Disolwer

Play-2-Win innovation strategy results when your organisation can say with certainty that it will make innovation the centrepiece of its competitive advantage for the future. ING adopted such a strategy when it decided to launch its Direct product, in the process changing the game for the whole deposits market.

ING Direct worked out that if it offered its customers a very high interest rate, they might not mind losing access to some high cost channels. Customers who decided to take the product would have extremely restricted access to their money – mainly via internet banking.

The initial Canadian introduction of this product was done in relative isolation from the ING parent company in the Netherlands. It is extremely doubtful whether the new model would have been allowed to proceed, in fact, had head office had more than passing involvement in its germination. For the “mothership”, the direct model was a direct threat to core business. But the geographical separation of Canada from Europe meant leaders of the new business had a much freer hand than they would have done otherwise. They were able to adopt a Play-2-Win strategy whilst working “under the radar”.

Direct banking is quite different to the models most banks pursue when they go after savings accounts. Usually, they focus on customer experience in a full range of channels, including expensive branches and call centres. This makes operating a customer account very expensive, and traditional banks usually offer relatively low interest rates to compensate.

The concept of the Direct account was immediately very successful, as customers flocked to the product, drawn by the high interest rates. The exodus proved that customers were being over-served by traditional banks, who had invested a great deal of time and effort in competing on the basis of customer experience. The disruption of the traditional savings account market was rapid.

So successful was the introduction of Direct, that head office in Europe decided it would launch the product in other markets as well. Each time it did so, ING managed to disrupt the savings product market completely. Banks discovered that they were being forced to compete on price whilst simultaneously trying to support a great customer experience for existing customers. This is a battle they can ill afford.

This is very painful for bankers, who are forced to compete on a price basis of lose deposit share altogether. As you’d expect, these bankers do not respond to the news that ING is entering a new market with unbridled joy.

For more information about Innovation in your organisation, please visit James A Gardner’s free online book which has a chapter on Innovation Strategy.