Create new services in banking branches

Challenge: Describe your challenge, including all relevant information.

Retail banking is an especially heavily regulated activity worldwide, and in France it is mostly  run by former civil servants. Major decisions are made by the ministry of finance and apply to  all banks nationwide. In this environment innovation is viewed with suspicion at best, and kept  under tight control by the regulator. However, banks are under increasing strain, with rock  bottom interest rates that undercut their economic model and an aggressive competition by  “fintech” start-ups. They have little choice but to innovate themselves out of their predicament  to survive.

My client is a French regional bank, a subsidiary of a major agricultural banking group. Apart  from its traditional commercial objectives, it is especially dedicated to financing farmers (who  are heavily represented at the board), and to improve the local economy as a whole. It is a major  employer in the region, and it owns by far the biggest number of local branches among all retail  banks. Traffic in these branches goes down every year, making it difficult to justify such an  extensive physical presence. Yet the branches are viewed as an essential strategic and financial  asset: closing them in great numbers would trigger big market share losses, contradict the  mandate to sustain the local economy and be politically suicidal for most deciders.

In order to sustain the branches ‘profitability, a group of young executives came up with new  ideas to create more services: they would improve the traditional banking services, but also  offer fresh locally grown food in the branches, invite clients to specially tailored conferences  and workshops, and even share their oversized offices as co-working space with local  businesses and entrepreneurs. The challenge was to anchor the bank in the local economic life  and to attract high value prospects to the branches. Profitability would be reached by following  up on the best contacts obtained through the new services. Three questions needed an answer:

 Can the new services attract enough high value prospects to the branches, even in rural

areas?

 Can the bank follow up on contacts to transform these prospects into clients?   Can the new services help sales advisors to sell more to existing clients?

In order to answer these questions, the team decided to do a learning launch.

Selection: In your own words, briefly describe the tool you selected (e.g., what it is and  why you selected it for your challenge -- including any appropriate video lecture  references).

A learning launch is a process by which an idea is tested in the real world. The aim of the launch  is not to do a full market test, but to cheaply challenge a few main hypothesis to confirm or  disconfirm the value of an idea in terms of potential value creation, potential execution,  defendability, scalability. It is the last design phase before actual market tests.

The learning launch process is composed of 5 main steps:

1. Idea statement,

2. Key assumptions statement (what must be true for the idea to be a good idea),  3. Key assumption prioritization,  4. Test design for key assumptions,  5. Test execution.

If step 5 is conclusive, development can be carried on. Otherwise the idea needs to be reworked  or to be shelved.

The learning launch was chosen by the bank because it needed quick answers to its three main  questions, and it (wisely…) didn’t want to invest huge sums of money in an idea that could fail  and drain resources to develop other, potentially more promising ideas.

Application: Describe how you applied the tool you selected to your challenge (e.g., what  you did and how the tool was applied effectively or ineffectively).

The bank decided to embark into a learning launch, and created an “internal startup” to carry it,  all complete with a board, a CEO and a financial director to supervise its 10 000 € budget! The  president was the bank’s CEO. The team met a couple of times and quickly designed a vending  machine to sell locally grown products in the branches. Since the bank’s shareholders are  mainly farmers, procuring goods for the test was no problem: the initiative was a very easy  political sale, as most shareholders viewed it as an opportunity to get into direct contact with  consumers. Since a real vending machine was well over budget for the startup, a mock-up was  built with shelves and installed in a few test branches. True, it needed to be operated manually  by a sales advisor, but this was regarded as a small problem since the vending machine was  supposed to be promoted by a human being from the beginning (nobody seriously envisioned  that people would spontaneously purchase food from their bank…)

After a few weeks it turned out that:

 Although the machine raised curiosity, few people actually purchased anything from it.   The contacts initiated through the machine failed to generate profitable banking

business - true, some local associations did appreciate the initiative, but this is no  potentially profitable business even taking indirect fallouts into account.

 The vending machines were located inside the branches, and they were not strongly

supported by a communication effort. Thus, they failed to attract prospects in numbers,  only existing clients had an opportunity to try them.

 The operating cost grew far beyond expectations, products getting past their use-by

date and needing constant replacement.

 Regulatory hurdles to sell perishable goods at scale in a bank didn’t find a satisfactory

answer.

Other initiatives didn’t fare much better: it turned out that co-working space was not especially  needed in small French villages, and that specialised conferences and workshops attracted  mostly dynamic populations in urban areas, not the core target for the learning launch. They  did attract farmers and local storekeepers in rural areas, but the bank’s market share among  these populations was already up to 60%, so there was little for additional growth.

After a few experiments, the start-up ran out of budget without much success to show for; it  was praised as an innovative experience that needed to be done for the sake of innovation, but  the members slowly returned to their more profitable daily activities.

Insight: Describe the insight you gained from applying the tool you selected to your  challenge (e.g., how an insight affected your thinking about the challenge and about  design thinking more broadly).

Reflectively, the new offers failed to generate profitable growth because they didn’t meet a  potential need that the bank could meet at sufficient scale. The main reason was that the  initiative lacked a clear innovation process prior to the learning launch: “what is” was  perfunctorily implemented, “what if” and “what wows” were almost completely skipped in  favour of the most popular idea. However, it can be said that the learning launch saved us from  a potentially much worse outcome: since the personal and financial investment in the new ideas  were limited, nobody suggested that locally carried innovation needed to be stopped altogether.  The bank was free to learn a lesson they could make use of within the frame of their specific  “process centred” culture: that innovation should be managed as a complete process with all  steps implemented rigorously. In that sense, the learning launch perfectly delivered on its  promise to de-risk innovation: it didn’t deliver profits instantly, but it gave us an opportunity to  take our loss and to come back to fight another day!

Approach: Describe what you might do differently next time -- applying the same tool  you selected or a different one -- and the reason(s) why.

The bank will certainly need a more comprehensive approach to clients ‘needs identification  and to idea generation: the project team rushed the most popular ideas to a learning launch  without sufficient preparation. Design thinking is a full process, and although steps should be  tailored for each specific organisation, none should be skipped or overly simplified. The next  time I would insist on implementing a full design thinking process, starting with a detailed  “what is” phase… And given the experience acquired through the learning launch, I hope I will  get attention on this issue! Although, I would probably recommend the idea to be tested as a  prototype in house, rather than rushing to a highly exposed experiment in a banking branch:  exposure creates all sorts of political imperatives that muddy the conclusions. In this case, we  could have done a test in a training branch (the bank has one at its headquarters) with a few  volunteer clients or prospects, with complete, individual debriefings. This experiment would  have cost much less, without any exposure at all, and the debriefings could have led us to much  more detailed insight into clients’thinking and experience. For a detailed description of the  procedure to be implemented, see the final section of  Sprint: How to Solve Big Problems and  Test New Ideas in Just Five Days, by Jake Knapp, John Zeratsky and Breden Kowitz.

