Why you need and innovation team AND an NPD team

If you're anything at all like my bank, you have lots of little New Product Development teams scattered around in various business lines. Because of this, there is always the need to justify the exististance of the central innovation team as well. Why have two teams that, at least superficially, seem to be doing the same job?

I contend you need both kinds of teams, and here's why.

NPD teams, especially those funded by the core business lines, are concerned primarily with producing products and services that support their paymasters. They are engaged, most of the time, in creating sustaining innovations – new things that make the existing business work better. That's all very well, of course, but with such a narrow focus, there's lots of money left on the table by such teams. Firstly, they aren't in a position, generally, to consider things that don't have anything to do with new products and services. My own experience is that those "hidden" things add up to a great deal of hard cash if they are systematically pursued.

Such teams also don't often have the liberty of working across business lines. So what you get is more product silos, in what is already a very silo driven business.

But perhaps the most important thing a business line specific NPD team is unable to do is deal with disruptive threats to their current businesses.

Let me give you an example. Lets say a retail lending NPD team notices a threat to their business in the form of a new peer to peer lending site. The first thing they do is try to put together the right business case to build a product. Then, they swiftly discover the year 1 and 2 revenues of this P2P product are insignificant compared to the other investments they might make more traditionally. Knowing the rational funding decisions made by institutions will naturally deselect this opportunity compared to more swiftly scaling businesses, they press on undaunted. But then they realise that if their new product were to be successful, they'd have to explain to their managers that they wanted to build a business with microscopic short term returns that in the medium or long term had the potential to kill off the current business.

At this point, you can see that the NPD team is facing an uphill battle. Frankly, the configuration of their business line is set up to eliminate threats to its core revenues, so a member of that team is going to have little or not chance of moving anything forward like this.

That's not necessarily true of an innovation team, however.

For starters, being outside the directly revenue-making business lines of a bank (as most innovation teams seem to be), they have a little more latitude in what they can explore than the NPD team. Now, it may be just as difficult to get anyone to agree to disrupt a core revenue stream, but at least they are in with a fighting chance. Their bosses, clever enough to realise the need for innovation in the first place, aren't likely to close them down just for new thinking.

And, any team worth its salt is going to do rather more than think about new products and services. Anything is a candidate for innovation, even the incremental stuff that so many people don't think of as especially innovative. Here, we have a definition of innovation that makes it easy for us to do this, by the way. We say innovation is anything that would not have been achieved by an ordinary project or process we already have. It gives one great latitude in what can be looked at.

An innovation team will be scanning for opportunities to make a difference, and their non-specific remit means they have the chance to take their institutions in unexpected directions. Our own Innovation Market is an example of this. We were doing work on prediction markets internally, and it just struck us one day that here was a good way of selecting ideas and making them progress. Clearly, such a thing would never have come from an NPD team, and nor would you expect it to have.

So you do need to have both teams, at least, if you want to cover the range of possibilities available to do new things. I'll grant you, however, that in times of uncertainty, it does seem easy to cut innovation groups. After all, NPD is something that all firms, at least those that are successful, are pretty good at. Innovation, on the other hand, is a young discipline, at least in banking. Consequently, most institutions haven't gotten themselves to a place where they can measure their returns from this kind of investment reliably. That will come in time, and in fact, my own belief is that by the time of the next downturn, banks will either have created an innovation capability as mature as their NPD, or they'll be scrambling to stay in business.


One Response to“Why you need and innovation team AND an NPD team”

  1. June 4, 2009 at 3:42 pm #

    James, no doubt you’ve seen this – may be of interest

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