Have you ever wondered why, out of the innumerous pilots and proof-of-concepts announced every week in the trade finance and credit insurance space, only a handful go past that stage? How many disruptive ideas do you know that have been successfully commercialised in this sector?
In Alpine Style‘s very first white paper Scaling up disruptive innovation: When to let the bird fly the nest, we argue that the gap between the level of investment going into innovation and the industrialisation of innovative ideas is down to the structure employed to scale them up. This collaborative paper, gathering input from various entrepreneurs, consultants and corporate innovators, as well as academic research, explores the range of options available to bring promising ideas to market, from the creation of a new department within the group, to the launch of a completely separate entity.
Understandably, large banks and corporations can be protective of ideas they spent a lot of time and money to develop. As a result, they tend to prefer keeping them within the company. But disruptive innovation is not fit to survive in a traditional corporate environment burdened by established processes and hierarchy. When leading a disruptive project, corporate executives can be torn by the so-called innovator’s dilemma, the fear that the new idea will take revenue away from the firm’s core business. Furthermore, the traditional performance metrics employed in the corporate space are not adapted to an early-stage disruptive product, which may not bring profits before five years or more.
In many ways, externalising innovation by creating a whole new startup, separate from the corporate group that brought it to life, can help it blossom into a profitable product. Venture capital financing tends to be more adapted to these early stages, and removing the lengthy decision processes needed in large corporate environments allows the startup team to be nimble in making adjustments to the original idea.
More importantly, setting up a separate structure makes it possible to incentivise innovators with equity shares in the project, instead of being limited by a traditional salary grid. This, in turn, can attract the innovator and entrepreneur profiles needed to make an idea successful.
But externalisation is no silver bullet: disconnected from the corporate’s sector expertise, the startup may drift too far and develop a product that is not aligned with market needs. Without the support of a brand name, it could also struggle to gain credibility with potential clients and partners. Not to mention that externalisation itself can be an arduous legal process, wasting precious time in bringing the product to market.
Beyond choosing the right structure, large groups in the trade finance and credit insurance space need to take a hard look at their success rate with disruptive innovation, and shake up the way they approach it. They need to start thinking like startups: open, creative, adaptable. The current in-house innovation teams have a crucial role to play, acting as bridges between the expertise of the long-established corporate and the disruptive potential of its innovative offspring. Adopting this change of attitude will not only help firms develop their promising ideas, but also get involved into other successful ventures early in the process. After years playing around with innovation, now is the time to make it an integral part of the trade finance sector’s business strategy.
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