Every business wants to innovate but some are better than others. James Alexander, co-founder of financial services challenger, Zopa, shares his insights on the key ingredients for getting innovation right.
The experience of the last year and a half has underlined the importance of innovation. Put simply, businesses with the capacity and willingness to innovate have been the best equipped to weather a crisis. And as the worst effects of the pandemic give way to further challenges, innovation will arguably be even more vital.
But in practical terms, what does that actually mean? What are the ingredients that differentiate truly innovative companies from their rivals? The Boardroom Club asked James Alexander – founder of innovative financial services provider, Zopa – for his insights.
As Alexander is keen to stress, innovation and disruption shouldn’t be conflated. They are, he says, two different, if related, things: “Disruption comes into play when a market ceases to function in the normal and expected manner, often because technical innovation provides a new way of doing things,
In that respect, disruptive companies introduce new business models that prove popular with consumers while reducing the profitability of more traditional businesses. This kind of disruption has been apparent across a swathe of industries – including travel, telecoms, banking, and retail – in recent years. “But Disruption is only a subset of innovation,” says Alexander.
So how would he define innovation? “It is all about identifying new and better ways to fulfil the purpose of an organisation and then subsequently turning ideas into practical action,” he says.
The innovations don’t have to be big in themselves. As demonstrated by the British track cycling team over the past decade, a combination of small improvements – such as streamlining helmets or slightly reducing the weight of the cycle frame – can collectively boost performance to a considerable degree. “Marginal gains” collectively feed through success that is much bigger than the sum of the various initiatives. The same principle can be seen in the commercial world. Alexander cites Tesco’s 100 Things initiative as an example of the marginal gains approach. But by the same token, the same retailer has proved itself more than capable of major innovation – for instance, through the creation of Metro “convenience” stores and the introduction of the Clubcard.
The first building block of innovation is a defined purpose. Alexander cites the moon mission, When NASA was mandated to plan and execute a mission to land men on the moon, that was the clear goal. All the scientific, technical and logistic innovations that followed were in service of that goal. “Without a goal, you lose grip,” he says.
Yes, you can certainly invite managers or staff to come forward with innovative ideas and many of them might be good ones, but without a goal, there can’t be any real direction.
“In contrast, when an organisation has a purpose that is not only defined but also communicated, it then has the ability to genuinely galvanized and motivate managers and staff,” says Alexander. Thus, innovation becomes part of the core mission to deliver the innovations that will serve customers and drive performance.
Powerful Insight (From the Outside In)
As Alexander stresses, the importance of basing innovation strategy purely on internal conversations and perspectives.
Ultimately the goal of any company is to create products and delivery models that genuinely serve the customer. In that respect, the focus should be not so much on the product itself but rather on the requirements of those you’re selling to. Or to put it another way, as you innovate, will you be adding customer value?
For instance, Zopa’ provides a range of financial service products, including loans and credit cards. It’s a business model that disintermediates the banks and the cost advantage of doing it that way is passed on to customers,” says Alexander. “But what really matters is what the customers think. Is this a service they will value and want to use?”
That question can only be answered if you look at what you’re doing from an outside-in perspective.
Finding an answer can actually be quite difficult, particularly for organisations that are culturally less than inclined towards listening to external voices and opinions.
“But actively seeking insights from diverse sources can help you see your business through new eyes and there are many ways to do that. You can harvest customer conversations – gleaned from recorded phone calls or live chat – talk to frontline members of staff about their interactions or analyse social media conversations. It’s also important to look at the conversations and analysis around what competitors are doing,” says Alexander.
Inevitably there will be a huge amount of information to sift through. The key is to turn raw information into actionable insights by deploying data and analytics solutions.
Creating the Right Conditions
Just as it is difficult, if not impossible, to innovate without a sense of purpose, organisations will struggle if the right culture is not in place.
By its very nature, innovation is about challenging the status quo. So, it’s essential that leaders create a culture of challenge. Managers and teams should be prepared to look at how things are done and suggest possible improvements.
That will only work, however, if it is transparently clear that good ideas are nurtured and developed. Innovative businesses should therefore embrace the sharing of ideas, collaboration and experimentation. Not all of them will work, but the point is that potentially game-changing suggestions will be fully supported, tried, tested and, when appropriate, implemented. “And if they don’t work, you fail fast and cheaply and move on,” says Alexander.
Build the Narrative
So, the ideas are there, the people are onside, and you know where you want your innovation to lead. How do you get there?
The final ingredient is a strategic innovation narrative is a story arc that will take you from where you are now to the desired destination. That will involve plotting out the route. Looking forward to the potential obstacles and how they can be surmounted while also looking back at the lessons learned. “As the journey progresses, tell the story. What has succeeded and what hasn’t worked out so well,” says Alexander.
Innovation is essential for all businesses, but some do it better than others. The key is to get the ingredients right.