PATRICK SCHUEFFEL

MICHELE LUYET

ISPIM CONFERENCE

SINGAPORE

DECEMBER 2014

OPEN INNOVATION

AND BANKING:

IDEAL

COMPLEMENT OR

STARK

CONTRADICTION

HEG - FRIBOURG

A Few Facts On Current Banking

2

Financial services companies and especially banks are under heavy

pressure:

• Record low interest rate environment leading to eroding margins

• Ever increasing capital requirements and administrative obligations

increase the cost base

• Hefty fines imposed by regulators for acts of misdemeanors

(tax evasion, boycott violations etc.)

• Abundant number of non-banks are entering the banking business

• In Switzerland: Swiss banking secrecy de-facto abolished over night

ISPIM 2014 | PATRICK SCHUEFFEL Dec. 2014

In Good Company?

The Fastest Dying Industries of the US

3

11.40%

7.40% 6.90% 6.60% 6.40%

0%

2%

4%

6%

8%

10%

12%

2008-2012 Revenue Shrinking Rate p.a.

IBISWorld, 2013

ISPIM 2014 | PATRICK SCHUEFFEL Dec. 2014

Mass Extinction Has Already Started

4 19.11.2014

182 176 174 171 171

166

161

148

139

100

110

120

130

140

150

160

170

180

190

200

2005 2006 2007 2008 2009 2010 2011 2012 2013

-24%

Source: University of St.Gallen & KPMG, 2014

Switzerland’s private banking population

Dec. 2014 ISPIM 2014 | PATRICK SCHUEFFEL

The Challenge Banks Are Facing

5

Financial services firms increasingly face complex problems which are

difficult to resolve with limited resources.

To enhance their performance they would need:

• more brain power and creativity

• higher speed in problem solving

which implies higher budgets - which are currently not available

Can Open Innovation help ?

ISPIM 2014 | PATRICK SCHUEFFEL Dec. 2014

Simplified Banking Value Chain

6

Supplier Needs

Analysis

Client

Investment Divestiture Buyer

Private banking clients occupy positions on both ends of the value chain!

• The banking value chain is unique

• It has a feature that no other industry’s value chain bears

Why not leverage client input by applying open innovation?

Dec. 2014 ISPIM 2014 | PATRICK SCHUEFFEL

Research Methodology

ISPIM 2014 | PATRICK SCHUEFFEL Dec. 2014 7

• Case study methodology: suitable for underresearched topics, able to answer

“why” questions

• Theoretical sampling (banks serving individuals and operating under Swiss

regulator, but polar types: large & small, regional & national etc.)

• Sample size: seven banks; true names cannot be revealed

• Semi-structured interviews with innovation champions

• Interview duration: appr. 1.5 hours

• Data collection period: Mar– Sep 2014

• Data triangulation with secondary data from Web, newspapers, publications

• Cross-case analysis

Cross-Case Analysis Among Swiss Banks:

Results Overview

ISPIM 2014 | PATRICK SCHUEFFEL Dec. 2014 8

Bank Pontos Crius Zelos Phanes Matton Rhapso Cranaus

Founding era 1900-

1950

1850-

1900

1850-

1900

1850-

1900

1900-

1950

1850-

1900

1850-

1900

Employees (in thd.) >1 <5 >5 >1 <5 <1 <1 <1 >1 <5

National/Regional N N R R R R N

Importance of

innovation culture High High Avg. Avg. Low Low Low

Innovation Dept. Yes Yes Yes No No No No

Sources used for ideation

Academia x x x

Clients x

Competitors x x x x x x x

Consultants x x x x x

Innovation Agency

Conferences x x x x x x

IT-Suppliers x x x x x

A Verbatim on Innovation Culture

«Do you have an Innovation Culture?»

ISPIM 2014 | PATRICK SCHUEFFEL Dec. 2014 9

Zelos “Yes [, innovation has become more important] and no, there is no explicit culture of innovation that can be felt by the employees. Therefore no, there is no real culture that fosters innovation, one that promotes error. It’s a culture of fear and it is important not to fail.”

Verbatims on Open Innovation

«Do you apply Open Innovation?»

ISPIM 2014 | PATRICK SCHUEFFEL Dec. 2014 10

Phanes “I never heard of it [open innovation] before. The themes we would need feedback on are so technical; it's a bit difficult for the banking world. […] I do not think a bank could motivate many people to participate [in open innovation] and […] I do not see which kind of idea we could run on an open innovation platform.” Rhapso “I do not think banks are ready for open innovation. It's a trend but is it effective?”

Verbatims on Openness

«Do you involve your clients for innovation?»

ISPIM 2014 | PATRICK SCHUEFFEL Dec. 2014 11

Crius “No. Innovations will appear on the market. The market is therefore our source of innovation. Factors are the innovation needs of customers but they change little. In most cases, this is not really the customer that says I need it, it is rather the bank offers.” Matton “Open Innovation, I share [new ideas] with my colleagues from other banks, we see each other at least two times per year. The idea is not to reinvent the wheel if it has already been done elsewhere.”

Framework of the Hurdles to

Innovation in Banking

ISPIM 2014 | PATRICK SCHUEFFEL Dec. 2014 12

Open Innovation

Organizational Culture Lack of • Encouragement to grow innovation capacity • Risk tolerance • Support for personal growth and development

Innovation Management Techniques Lack of • Knowledge breadth (nescience of open innovation) • Knowledge depth (effectiveness of open innovation)

Openness Lack of • Source breadth (not including clients) • Source depth (seldom approaching external sources)

Existence of industry peer networks

Smallness of the organization Absence of dedicated innovation team

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THANK YOU FOR YOUR ATTENTION –

QUESTIONS?

ISPIM 2014 | PATRICK SCHUEFFEL Dec. 2014 13

CONTACT DETAILS

14 Dec. 2014 ISPIM 2014 | PATRICK SCHUEFFEL

Dr. Patrick Schueffel Professor Institute of Finance School of Management Ch. du Musée 4 CH-1700 Fribourg Switzerland patrick.schueffel@hefr.ch