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New methodologies adapted from social anthropology can reboot innovation.

Lift the blindfolds and reboot your innovation

Focusing solely on approaches adapted from manufacturing, i.e. design thinking, limits opportunities for ingenuity. New methodologies adapted from social anthropology can reboot innovation.

Fail fast, focus on the customer, disrupt markets, hack everything and perhaps even change the world: that’s the storyline. The reality of innovation in financial services falls significantly short of this description and, apart from the branch moving to the smartphone, little has changed over the past decade.

While the hype surrounding innovation serves various interests – not least those of technology companies – it does not serve the interests of banks who have wasted large sums of money developing propositions nobody really wanted.

So, what happens next? If you are a bank or an insurance company, you have the opportunity to kick off the next stage of innovation and leverage social anthropology to refocus your efforts on identifying opportunities for growth and differentiation.

Problem-focused innovation – first degree innovation – aims to improve what already exists, making it faster, cheaper or more convenient. First degree innovation is the dominant type of innovation in the commercial sector as its methodologies were successfully adapted from manufacturing (e.g. design thinking). The outcomes of first degree innovation are immediately valued and adopted by consumers as they make what is already familiar better. First degree innovation impacts metrics such as customer satisfaction, cost to manage, automation, product profitability and speed of service.

In contrast, innovating with social anthropology – second degree innovation – is about identifying new concepts, new behaviours and new norms that redefine the beliefs and attitudes underpinning consumer behaviours. Second degree innovation typically aims to identify and then foster changes in consumers’ subjectivity and culture. It impacts metrics such as share of revenue from new products, brand differentiation metrics, long term revenue growth and reduced price sensitivity.

Despite its greater potential to create disruptive innovations, second degree innovation is rare due to the lack of pertinent methodologies to apply it and, even if examples of second degree innovation exist, they are often arrived at in haphazard ways.

Credit: Lemonade Insurance Company

What does second degree innovation look like? In insurance, it can be about creating differentiation by shifting insurance products from market norms to social norms (such as property and casualty insurance firm Lemonade). Or, like Flexdrive, it can be about offering car subscription services to accelerate and capitalise on the shifts in consumption and ownership patterns. Lemonade and Flexdrive do not simply improve what already exists – they proactively aim to transform the cultural underpinnings of their industry sectors.

Now, imagine you had a methodology to identify second degree innovation opportunities in the same way you were able to identify first degree innovations with design thinking.

Here are five tips to get you started:

  1. Stop researching the present
    Stop wasting your innovation budget on researching the customer of today. Instead apply second degree innovation methodologies to identify new possibilities and start working with that ‘which is not normal yet’. Go beyond simply understanding what people do, think and feel today, such as in ethnographic studies. Instead, identify new destinations for your brand, products and services by adopting an anthropological approach.
  2. Accept that your first step may look quite unlike your destination
    Second degree innovation is about identifying possibilities which are not normal yet and will almost inevitably be subject to apparent rejection from consumers. Instead of dismissing these opportunities, learn how to define the incremental steps that will take you closer to your destination. Accept that your first step may have to be quite unlike your destination.
  3. Focus on outthinking your competitors first; moving fast comes second
    While the focus of innovation has been on speed, agility and implementation, this has often come at the expense of attempting to outthink competitors. To outthink your competitors you will need to know and do something they don’t. Second degree innovation provides such an opportunity as its concepts and methodologies have not diffused… yet.
  4. Stop obsessing about technology
    Technology in itself does not define opportunities, it merely enables them. So, instead of waiting for technology companies to tell you what the future will be, proactively identify possibilities and viable changes in consumer behaviours and attitudes that you can benefit from commercially.
  5. Keep your innovation balanced
    Don’t let designers take over, they will focus on creating an app. Don’t let design thinking experts take over, they will focus on solving current problems. Don’t let technologists take over, they will focus on finding applications for new technologies. Don’t let your commercial and product teams take over, they will defend short term revenue and protect existing product lines. Instead, focus on orchestrating these skills seamlessly to ensure innovation remains aligned to strategic intent.