Corporate innovators within financial services companies experience some of the biggest compliance and legal hurdles than any other business sector. These challenges amplify when the bank has a presence in multiple countries.
The role of R&D and new product development take on a different role within banks, which need to monitor on-the-ground trends at both the business and consumer levels. New product development is often interlaced with customer acquisition and retention. Put simply: in order for a bank to survive and remain relevant in an ever-evolving market, experimentation and rapid iteration are a must.
One challenge that corporate innovators face is how to jump over a major organizational hurdle—the barrier between ideation and innovation. Complex organizations are stable by design.
Companies often isolate risks of innovation and experimentation by creating “sandboxes” or innovation labs. But getting executive buy-in can still be a major challenge. Here’s how Alfa-Bank, one of the largest private commercial banks in Eastern Europe with 364 offices in 7 countries including the Netherlands, Belarus, Kazakhstan, as well as financial subsidiaries in Cyprus, the United Kingdom, and the United States.
Here’s a look into how Alena Bocharova, Alfa-Bank’s head of digital products at AlfaLab—Alfa-Bank’s digital division—is navigating organizational challenges in a company with many nuances and complexities.
What’s exciting to you about the potential for innovation within Alfa-Bank?
Alena: Alfa-Bank is one of the largest banks in Eastern Europe founded in 1990 and now employing 22000 people. Alfa-Bank was the first bank to create a fintech accelerator in Russia called Alfa.Camp and is considered one of the most innovative banks in Russia.
In my opinion big companies have more opportunities to innovate not because of the budgets but because they have more processes that have been tested and perfected. The risk of failure is low.
Alfa-Bank’s path to innovation can be split into two areas of focus:
- Building an innovative culture and infrastructure inside of the company.
- Bringing best fintech solutions to our customers
This is the exact order. Of course our main objective is to delight our end customers but to make this happen we have to build an innovative ecosystem where our teammates think about the client's pains more than the think about earning money for the bank. Money comes when pain points get slaved.
It’s easy to talk innovation and client pains when you are a tech company from day 1.
It’s harder to build such a culture in an environment of a "classic bank".
This is why Alfa-Bank is divided into two companies: Alfa-Bank and AlfaLab.
Can you tell us a little more about the structure of Alfa-Lab?
Alena: AlfaLab is the innovation part of the bank with its own culture and focused objectives:
- Developing digital services for Alfa-Bank’s clients
- Working with startups, developing the local fintech infrastructure
AlfaLab is divided into 30 teams working on different services for Alfa-Bank. Every 3 months, we hold a DemoDay is held to pitch the results and set objectives for the future.
For the past years we’ve made a huge leap from from pointing in the dark to using agile and talking to our clients about what they actually want and what everyday problems they want the bank to help them solve.
The biggest change was the change in people and their minds. When the Lab has just started (4 years ago) we had a lot of colleagues with a very “bankish” mind. Executives were resistant to trying projects outside of their comfort zones. But how, we have a team that conducts consistent 1-2 week sprints. Partnerships with startups help accelerate experimentation.
Can you tell me how the process evolved from an experiment in a hackathon into a standalone product core to your businesses?
Alena: There are actually two products I would like to tell you about. One product is Sense, which is a free mobile bank and personal assistant. The other one is called Potok which grew into a separate development and investment company. Sense is managed by a product owner, Potok is managed by a CEO.
Here, they share insight into their frameworks and perspectives.
- Andrew Kolesnikov, Product Owner at Sense
Prior to the hackathon that sparked this idea, my team and I spent several nights collecting data and analyzing our potential clients' behavior. This data exploration process helped us formulate a hypothesis that Sense was built upon. We saw Sense as Google Now for banking.
After we validated the concept for the app at our Demo Day, we started working on Sense as a separate team fully focused on the product. Our funding came from the bank, and we had the freedom we needed to prove our product concept and provide traction. We had 3 months to prove that we can create a product that would be worth getting out to the market.
Three months later we got our beta up and running and tested it on 3,000 bank employees. Everyone was so happy that we got a new round of funding to expand the team and get the product ready for market.
The next 5 months we spent preparing the product to announce it on Finnovate in New York.
Sense is a very good case of how launching a separate product could help a big company find a new audience and test absolutely new concepts without hurting the core business.
One other interesting case I want to share is Potok (which is translated as «stream» from Russian). While Sense is a "separate app" Potok grew into a whole "separate company".
- Nikita Abramenko, CEO at Potok
We have formulated an R&D framework through which we create our projects at Alfa-Bank. Initial hypotheses are generated through design thinking principles, which emphasizes the value of building products for real-world markets. Then, we create prototypes.To get live feedback we often go to bank branches and other events where we can meet our expectations. A series of MVPs incorporate this rapid iteration driven feedback until the project has reached its “pre-seed” stage.
On the pre-seed stage the project is still a part of the bank, but with separate funding and a team that is focused exclusively on the project. It's important to separate a team from the bank processes if you want to get something completely new business-wise as a result.
The seed round separates the project from Alfa-Back. At this stage the main objective is to find a sustainable business model so that the company could operate by itself without getting funded by the Bank.
Finally, if the company is successful on Seed we get it to A-Round where it becomes a completely separate business.
To do something new in a big corporation you have to separate the funding, team, marketing and processes from the Core business.
This is how we launched Potok which is a Russian analogue of FundingCircle and OnDeck.
What are the barriers that exist within Alfa Bank when it comes to innovating?
Alena: I think that a lot of people misunderstand the term innovation and apply it to breakthrough technology. Innovation is understood in the context of high-tech while there is a lot of innovation in such spheres such as talent management, recruiting, and operations, to name a few function.
Trust me, for a lot of people it's a challenge to accept themselves as innovators in their spheres of domain expertise which are not connected to tech. Why is there such a stereotype that it’s not cool to be innovative in HR or logistics or any other sphere of business?
This is why I think a very big challenge I am facing as a manager is to recognize talented people and motivate them to innovate in their own sphere of expertise.
Another big problem is that some people think that innovators have to be chosen by the business. The reality is that anyone can participate in innovation-driven projects. For instance when AlfaLab was just formed, everyone thought: “you can’t innovate in the bank unless you are a part of the Lab.” This is nonsense. You can be innovative on any level and in any department. We as a bank have addressed this cultural challenge by organizing Innovation Days—huge corporate events where our colleagues from departments all across the bank show what new and amazing they have done.
Finally, people in big companies somehow think that they need a permission to do something even if they have an outstanding idea. People are concerned with their credentials more than with the responsibility for the result. Often it is necessary to explain that you have all the credentials you need if you deliver the expected result. We embrace the perspective that you have to do something for a specific outcome to happen.
Any additional words of wisdom you’d like to share?
Alena: Set an ambitious objective. For instance if your objective is to grow your business 15% a year set the objective to 30%. Stressful situations sometimes help us (people) discover solutions that we would never think of in other circumstances.
Employ new people from different businesses. These people will bring solutions that are innovative for your particular team.
Here’s a simple example: Want to sell an apartment? Take an social media marketing expert instead of a property agent and you will be amazed by the innovation that drives the result.
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