth, it is important to blend people with disciplines and skills, like user- research and anthropology with engineering. This emphasizes the importance and interconnectivity of the innovation hubs and supporting ecosystem.Innovation hubs and ecosystems must recognize, adapt and leverage on new drivers of sustainable innovation, projecting for current and future needs in order to stay relevant. Cultural and social expectations more often than not bring about new changes in consumer behavior, which then becomes the new “normal”. In my opinion, one of these major changes of the millennia the global connectivity and changes in private space of the user brought about by the proliferation of social media, such as Facebook. Another key facet of sustainable innovation is through growth and value creation- one that leverages on the combination of service economy and design thinking. A popular framework that companies employ in value creation is via the SMART framework- Simple, Maintenance-friendly, Affordable, Reliable and Timely-to-Market.In conclusion, Prof Hautmaki states that sustainable innovation creates value in products, services and solutions for sustainable well- being. This entails an achieving optimization between belonging, economy and balanced relationship with nature. All people are creative and need opportunities to participate in value creationàopen creative ecosystems. The greatest value and challenges of sustainable innovation lie herewith, whereby companies and customers are engaged in co- creation.
If there wasn’t enough focus on it already, the financial crisis has taken innovation to the top of most banks’ agendas. In mature as well as emerging markets, banking institutions are differentiating their value proposition from that of their competitors by innovating upon their offerings, benefiting both customers and the organization in the process.The pursuit of globalization and global standardization by banks has meant that innovations that originate in a particular region make their way quickly across the world, so that banking customers everywhere enjoy a similar, if not the same, usage experience.That being said, there are many differences in the way that banks from the developed and developing worlds innovate, arising from other fundamental differences in their respective markets. The nature of these factors and their causative impact on innovation differentiation is discussed below:Market MaturityA research report presented by The Asian Banker and Finacle from Infosys on the innovation trends and practices in Asia made an interesting observation about how banks go through successive stages of innovation – from Product to Sales to Market Share to Customer Service Innovation – depending on market maturity. Therefore, while banks in Bangladesh, Sri Lanka, Vietnam, and rural China and India, which have large unbanked segments focus on introducing basic products, their counterparts in the competitive Australian, Singapore and Hong Kong Markets are more intent on defending their market share by providing accessibility, convenience and cheaper distribution.Customer UniverseGiven the high penetration of banking services amongst developed nations, a bank operating in those markets can only grow its market share at the cost of another. On the other hand, developing countries house the majority of the 2 billion-strong global unbanked population and hence have more room for growth and relatively less aggressive competition. Here, banks can grow along with the market by bringing those without financial access into the net of basic banking services.Although financial inclusion is a much larger priority – and opportunity for innovation – in emerging economies, it does not mean that it has no place in mature markets. In fact, the U.S. alone was estimated to have over 70 million unbanked/underbanked people in 2009. However, the nature of the problem is quite different there. Financial exclusion in the developing world is essentially on account of poor branch penetration in rural or remote areas, whereas in developed countries it is quite often, a voluntary decision or the result of inability to meet KYC norms – the Hispanic immigrants living in the United States are a classic example of this phenomenon, choosing to rely on informal networks or carriers rather than on a bank to send money home.High Net Worth SegmentIn every banking market around the world, High Net Worth Individuals (HNWI) are top-drawer. Because the financial elite come in small stable numbers, (even in 2020, the U.S., which has the most HNWI, will have less than 21 million millionaire households) acquiring such customers in both developing and developed markets is usually a matter of poaching them from rival banks. Also, since the ultra-rich are the same everywhere, having similar needs, wealth managers and private bankers in both the developed and developing world follow a largely similar approach while serving these customers. A key difference however, is that the HNWI segment is growing faster in emerging markets thanks to their rising prosperity as a result of which their mass affluent are turning rich and the already rich are turning richer quicker than their mature market counterparts. This is creating more opportunities for innovation in emerging nations.Telecom and Payments InfrastructureThe well-established telecommunications and payments infrastructure of the developed world facilitates banking transactions over multiple channels, such as the phone, ATM, POS terminal, Internet and mobile, and payments through several additional modes including cards, giros and third party payment gateways like PayPal. Unfortunately, such facilities are either missing or very poorly developed in developing countries – infrastructure for financial transactions is still in its infancy and only a limited number of payment options exist.However, with mobile networks penetrating remote corners of the developing world that still lack basic channels of banking and communication, the mobile phone is emerging as a viable mode of payment and financial transaction. Banking innovation in many emerging economies is focusing on mobile phone-based services, albeit of a basic variety. On the other hand, in the sophisticated mobile markets of the developed world, it’s the Smartphones and tablets that are taking banking innovation towards augmented reality, location-based services, contactless payments etc.The most interesting contrast though, is that while the infrastructure of developed countries has enabled high-end innovation, it has mostly brought incremental change, whereas in the developing world, the absence of infrastructure has forced industry players to look for breakthrough, at times disruptive, solutions. The development and success of M-PESA, a mobile phone-based money transfer service in Kenya is a perfect example of the latter.Customer NeedIn many emerging economies, a sizeable majority of people are first or second generation banking customers and therefore, relatively new to such services. Therefore, the product and service expectations of these customers are quite different – and dare we say, less evolved – than those of mature market customers, which has a strong bearing on innovation.Branch banking is a classic example of this difference. Bank branches located in emerging markets are mainly concerned with processing a large number of small-ticket transactions as efficiently as possible. They are interested in innovations that cut cost, improve productivity or ramp up scale at the branch. In contrast, branch banking is on the decline in mature markets, where customers use electronic channels to conduct routine transactions. In these markets, branches are focused on delivering financial advice and high-end services; therefore, their innovation priorities revolve around improving customer experience within the branch.Legacy BurdenIn a 2010 survey of banks in Europe, Middle East and Africa presented jointly by the European Financial Marketing Association and Finacle from Infosys, nearly two out of three respondents from the mature markets of West Europe said that inflexible legacy systems posed a barrier to innovation. Indeed, this is symptomatic of the banking industries of most developed nations, which are struggling to implement new ideas, hindered by their burden of legacy. For instance, in the U.S., the legacy infrastructure supporting card transactions is so widespread that replacing it in order to switch to new robust EMV card technology is both prohibitively expensive and extremely difficult to implement. On the other hand, adopting new technology is much simpler in the developing world, which is unhindered by legacy issues. Not only that, freedom from legacy has also allowed banks in developing countries to come up with unique products that were unheard of in the rest of the world.Cost of InnovationIt is found that the cost of implementing a completely new system in the developing world is lower than that in the developed one. Often, the developed world has heavy investments in an existing technology and an inventory of infrastructure on which the return is yet to be fully realised. The developing world has no such legacy investment in infrastructure to worry about, and hence innovations are comparatively cost effective.The tables are turned in the case of incremental innovation, which typically works around existing infrastructure or investments – available in the developed world, but not in the developing. Therefore, in order to adopt or innovate upon something that isn’t totally new, the developing world may first need to make sizeable investment in basic infrastructure.Legal and Compliance IssuesCompared to emerging economies, mature markets face tougher legal and compliance requirements that could be a constraint while innovating. The former not only have a more permissive regulatory environment, but also less harsh liability norms, making it easier for banks to experiment, and if unsuccessful, withdraw quickly without suffering too much damage. This would not be possible in a country like the U.S., for instance, where there is a high likelihood of severe public backlash should an innovation fail. It is therefore no surprise that many multinational banks including HSBC, Citibank, and Standard Chartered pilot innovations in the developing world before taking them elsewhere.What is common?Differences apart, the two worlds do have some things in common. Both encounter similar challenges while trying to establish a culture of innovation, namely resistance to change, misalignment between business and technology teams, and lack of unanimity of purpose. Similarly, all banks in all markets face budgetary constraints, made worse by the financial crisis.There’s another ‘peculiar’ commonality between developed and developing world banking innovation, which is that some ideas, particularly in the realm of payments, which are well suited to one world are quite irrelevant in the other. For instance, NFC technology, which has made a big impact in Japan – by enabling tap and go mobile payments – and is gathering momentum in many developed countries, is likely to be a slow-starter in emerging economies on account of the infrastructure that it calls for. Likewise, mobile money transfer, a super hit amongst the unbanked classes of Africa and South Asia, may gain marginal acceptance at best in say, Western Europe or Australia. Ironically, in their respective worlds, these mobile payment innovations are happening at break-neck pace!ConclusionWhile local and cultural variations will continue to create some differences between banking innovation in different countries (even McDonalds has a separate menu for certain countries!) for at least a while, connectivity and globalization will pull in the opposite direction to spread many other innovations from one part of the world to another, sometimes in real time. Therefore, in future it is more likely that an innovation will get picked up, replicated, adapted, improved and transported much faster than before. The consolidation and standardization of systems, processes and products by global banks will further this trend of global relevance. Also, much of the developing world will evolve into a developed state, erasing many of the differences that exist today. That being said, institutions that are rooted locally will continue to practice localized innovation as a way of differentiation.