Could Service Innovation Help Lead America Out of the Financial Crisis?

Let’s face it: in these violently turbulent times, we all want to know what’s next. Kaihan Krippendorff, who currently consults for Microsoft, Johnson & Johnson, and Wal-Mart, says service innovation will be an important factor in turning around burned businesses.

The author of The Way of Innovation, The Art of the Advantage and Hide a Dagger Behind a Smile, Krippendorff mixes ancient and modern principles, from Sun Tzu and Niccolo Machiavelli to Steve Jobs to shape business strategies. I spoke with Krippendorff about his thoughts on where Wall Street will go after the current crisis subsides.

Fast Company: What is the biggest problem you see in the financial services sector when it comes to service innovation?

Kaihan Krippendorff: The focus on product innovation—on generating new financial instruments and financial products—when something is essentially a service. When we look at AIG, they were a conservative, relatively stable, well-run company and it was just in this one area of insuring derivatives and other financial items that exposed them to a lot more risk than they thought. They took a product perspective and came up with a new product, tested it out, and then pumped out as many as the market could bear.

FC: Could you argue that the financial services companies were being innovative when they created these disastrous financial instruments? Could they have been innovative in the wrong way?

KK: Yes, those were product innovations. But if we look at companies that have really been some of the great financial innovators in the past, their innovations have come from services. Like Capital One coming up with the No Hassle Card. They found a way to slice and dice people’s credit histories so they could give more customized services. Hudson National Savings never went to the public markets to get capital. They only lend the capital of their depositors. When they make a loan they don’t really look at credit history; they look at other factors, like are you likely to flip the loan and are you planning on living on it. So both Hudson and Capital One produce enough services to better assess credit risk. These innovations often have little to do with the product, and they can be lower risk and extremely powerful as distinguishers.

FC: Will service innovation be a necessity for financial services companies as they try to recover from their current problems?

KK: Absolutely. 75% of our U.S. GDP comes from services. We should have shifted our efforts a long time ago to service innovation. Since service innovation is more likely to lead to ideas that distinguish you and give you an advantage and also don’t cost a lot of money, that’s the kind of innovation that in tight environment companies can get their biggest bang for the buck.

FC: Your focus in consulting has often been on growth strategies. What would you specifically recommend to get these financial players growing again?

KK: I was in Orlando last week, and I took AirTran back up to White Plains. It was great service and a good flight. But then my wife and I were talking and said, ‘Wasn’t this the airline that crashed in Florida?’ They ended up changing their name and they came back from this. My sense is that this crisis will not have a long-term impact on the financial powerhouses. They play such a central, critical role in the system that they are needed. They will come back. If you were looking for how Morgan Stanley or Goldman Sachs were going to make it out alive, the big corporate-wide priorities are not it. It’s going to be thousands and thousands of little strategies, little priorities that are executed by the front line every day, allowing the front line to innovate and predict customer needs, serve those needs and wow them.

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  • Arnold Beekes

    This is absolutely true. However that requires a total new way of looking at it. A 'new set of glasses'. If you look at service innovation from a product perspective, it will never work. Services is all about people, whether your employees, customers or partners.And those people need to be (re)engaged, trusted and valued.

    That trust has to be earned by giving the right example. The 'example' of grabbing all that you can has had a devastating effect on the engagement, commitment and loyalty of the employees. That is why in service innovation it is crucial to really engage your employees!