As the world enters its new post-pandemic reality, a massive confluence of macroeconomic circumstances and exciting innovation potential is driving change with a side of caution. Banking and financial services (BFS) firms increasingly recognize that the difference between surviving, thriving, or leading their respective markets comes down to how much rapid impact they can make with innovation. Now is not the time for exploratory science projects. Progress must be practical and impactful.
New research from HFS, in partnership with Infosys, reveals that BFS enterprises have lofty aspirations for what they can achieve with innovation over the next two years and a practical need to make rapid progress. The trajectory moves quickly across three innovation Horizons:
We surveyed 450 BFS leaders across the Global 2000. They indicated that ecosystems have emerged as the new hope for driving growth and creating new forms of value—collaborating across multiple organizations with common objectives to create new sources of value. This ecosystem imperative is wildly exciting. It is also wildly unrealistic unless BFS enterprises take measured steps to address enterprise modernization and decades of tech and process debt. There is no skipping Horizon 2. Unless the enterprise shop is in order, BFS firms will be unable to reach Horizon 3 because they cannot effectively collaborate with partners.
A tale of two cities In the face of challenging macroeconomic conditions and a preponderance of major trends impacting the financial service sector, BFS firms strive to balance their top business objectives of revenue growth and profitability in a recessionary and inflationary economy. All eyes are on ecosystem partners to drive new forms of value as an emerging business objective.
Beware the Horizons innovation chasm BFS firms hungry for new value creation are targeting ecosystem creation. They are investing across three Horizons of innovation: Horizon 1, functional digital transformation; Horizon 2, enterprise transformation; and Horizon 3, ecosystem transformation. Fifty percent of respondents are currently at Horizon 1, focused on digital optimization. In two years, this will magically flip, with 44% expecting to achieve Horizon 3, where ecosystem transformation focuses on leveraging partnerships to drive new forms of value. The path to Horizon 3 must include Horizon 2, enterprise transformation. You can’t get there from here otherwise.
There is no one-size-fits-all for value aspirations The path to Horizon 3 ecosystem transformation varies by BFS subsector. Payment providers, commercial banks, and asset and wealth management (AWM) firms have different visions and objectives for new value creation and distinct investment paths to achieve them.
This is why we can’t have nice things Respondents indicated that talent, data, and legacy tech present the biggest inhibitors to achieving investment objectives. These must be solved on the road to Horizon 3. This is exactly why companies can’t bypass Horizon 2. There is no ecosystem innovation without enterprise modernization.
BFS firms are turning to partners with new expectations to help span the Horizon innovation chasm BFS enterprises are turning to partners with much higher expectations for enabling their paths to new value. The partners of choice for help addressing these issues are full-service firms (65%) and, increasingly, fintechs (60%).
Strategic partners deliver cost savings and transformation Amid challenging macroeconomic circumstances, respondents indicate that the new measure of a strategic partner is the provision of both cost and transformation. Cost alone is no longer enough. BFS enterprises seek strategic partners that can deliver Horizon 1 cost optimization and use it to fund the path to end-to-end modernization (Horizon 2) and new value (Horizon 3).
The Bottom Line Savvy BFS enterprises use ecosystem partners to make practical progress across the Horizons innovation chasm. After, they leverage accrued strategic collaboration experience to create new forms of value from the transformation.
This report is the first in a four-part series examining the growing importance of ecosystems in the BFS market through the lens of making practical progress across the Horizons and through savvy use of partners to help you cross the innovation chasm to Horizon 3 and create new value once you arrive.
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