Welcome to our newsletter for May - July 07

In this issue, we look at the state of innovation in financial services organisations, and provide some tips on commissioning and managing market research.

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Dianne Davis
Principal and Managing Director

www.davismarketing.com.au

Overview

Innovation is seen as a major driver of future competitive advantage for financial services organisations (McKinsey Survey of Global Executives, January 2007).

The survey included a sample of 322 senior financial services executives from the US, Europe, Asia and Latin America. The majority of executives surveyed considered their organisations possessed significant capability for encouraging greater innovation (e.g. increased use of consumer insights in generating new ideas, creating appropriate internal structures, ensuring funding for innovation).

However, while more than 50% of respondents reported that their organisations had "pockets" of successful innovation, this was not sustained on a whole-of-organisation basis.

In relation to importance, 57% of respondents say innovation has been extremely/very important to their organisation's ability to meet revenue targets over the preceding one-three years; moreover, two out of three expect overall spending on innovation to increase in 2007 compared with 2006.

Main Categories of Innovation

In looking at major categories of innovation deemed integral to organisational success (current and for the next three years), there are some key variances – notably, the growing importance assigned to product and business model innovation:

Main Categories of Innovation – To Date

Main Categories of Innovation – Next three years

Sources of Innovation

When respondents were asked about the most common sources of new ideas in their organisation:

• 65% cited employees (compared with less than 1% for senior management)
• 61% cited analysis of competitive and market dynamics
• 38% cited data from consumer insights, behaviour and trends
• and 33% cited partnerships and joint ventures.

The relatively minor roles played by consumer insights and external sources, suggests a more traditional approach to innovation is being pursued within the financial service sector.

In terms of techniques used to gain consumer insights, the most favoured by financial services organisations were:

• Customer segmentation analysis = 83%
• One-on-one customer interviews = 68%
• Focus groups = 66%
• Observation (i.e living / shopping with the customer)= 49%

Investing in Innovation

Many financial services organisations have inadequate formal innovation structures. When asked to identify barriers to "commercialising" innovation:

• 40% of respondents cited the lack of a formal process for marshalling internal resources (e.g. IT)
• Another 40% reported the lack of any mechanisms dedicated to facilitating innovation.
• Only 3 out of 10 reported their organisation had an innovation council or committee tasked with reviewing initiatives and progress
• And only 25% of respondents say their organisation have funds specifically dedicated to innovation initiatives.

Conclusion: Key Areas to Address

In looking to the future, most financial services executives saw significant opportunity to enhance their organisation's performance in key practices that other industries see as essential for successful innovation.

These key practices include:

• Establishing clear incentives for innovation
• Setting clear targets and metrics for innovation initiatives
• "Prototyping" ideas for rapid commercialisation
• Providing funding for innovation projects
• Developing a network of external partners.

Commissioning

1. Ensure you source relevant suppliers (e.g. specialist expertise, track record in your industry, understand your marketplace, skilled resources at the right level – assignment of experienced researchers not junior staff)
2. Ensure you use reputable and accredited suppliers – consult the AMSRS register (Australia Market and Social Research Society)
3. Put the appropriate effort into developing a comprehensive and robust research brief: this will be a significant influence in determining whether the research findings actually provide you with the information you need from the market segments you need to talk to
4. Seek written tenders and conduct oral presentations, based on a relevant and robust set of evaluation criteria.

Management

1. Take a significant role in developing / identifying the issues-questions you want the research to address: take ownership of the information you need to obtain from this process
2. This will also assist you in gaining clarity about the appropriate methodology (quantitative vs. qualitative, or mix of both) and relevant techniques (one-on-one interviews, focus groups, online surveys, observing client behaviors etc) - although your supplier would be expected to have significant input into the optimal methodology-approach
3. Understand who you want / need to talk to (research sample)
4. Develop a detailed timetable with clear milestones and deliverables – build in regular briefings to ensure the information you require is being obtained and whether you need to tweak / refine the research questionnaire-discussion guide
5. Ensure the recommendations arising from the research are actionable (i.e. can be realistically implemented), and constitute more than just motherhood, generic-level recommendations that too many market research agencies tend to offer.