Innovation lessons for both financial services and energy

04 July 2023 Consultancy.eu 6 min. read
Profile

While financial services institutions and energy companies are the world apart in terms of products and their core activities, they do share a number of strong similarities. They both operate in a highly regulated environment, and they both need to invest heavily in innovation in order to not be left behind.

Over the past decades, financial institutions and energy companies have pumped significant resources in innovation to navigate challenges such as new entrants to the market, disruptive technologies, (market-changing) regulation, and changing consumer expectations.

However, according to new research by consulting firm IG&H, both financial institutions and energy companies struggle with materialising their efforts in the innovation realm – leaving many with underperforming portfolios. “In both sectors, the success rate of innovation initiatives falls short despite substantial investments,” as per the analysis.

Innovation lessons for both financial services and energy

When trying to bring innovation to life, the researchers found that companies “face many challenges across the lifecycle”, from the very first brainstorm phase all the way through to implementation, market acceptation and monetisation. “The list of bottlenecks and challenges is long,” summarised the report. Ultimately, “the sectors need to rethink their innovation activities.”

Seven key success factors

Drawing from the report’s findings, as well as IG&H’s innovation track record in the highly regulated space, two of the firm’s leaders (and report co-authors) – Jolanda Burgers and Joep Beukers – outline seven key success factors which apply to both financial services and energy – and the space in between.

Choosing the right direction for the innovation portfolio
When it comes to innovation, the first and most important step is to choose a clear direction. For instance, an energy company’s mission of “providing everyone with green energy in 2030” is linked to the company strategy. Subsequently, the strategy should be developed outlining the key themes for the upcoming years.

As innovation resources can only be spent once, it is key that they are spent wisely.

In our practice, we see that many corporates align their innovation activities with their company strategy and strategic themes. Sustainability has emerged as a predominant focus within the highly regulated utility landscape, driven by new legislation that demands transparency in investment practices and the construction of investment cycles.

From business-driven to mission-driven innovation
IG&H’s research shows that when innovation is not seen as a crucial element in strengthening a company’s license to operate, its impact becomes limited. The organisation may sideline innovation due to the uncertainties it naturally entails. To reintegrate innovation, a vision for mission-driven innovation is essential.

This starts with an inspiring company mission that aligns with the license to operate. The research found that several corporations are successfully shifting towards an innovation approach centered around their mission.

A burning platform for innovation
As with any strategic change programme, a burning platform is key for the success of innovation. This requires commitment from the top, as well as understanding among staff that the drive to innovation is one that is integral to the company’s future success.

Steering toward the right innovation initiatives
Formulating an inspiring mission-driven vision and selecting the right direction for an innovation portfolio are two vital steps leading up to effectively managing the innovation funnel. As a manager driving innovation, the challenge lies in choosing which experiments and initiatives should be invested given the limitations of budget and resources.

Focus the efforts on initiatives that align with innovation themes and have the support of a business sponsor. Once these criteria are met, evaluate the initiative based on factors like desirability, feasibility, and viability, while considering the potential impact on investments, such as cost reduction or improved customer satisfaction.

Making informed decisions based on these specific criteria is key to successful innovation management.

Defining successful innovation: managing your innovation hub effectively
Managing an innovation hub requires clearly defining success criteria for innovation. Innovation can be defined as successful when it achieves predefined goals and objectives. Success can be measured across various dimensions, including business value, societal impact or the extent of customer reach.

By establishing metrics, the success of innovation initiatives can be assessed and managed continuously across their lifecycle.

Find the right balance of continuous improvement versus disruptive innovation
The IG&H research shows that several corporates choose to diversify their innovation portfolio and balance their innovation budget. Roughly 70% of the innovation budget is spent on strategic-related innovation and 30% on disruptive innovation.

To this regard, leaders make sure that they spend most of their time and effort on innovation that is most likely to be aligned with the running business activities and there is enough freedom for future-proof innovation and exploring the newest technologies and how the business can benefit from these.

Innovation is everybody’s business
Do not invest in innovation initiatives without active involvement from the business. A typical problem for innovation managers: “The change organisation is completely occupied with another topic and the connection with the business is completely missing.”

Merely being involved is not enough. Full support, genuine commitment and active participation from the business are essential for any innovation programme.

Unless a firm operates innovation as a venture builder with a long-term perspective, it is crucial to secure the commitment of the business through active participation as real business sponsors. For the short-term, incremental innovation should be as close to the business as possible.

Furthermore, buy-in from higher-ups is essential. Encourage board members to become true sponsors of innovation by involving them in quarterly innovation meetings and inspiring sessions, for example. Establish the boundaries and ensure that the prerequisites for successful innovation within a corporate setting are in place with effective guidance and proper authorisation. In practice, this boils down to clear roles and responsibilities.

Make it a no-way-back journey

In the dynamic landscape of corporate innovation, leveraging innovation strengthens the license to operate and drives transformative impact. However, genuine commitment, active stakeholder involvement, and alignment with the company's mission and strategic direction are crucial for success. Effective management of the innovation funnel and defining success criteria help measure impact.

Balancing continuous improvement with disruptive innovation and involving the business enhances the chances of success. Establishing necessary boundaries and prerequisites within a corporate setting ensures a solid foundation for impactful innovation and sustainable growth.