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Benefits of Open Innovation in the Financial Industry: Key factor for success

March 3, 2023

Benefits of Open Innovation in the Financial Industry: Key factor for success

"Open Innovation" means that businesses should not limit themselves to their own resources and ideas, but should instead work with other people and organizations outside of their company, such as customers, suppliers, and startups. By doing this, they can come up with new and valuable ideas that benefit everyone involved. This approach opens up many opportunities that would not have been possible otherwise.

Why should corporations look into Open Innovation?

Open innovation is a great way to provide access to a broader pool of ideas beyond a company's internal structures and core business.  Especially in the financial industry, companies face lots of constrains from regulation and corporate governance, making it challenging for them to think outside the box. The great thing about open innovation is that it allows you to test new ideas with less impact from those constraints. This is where Open Innovation really shows its strengths.  

How to get started with Open Innovation?

As with all strategic initiatives, setting the right expectations is crucial for success. Corporate innovation takes time and there are no shortcuts. It’s not something you do and see results within a few short months.  

That’s also why short-term thinking and unrealistic expectations often lead to early shutdown of projects. To avoid that pitfall and to set Open Innovation up for success, you need to define the right objectives, work towards them, and be prepared for unexpected outcomes.

Is Open Innovation right for your organization?

The first step to determine whether Open Innovation is right for your organization is to think about WHAT type of innovation you are actually looking for and WHY you want (or need) to innovate.  

If you want to improve your existing business, you may benefit more from internal ideation processes and product management innovation teams, who really understand the business deeply.  

However, if the goal is to venture into new markets or disrupt existing ones, it may be challenging to do so with internal resources only. In this case, you may want to consider external support, for example from incubators or accelerators.

When your objectives go beyond improving your existing business, working with external support can help you find and identify the right opportunities for partnerships and investment. These partners can assist in finding early-stage businesses that align with your goals and provide the potential for transforming industries and business models. Collaboration and investment with organizations like incubators and accelerators should enhance a company's innovation capabilities.

Key factor for success: expectation management

To innovate effectively in a corporate setting, managing expectations is key. Innovation takes time and there are no shortcuts. Building a successful startup could take up to 10 years and corporate innovation around 7 years. The concept of "fail fast, fail forward" is often talked about, but it is not practical in the way corporations are governed and operate.

Setting the right expectations is crucial. When investing in a company with a minority stake, it is important to communicate that success will take 6-7 years. While there may be exceptions, it is important to understand that success is not guaranteed, and it takes time.

Expectation management also requires defining the right goals and being transparent about the time it will take to achieve them. Communication and bravery are important, as executives may have different plans and expectations. It is necessary to have a long-term horizon and to be able to communicate this to stakeholders.

Over-promising and under-delivering can lead to a loss of trust and the perception of failure, which can lead to projects being stopped. Effective innovation in a corporate setting requires a clear understanding of what is achievable and a willingness to be transparent and manage expectations appropriately.