View more on these topics

Something old, something new

Organisations must strike a balance between innovation and imitation. Every organisation needs its bankers – those established products or services that generate regular and sustainable income. This allows the organisation to focus some resource on new product development.

Innovation comes in all shapes and sizes. At one end of the scale we have the wheel and at the other we have existing products that have been tweaked to give them a marketing edge. Tweaking can include new packaging, design or marketing approach. In the mortgage market it could include the launch of an exclusive deal tailored for a niche audience or a House of Finance franchise-type proposition that provides an alternative to a traditional network. Or perhaps a particular strength in a niche such as BM Solutions in the self-certification market. These are all examples of innovation in one way or another but what&#39s important is to be able to sustain the differentiation long enough at least to recoup the up-front costs.

The author above, in his full article, suggests that innovation falls into two camps: process innovators and product innovators and I agree with this. Process innovators distinguish themselves by being more efficient in how they work – they produce fairly standardised products at a lower cost than competitors, enabling them to earn relatively high profits at prevailing market prices (or drive competitors out of business through ruthless discounting). Process innovators tend to be the largest of all companies, dominating mature markets.

Product innovators, on the other hand, make their mark by offering customers particularly attractive goods or services &#39€&#34 those that offer superior functionality, more fashionable designs or simply more enticing brand names or packaging. Their &#39supranormal&#39 profitability, as an economist would put it, derives from the premium prices they can charge. Product innovators tend to pioneer new markets or to hold lucrative niches in older sectors.

One of the biggest problems with innovation is that it can end up devaluing good, old-fashioned values and competencies such as customer service, accuracy and punctuality. It says to employees: it&#39s not enough to do your job extremely well, you&#39re only truly valuable if you &#39push the envelope&#39 or some such cliché. That can lead to distorted measurement and reward systems, misdirected activity, and demotivation of staff.

I can think of a company that got the balance between innovation and day-to-day service delivery wrong. It put innovation at the heart of its annual bonus scheme. To earn a decent bonus each employee had to demonstrate some form of creativity in their work and each business unit had to provide examples and measures of its innovation. The company&#39s intentions were noble but the programme backfired. Dozens of ad hoc innovation programmes were launched; even the reception staff reinvented their functions. The effect on individual employees was counter-productive with the least talented workers embracing the programme with the greatest excitement because it provided them with a respite from what they saw as the drudgery of their day to day work. Creativity overtook core competencies and performance suffered. So, as with most areas of business – and life for that matter – a balance must be struck between creating an innovative culture and following clear policies and guidelines. This is especially important for those of us who are regulated in one way or another.

In a competitive mortgage market none of us can afford to sit back and continue to do the same old things in the same old ways and expect to create a competitive advantage. We must strive to improve, which is what innovation is really about, but we must lose sight of our goal – to create better products and services for our clients that will ultimately make us more profitable.


CML says EU directive is a threat

Speaking at last week&#39s discussion at the House of Commons, Financial Capability: Making informed decisions about mortgages, Coogan pointed out the potential consequences if the directive ends up including mortgages. He told attendees: “This directive is the biggest threat to the industry and will unwind everything that has been done. It should not include mortgages […]

PMP gains full authorisation from FSA

The grant of permission under part IV of the Financial Services and Markets Act 2000 makes Professional Mortgage Partnerships fully authorised with effect from October 31 2004. David Dodsworth, compliance manager at Professional Mortgage Partnerships, says: “We are of course delighted to have received this authorisation. I would say that we have moved quickly, by […]

House price inflation up in July, says ODPM

It says that this was due to a rise of 2.1% in prices between June and July, compared with a rise of 1.7% over the same period last year. The rise in UK prices between June and July was broad-based, with rises in prices for detached properties by 3.2%, semi-detached by 2.4% and terraced houses […]

B&W looks to sell self-cert loan book worth £300m

Loan book sales are not a new phenomenon in the mortgage market with lenders such as GMAC-RFC and Kensington Mortgage Company raising much of their funding in this way. B&W itself has made similar mortgage sales in the past. But the move has led some in the industry to speculate that the sale is a […]

Naming a reward programme

Six tips to get your reward programme name right

by Debra Corey, group reward director  Choosing a name isn’t easy. Whether it’s for your new puppy, a bundle of joy or your reward programme, a name determines a first impression – and often a lasting memory. When it comes to your reward programme, the name will determine how your employees feel about it even before […]


News and expert analysis straight to your inbox

Sign up