The Firm:

The firm is a universal bank with operations across the globe. The bank operated in
insurance, commercial banking, transaction banking, investment banking, private
banking, retail banking. The European arm provided approximately 30-40% of the
revenues of the bank. In particular, a significant proportion of the international
operations (in the Middle East, Africa, and Asia) was carried out from the European
headquarters. The investment bank has broker dealer operations active in most of the
major global equity markets.
The macro-economic background in the late 1990s to this product being launched was
quite benign, interest rates were kept low for a very long period of time, the European
landscape for personal investments was changing, equity markets for small and tech
firms were springing up all over the globe etc. Valuations were going sky high, the
availability of the internet products was promising to change the world. Investors were
beguiled by the returns and the bright future. Compared to the normal and usual
domestic investment opportunities, the globalised equity markets were streaking ahead.
Therefore, there was a significant demand that was pent up. Broker dealers across the
world were demanding access to global equity markets because their customers wanted
to get into the tech boom.
The Product:
The product related to a combined order routing, order execution, clearing and
settlement over more than 70 equity trading markets globally, using a variety of routing
protocols all handled via a single technology window, a single help desk, single pricing,
etc. This would provide the banks customers a single solution to offer to their retail
brokerage customers who can easily then get the ability to transact business seamlessly
across all these markets. Along with the order routing, execution, clearing and settlement
offering, the bank also provided white labelled company stock research targeted at retail
customers. This is a story about an innovative global equities trading product that was
designed and launched around the millennium and was quite successful in revenue
generation, customer satisfaction and strategic direction till the tech crash happened in
early 2000. This caused the retail trading volumes to collapse almost overnight and the
economic rationale for the product disappeared.
The local broker dealers were primarily oriented and setup to satisfy local domestic
demand, but their clients were asking for the ability to trade across the world and that
too at retail price levels. The cost of creating such an infrastructure would be prohibitive
for the smaller single country oriented brokers and thus white labelled outsourced
execution, clearing and settlement would be the only way to provide this service to their
clients. This gap in the market was identified by the bank. In other words, the bank
leveraged its global footprint on the execution, clearing and settlement functions to
provide a single provider white labelled highly cost effective solution to these clients.
Given that the bank also had an in-house electronic order routing firm, the full package of
order routing, execution, clearing and settlement could be priced at very attractive levels
for the retail trade. Also since this entire service was entirely automated, the incremental
cost was near zero.
The product launched successfully and there were 10 launch customers across Europe
who had signed up to the service. The product had significant innovations across the
board, on the pricing side, on the technology used to route orders, on the combination of
various services, etc. and the transaction predictions were showing the volumes reaching

six figures per day. Despite all these advantages, the tech crash changed the market
structurally with investors sharply turning risk averse in toto and specifically against
international/foreign equity trading. The across the board collapse in the technology
stocks and in the markets where smaller stocks were traded destroyed the business
model. At the peak, the volumes did not cross 4 figures and then the entire market
collapsed. Given the very low incremental cost, the product was left on the product
catalogue and existing clients were supported but new client sales were stopped.
This does not mean that innovation process stopped. The equity trading arena is full of
these products which are launched at very short notice and also frequently have a
competitive advantage only for a short period of time before competition arises;
regulatory framework changes or the market for those products makes it uneconomical
for the product. In the next section, some background to the innovation process is given.
Strategy and marketing factors.
1.
How does your firm position itself in your markets to maximise your ability to
benefit from innovations? the firm positioned itself as a global provider, single window
and channel to global world equity markets.
2.
How do you bring market signals into your creative processes for pursuing
innovation? by having constant discussions with clients and also keeping an eye out on
what customers, regulators and market places were saying.
3.
How do you specifically get in touch with how leading customers use and want to
use your products/ services, now and in the future? There were dedicated sales and
relationship management team members who would spend time making sure that we
were capturing the client feedback on existing products and future desires. Also useful
was the broker ranking mechanism from many asset managers which would give us
indication on where the firm was placed compared to our competitors.
4.
How do you signal internally and externally your innovation focus as a critical part
of your competitive advantage? This was mainly from the perspective of providing
market linkages in terms of stock exchange membership, good technical skills for order
routing, coverage of most custodians for clearing and settlement. Local market presence
and advertising that would also be a large signal.
5.
How does strategy translate into resources, and signals to the expected
behavioural norms of the organisation? The strategy is to go after a bigger share of the
wallet of the customer. This would be converted into a business case which will then be
signed off by senior management. This will then form the basis for resource, capital and
management attention.
6.
What is the approach to risk taking and allowable failure in pursuing innovation
opportunities? Usually there is a very high risk taking appetite. The proposals for new
products or innovative products follow a structured process, where they finally land up at
the new product approval committee and then the capital allocation committee. Usually
3 out of 5 products are approved on an average basis.
7.
How do these companies manage the innovation pipeline portfolio of activities?
Each desk, each analyst, each sales person and each trader is encouraged to come up
with trading and product ideas. Given that there is P&L responsibilities on various levels,
each manager makes a judgement call on the risk/revenue profile of new products and
then releases it for approval up the approval chain.

8.
Further how do you screen options and allocate resources to promising
innovations while, being disciplined at making GO/ NO GO decisions and killing off less
promising initiatives as appropriate? There is a strict set of criteria for checking products,
based upon revenue generation, risk profile, compliance, legal, regulatory, capital,
operations, technology and management sign off. This is crucial as this helps manage
reputational risk as well.
9.
Who in your firm is expected to contribute to and drive innovation activities in
your firm? All members of the front office including traders, sales people, researchers,
risk managers, operations, technology, etc.
10.
What is your leadership style and how does it promote innovation activities?
Extremely open to suggestions, clear focus on risk/return trade off and constant pressure
on revenue generation.

Resources and Operations / processes

1.
How does your company manage the relationship between what Moss-Kanter (of
Harvard Business School) called the mainstream of the business and the new-stream?
totally inter-related, the mainstream actually comes up with the ideas, then they are
themselves responsible for creating a product and the team to support it, deploy,
operationalise and then pass over to business as usual.
2.

What are your main internal innovation resources? The employees themselves

3.
What are your main external innovation resources? Usually the head of trading of
asset and fund managers
4.
How are innovation resources created/ stimulated? via business cases, and then
get approval to source resources
5.
How do short term production priorities and business pressures get balanced with
innovation activities? Innovation is production.
6.
How do new ideas translate from invention or idea creation, to
commercialisation, whether its goods and services or processes innovations? Usually the
product ideas come from 3 channels, customers, competitors or mainly from analysts.
Then a short business case is created and then pitched to sales people initially. Then they
evaluate sales potential and an estimate of revenues is created. Then risk management,
compliance, legal and regulatory review the product. Capital allocation, operations,
technology, etc. then get involved to validate. Then these are put to various approval
bodies culminating at the new product introduction and approval committee where they
are given the go ahead to operationalise.
7.
What tests are applied inside your firm to take ideas forward, and what processes
work best?: each function has different tests, but main is to look at revenue per
transaction per employee
8.
How much resource (money, time) is given to innovation activities and how is it
best applied? It depends upon the innovation. Usually up to 10% of quarterly operating
plan can be devoted to new products.

9.
What lessons are there from initiatives that were previously unsuccessful? (1)
When the wallet share was improperly judged, (2) when all stakeholders were not
involved fully, (3) when the product launch was too slow; (4) revenue figures were
improperly judged; (5) compliance were not involved.
10.
Do you practice open innovation, joining with other organisations to achieve
innovation? Very rarely
11.
How do you organise for innovation? Its not separately organised, its part of the
business

Measures
1.
How is innovation measured? This includes innovation inputs, innovation intensity
of processes and the quality of innovation activities, and of course innovation outcomes.
Purely revenue basis per employee, per desk
2.
How is it reported and to whom? It would be picked up by the trading desk head
and then used for annual performance appraisal.
Rewards, Recognition, promotion of innovators and innovation efforts
1.
How do individuals and teams who work innovatively achieve rewards etc? mainly
via bonus payments
2.
What systems of incentives, both intrinsic and extrinsic rewards are in use, and
which are most effective? Bonus payments at end of the year.

Behaviour and Culture

1.
W hat are the behavioural norms of strongly innovation oriented firms? Open and
transparent process for new product / innovation, dont say no to new ideas, always be
focussed.
2.
How do individual staff at various levels of such firms perceive risk taking,
thinking outside the square, creativity, evaluation of innovation, etc? quite heavily risk
takers.
3.
What role modelling behaviours from team leaders, managers and executives are
most successful? Usually its part of job description and team leads/desk heads train
them.

Other discussion issues

1.
Customer focus: there is evidence that working with lead users, bringing the
voice of the customer into the organisation, is an important contributor to innovation
success, so we would determine what methods are most successfully being applied. It
does help, we usually had our pet clients who would help validate new products and in
turn, they would usually get better pricing on our products.

2.
Sustainable development, most simply conceived of for now as the pursuit of long
term, triple bottom line success, not just narrowly-defined financial returns. What
opportunities and processes are being followed by excellent companies in this aspect of
innovative behaviours, including community/social outcomes and green/ environment
outcomes? I dont think this was applicable in case of equities trading.
3.
What aspects of innovation activities are being focussed on, ranging from new
products/ services, new applications, new technologies, new processes, business models,
adaptation/ modification of existing products/ services etc? Studies have shown that
systematically innovative leader firms conduct a broad mix across these activity areas. I
would agree, the innovation models usually talked about all aspect, we could, at the
same time, be hitting up to 20 different factors.
4.
What barriers exist to these firms doing even better? What are the structural,
legal , financial social, cultural, economic, marketing, technological, supply chain or other
factors inhibiting faster, further innovation? (1) availability of capital; (2) speed of
technical and operational support for new ideas; (3) approvals from compliance,
regulations, legal, etc.
5.
How do these companies interact with other entities to create innovation
advantages? Usually we wouldnt work with other firms.
6.
How do these companies manage your intellectual property? Generic strategies
often termed as Run, Block, Hide or Team Up would be investigated. These products are
usually launched and remain new for approximately and on an average 6 months tops
before everybody jumps into the same market. So we run and hide.
7.
How do these firms manage knowledge, using formal or informal approaches to
knowledge management? we didnt have any knowledge management
8.
What is your balance or focus on large step (radical innovation, versus small step
(incremental innovation)? It would be difficult to explain whether its radical or small step.
Mostly medium step to small step so to say