Innovation in Finance: The financial services industry has a long reputation as providing an innovative work environment, pushing boundaries in areas as diverse as, to name a few:
- Product management and development
- Organizational structure (such as in the use of matrix reporting)
- Employee incentive compensation
- Information technology
- Management science
- Management reporting
- Transfer pricing
According to Harvard Business School professor Clay Christensen, writing in conjunction with Jeff Dyer and Hal Gregersen, the most innovative individuals and organizations exhibit these traits:
Associating: This involves finding unexpected links and commonalities between apparently dissimilar and unrelated things, businesses, processes or pieces of information. The founders of successful businesses often draw inspiration from how enterprises in entirely different industries or fields operate.
Having broad experience and a varied background often helps in the process of associating. Christensen finds that people who have lived in a foreign country are significantly more likely to be innovative than those who have not. The consulting firm IDEO believes that innovation is spurred in individuals who have deep expertise in one area, and broad exposure to a number of other fields.
Questioning: Innovation often is the result of dissatisfaction with or skepticism about the way things are done presently. One version of the questioning nature is a disposition towards thinking about the falsifiability of things that you believe, or think that you know.
Observing: Innovators typically have keen powers of observation, noticing subtleties that others miss. For example, one entrepreneur found that movies often are good vehicles for teaching foreign languages, and developed tools for modifying them to enhance their instructional value, such as by slowing down the dialogue and adding explanations of idiomatic expressions.
Networking: The sort of networking that is particularly germane to enhancing innovation is that which facilitates the exchange of ideas, rather than the type of networking that is employed to change jobs. For example, the founder of BlackBerry got the idea for his product by attending a trade show in which he learned about soft drink vending machines that send wireless signals when they require restocking.
Experimenting: Innovation usually depends on intense, repeated experimentation. The best innovators tend to be constant experimenters, while the most innovative organizations encourage ongoing experiments. Many of the most successful experiments in business, moreover, occurred rather unexpectedly. IKEA got into featuring disassembled furniture after a marketing manager found that removing the legs from a piece of furniture was the most expeditious way to get it back on a truck after an advertising photo shoot. Amazon.com became a major purveyor of cloud computing services largely out of an experiment; indeed, CEO Jeff Bezos questions job seekers about whether they have invented anything.
How Companies Spur Innovation: Some employers find that having employees trade jobs will introduce new perspectives, and thus innovative thinking. This is especially true in the financial services industry, where changing jobs across functional areas and a supportive attitude towards redefining jobs are often established parts of the culture in many firms.
One manufacturer of automation for factories requires its sales people to spend significant amounts of time observing their customer's operations, so as better to discern their needs and to suggest innovative solutions that add value.
The Innovation Premium: Christensen, Dyer and Gregersen posit the existence of something that they call the "innovation premium," the amount of a company’s market value that is above and beyond the value of its current products. Of course, attributing a value to each existing product is a highly subjective exercise, open to debate and dispute. That said, the "innovation premium" represents extra value stemming from expectations that the company will continue to innovate in the future.
Source: For more detail, see "Think different" in the "Schumpeter" column of The Economist, August 6, 2011.