Design Thinking in Finance
Design Thinking is a human-centred approach to innovation that draws from the designer’s toolkit to integrate the needs of people, the possibilities of technology, and the requirements for business success by making more desirable solutions for clients.
Corporate finance and financial services, disrupted by technology and endangered by the FinTech firms, are in unprecedented need of Design Thinkers able to anticipate customer preference shifts and innovate to respond to the ever-changing industry needs. This course will help to understand the importance of Design Thinking in finance, teach the frameworks, techniques and how to apply them in the daily practice.
Traditionally, finance transformation initiatives are driven by cost reduction strategies. The focus is on squeezing out as much fat as possible and achieve efficiency. Take adoption of new finance software as an example. Rather than view the adoption as an opportunity to relieve finance teams of rudimentary tasks and focus on initiatives that require critical thinking, CFOs view this as an opportunity get rid of employees and cut costs.
If a business is heavily dependent on analytical thinking, especially where performance and rewards are budget and or forecast driven, maintaining the status quo often prevails. The organization finds itself operating as it always has and is reluctant to design and redesign itself dynamically over time.
When faced with a decision about investing in a new product, market or something new and promising, but not in the current budget, the answer is always no. Many at times the argument is that if something cannot be planned and budgeted for in advance, it is not worth pursuing. This ultimately breeds conformity and stifles innovation as resources are allocated to business units based on past performance.
The financial services industry is a good example of this hesitancy. Part of the problem here is that while design thinking emphasizes understanding and empathizing with the user and then building products and services around their needs, financial institutions tend to operate in the reverse. Rather than focusing on customer experience, they develop products and services that meet their own needs and then expect users to adapt accordingly.
Although banks, credit card companies, and credit unions have made a genuine effort to provide a better user experience for their customers, they often suffer from the problem of top-down thinking. The key decision makers behind their product and service strategy have a strong understanding of the organization’s operations and possess financial knowledge that’s much better than the average user. As a result, they end up designing products and services that may be well-suited for someone who knows how the company does business, but are bewildering and downright unfriendly to customers.
Even worse, they don’t put much thought into how to integrate the disparate elements of the customer experience into a cohesive whole, which only leads to more frustration for users. Take, for example, a typical bank. The key touchpoint for the interaction comes from the bank’s mobile app, the bank’s website, a phone representative, and the tellers at the local branch. These services each developed organically over time as new technologies changed the way people interacted with their bank; in many cases, they are still organized and operated independently. Some services can be completed over the phone, but not on the mobile app. Other services require customers to physically visit a local branch office. For the average user, using the bank can be a confusing and frustrating experience.
Finding a balance between exploration and exploitation
Balancing innovation and efficiency demands the organization’s resource allocation not to be based entirely on past performance. Rather, a portion of the resources should be distributed based on the unproved ideas and projects each business unit presents for the coming year.
One of the reasons why a number of promising projects fail to see the light of the day is because management have created a culture that first seeks a predictable outcome before paving way for the project. They seek reliability, which is in direct contrast to a designer’s mindset.
A designer seeks validity over reliability with the goal of producing outcomes that meet a desired objective. The end result is shown to be correct through the passage of time.
The current business environment is awash with mysteries, which take an infinite variety of forms. For example, we don’t know how our product and market segments will continue to perform in future. We are not certain which technologies will have an immediate impact on our business. Or we might explore the mysteries of competition and geopolitical tension.
Data on past performance might help us extrapolate future performance but the future is no guarantee.
Given that the future is a mystery, the business should embrace a new way of thinking that provides a simplified understanding of the mystery and in turn help devise an explicit, step-by-step procedure for solving the problem.
An organization may decide to focus on exploration, which involves a search for new knowledge and the reinvention of the business, or exploitation which focuses on business administration and seeks to increase payoff from existing knowledge.
Intuition, originality and hypotheses about the future are often the driving forces behind exploration. On the other hand, analysis, reasoning, historical data and mastery are the forces behind exploitation. Both approaches can create significant value, and both are important to the success of any business organization. However, organizations struggle to pursue both approaches simultaneously.
More often, an organization chooses to focus on exploitation, to the exclusion of exploration and to its own disadvantage. The solution is not to embrace the randomness of intuitive thinking and avoid analytical thinking completely. The solution lies in the organization embracing both approaches, turn away from the false certainty of the past, and instead peer into a mystery to ask what could be.
In other words, balance exploration and exploitation, invention of business and business administration, and originality and mastery.
Finance plays a critical role in helping the business achieve efficiencies, redeploy the savings and redirect freed-up resources towards exploration of new opportunities.
Building design into finance
As design thinking is frequently associated with marketing and product development, finance is deemed an unlikely place to apply design thinking principles. However, design thinking can be applied to the finance function in every organization. The key is to identify and define the customers clearly and approach their needs empathetically.
Unlike the marketing function which focuses its efforts on external customers, finance’s efforts are focused on meeting the needs of its internal customers. To elevate design thinking in finance, the function should think differently about its structures, its processes, and its cultural norms.
Quite a number of finance organizations are organized around ongoing, permanent tasks. Roles are firmly defined, with clear responsibilities and reward incentives linked tightly to those individual responsibilities. The problem with such a structure is that it discourages employees to see the bigger picture. Individuals employees see their work as own territory to be protected by all means.
There is little to none collaboration. It’s all about “my responsibilities,” not “our responsibilities.” As a result, individuals limit their focus to those individual responsibilities, refining and perfecting outputs before sharing a complete final product with others. This can be routine production of monthly reports.
In contrast, designers are accustomed to working collaboratively with adhoc teams and clearly defined goals in a projected-oriented environment. Rather than waiting until the outcome is right, designers expose their clients to a series of prototypes that improve with each iteration.
Considering that finance business partnering extends beyond traditional month-end reporting tasks and involves working on various business related projects, sharing performance insights and creating value, CFOs should therefore foster a culture that supports project-based work and explicitly make it clear that working on a project is no less important or rewarded than running a business segment.
Industry Needs Design Thinking
Design thinking can help resolve this problem by focusing less on how the financial institution thinks its products and services should work and more on what its customers need those products and services to do for them. The distinction here is critically important. Nobody wants to use a banking mobile app just for the sake of using it; the bank is a means to an end. To put it another way, people don’t want to use a bank; they want to manage their money effectively to meet other needs in their life.
In fairness to the financial services industry, it faces many constraints that other businesses do not have to take into account. Government regulations limit how much they can do with their products and services, and security concerns make it difficult to provide the usability customers want while still protecting their money and data. Despite these challenges, financial institutions cannot afford to use them as an excuse for standing still. Amazon recently announced its intention to provide its own current account service, which would allow people to make payments without going through banks or credit card companies. Given Amazon’s success in building a compelling customer experience that consistently keeps its users engaged, financial institutions need to move quickly to keep ahead of a new generation of competitors.
Even working within the constraints of the industry, design thinking can still uncover new ways of delivering products and services that empower users and meet their needs. The financial services industry needs to move away from a model in which it dictates the terms of the customer experience to one that’s catered to what the customer wants. Reframing their design methodology to a more “bottom-up” model will help financial institutions to better understand their users. But simply knowing what people want is only the first step. After identifying key pain points and needs, design teams can get to work iterating products and services for testing. This process must be every bit as responsive to users as the initial research. Simply designing a solution from start to finish based on what users say they want often misses the mark. People may think they know what they want until they have a solution in their hand that doesn’t feel right. Through continuous iterative testing, design teams can be sure that they’re adapting their solutions to the needs of intended users.
Although the financial services industry faces a number of challenges in implementing design thinking practices, shifting customer expectations are making it more difficult for them to avoid doing so. As newer, less rigid companies begin to offer their own financial products and services, the competition promises to become more heated. Existing financial institutions have a legacy advantage for the time being, but if they can’t find a way to adapt to the disruptions beginning to shake up the industry, they may quickly discover that their customers are no longer willing to tolerate a subpar user experience when they have alternatives.