Innovation: one tree, different apples

Financial Institutions must not only think about how they’re serving their customers today, but how they can better serve them tomorrow – and all the tomorrows after that. Not just with incremental changes, but also with game-changing new services that change the way our customers think of us and utilise our skills.

New horizons

In The Alchemy of Growth, Baghai, Coley and White tell us that, to innovate in an effective way, companies need to have a view on three distinct horizons. They need to balance the composition of their innovation activities to take each one into account.

• Horizon 1

   

  focuses on innovations that defend and extend the current business. These are innovations that provide incremental changes to existing services and have the most immediate effect.

• Horizon 2

   

  focuses on building momentum towards emerging new business opportunities. It explores products and services that our customers may not immediately associate with our business, but that are a natural extension and expansion of the work we already do.

• Horizon 3

   

  explores game-changing innovations that extend far beyond the current business model. Exploration on this horizon often involves a level of uncertainty – you won’t be sure what kind of impact the innovation will have, but you know you need to explore it.

The look of success

On Horizon 1, companies should surprise and delight their customers with incremental improvements every three months or so. This will show a company’s interest in the needs of the customer and will ensure continuity. Then, at least once per year, a company should implement a new, Horizon 2 innovation – one that moves the business model forward. Horizon 3 innovations will be far less frequent – but acting on a Horizon 3 topic in an early stage will be a clear sign that a company is a serious player in a game of serious contenders. Horizon 3 innovations help companies truly make their mark.

It is crucial to suitably balance available resources allocated to ‘Change’ and ‘R&D’ between the three horizons. And balance will be different for every company. But for Financial Institutions like ABN AMRO, a great place to start is with a balance of 70% innovation on Horizon 1, 20% on Horizon 2, and 10% on Horizon 3. Striving towards this balance will ensure enough energy is focused on incremental change that creates immediate benefits for the company, whilst also providing room and space for innovation that brings exponential change.

Building a better apple tree

Innovating on these three horizons is like growing three different kinds of apples on one tree. It doesn’t happen organically. It requires thought, planning and dedication. The people working on the three horizons are often distinctly different from each other, e.g. they are driven by different interests, knowledge and skills. Hence, the composition, structure, leadership and approach of those working on each of the three horizons can be dissimilar. And these differences must be respected in order to operate effectively on all three horizons in parallel.

Each person will need to have the right mind-set, set of capabilities, approach, and leadership style. Those working to innovate on Horizon 1 will need insight into current customer needs and business challenges. On Horizons 2 and 3, however, the ability to reinvent and push the envelope is crucial. There are no Business Cases on Horizon 3 – only a view for the nearly endless possibilities available.

Beyond the four walls

True innovation doesn’t happen just because a company builds a quirky workspace and calls it an Innovation Lab. It requires a cultural change throughout the organisation. Companies need to be ready for the disruption that is bound to happen as part of the innovation process. Accepting that the profiles of the people working on each of the three horizons will be vastly different from each other is a key element. Then, allowing the time and resources to keep each person motivated and engaged is of utmost importance. Companies need to put their money where their mouth is, and stimulate innovation on all three horizons.