Transformational developments are swirling around the banking industry — as they are in nearly every industry. Companies like Citigroup are reimagining bank branches. Startups like Simple are suggesting that it's time to get rid of branches altogether. Square, Swiff, Silver, and PayPal want to bring payments processing to smaller merchants. Mobile phone companies are getting into financial services. Microlending has exploded. Companies like Facebook and Tencent make hundreds of millions through microtransactions. The mobile wallet is coming, with Apple and Google lurking in the background.
Many of these trends seem to fit historical patterns of transformation, which means banks need to up their innovation game. Yet, here are some of the questions that audience members asked me at a talk I gave at a recent banking conference (courtesy of Pigeonhole, one of my favorite Singaporean startups):
- "There are often education costs and risks of losing business among the technology laggards. Are the majority of our banking customers ready for change?"
- "The first innovators in the market are often too early in the technology curve. Do the panelists agree?"
- "How do you pace yourself?"
All good questions. Here's one of the biggest that would-be innovators should ask: Should I lead or follow? Does the "early bird catch the worm" or can you "identify the pioneers — they have arrows in their back"? Is the advantage to the "first mover" or should you be a "fast follower"?
There certainly is circumstantial evidence supporting both camps. After all, Apple wasn't the first mover in the digital music, smartphone, or tablet computing categories, but it's done alright. A recent column in The Economist cited a research report that found that "that innovators captured only 7% of the market for their product over time." Yet there are plenty of examples of successful early birds. For example, Amazon's efforts as an early mover in electronic books and cloud computing have turned out fine for them.
Here's the important thing to remember: ultimately, no one remembers who leads a race at the half-way point. They care about who crosses the finish line. So don't ask "Should I go first?" Instead, ask "How do I accelerate the path to a breakthrough idea?"
If you are what Professor Steven Spear calls a "high-velocity organization" that is always learning and improving, there are real benefits to moving first. After all, when someone copies what you have in the market, they are copying the artifact of your past effort. As you keep innovating, you create further space between you and the market. And competition has its advantages. One leader at a consumer company told me that their data suggests that the ideal market share is about 60%. It's enough to capture more than the fair share of profits in the category, but it also means that other people are spending significant promotional dollars in advertising to boost the overall category.
That doesn't mean that if you were slow to leave the starting line, you should give up hope. You have the benefit of learning from your rival's in-market experiments. You can potentially avoid some of their mistakes and leap-frog over their solution.
But make sure that when you say that you want to be a fast follower you aren't really saying, "Can't I just go back to running my core business?" Too often people find that when it is a strategic imperative to respond, it is too late. Sometimes the resources aren't there. Sometimes the corporate innovation muscles just aren't strong enough to respond appropriately. The need to respond can force a "Hail Mary" acquisition that has little chance of sticking.
So, put on some good armor, and be prepared to take your arrows. It's innovation time!