Financial Services Innovation Lessons From Rule-Breakers

Story by Steve Wunker
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In a speech today at a major innovation conference, Dartmouth Professor Vijay Govindarajan talked at length about how Grameen Bank turned upside down all the traditional notions of financial services in Bangladesh: small loans, no risk officers, no collateral, bringing the bank to the village, and so on. 

The Grameen model earned its Founder the Nobel Peace Prize, in addition to creating a very large and sustainable enterprise. The lesson can applied broadly in financial services innovation, as well as to other industries.
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In a famed episode of the TV series Seinfeld, the cast encounters a set of four friends who look just like them, but behave in a totally opposite manner. Feldman, for instance, lives across the hall from his best friend, but always knocks before entering, brings groceries, and has well thought-out schemes. This new crew becomes known as the Bizarros.
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It can be very useful to think through what the Bizarro version of a company might be. The exercise can lead firms to consider how they might violate long-held rules of an industry in a compelling way. Companies find the exercise especially fruitful when they focus their analysis on a customer set that is poorly served by traditional models today.
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Grameen turned the banking model upside down with respect to poor villagers. Another firm, AllLife, has done the same for sufferers of HIV and diabetes in South Africa. AllLife, which is an unabashedly for-profit enterprise, targets these large groups of people that are highly motivated to buy life and disability insurance but viewed as unacceptable risks through typical financial services lenses. The company pursues customers that other insurers shun (violating the maxim that insurance is sold, not bought). It requires its customers to regularly submit medical information showing compliance with therapies for these diseases. It regularly interacts with customers to remind them to adhere to their treatment protocols.

Because Bizarro endeavors can lead to offerings which look alien to the core business, it is extremely challenging to formulate these ventures within existing business units. The mindset required, partners, metrics, and incentives may all diverge significantly from norms. The reality of most businesses is that there is not flexibility to separate a venture totally from the core, and indeed it may be essential to commercialize the concept within the main business to exploit the company’s unique advantages (a network of bank branches, for example). However, the process of creating the concept should be as divorced as possible from the day-to-day definition of the business. It should, for example, be focused on the needs of a particular customer set rather than be defined by how a certain family of existing products might be grown. If the business potential is shown to be sufficiently strong, then commercialization may succeed even if it happens within the core.

Bizarro companies are rule-breakers. For financial services innovation and other endeavors, this approach can enable escaping commoditization and creating new markets that a company can own.