From Adoption to Adoption Chain

In today’s interdependent world, the most successful innovators understand the operating circumstance that it must treat each of its partners as a customer, even if they are not in a direct business relationship. Therefore, the innovator, the distributor, the retailer and end customer must all considered “customers” to the company.

In addition, every company acknowledges the fact that the customers matter, emphasized by the vast majority focusing on customer feedback and voice of customer (VoC). This leads to the simple, but vital, question: “Which customer in the chain is most important?”. According to Adner (2011:62), the answer is straightforward; all of them! Elaborating on this postulation, consider the following two innovation proposals illustrated in below – showing a simple numerical example of value creation in the adoption chain:

Figure 5. Adoption Chain in Innovation

(Adner, 2011:63)

Innovation A creates great value for the innovator with a surplus of +4, as it is highly profitable.

Moreover, it creates high value for the distributor (+3), as margins are high and handling costs are low.

For the retailer there is a marginally negative value e.g. due to higher up-front costs, retraining and after-sales service pains. The value for the end customer is extremely high with a surplus of +5.

When measuring innovation proposal B, one can tell that it creates positive, but low surplus for everyone in the adoption chain. Comparing the two different proposals; proposal A has a total net value of +11, whereas proposal B just contributes to a total net value of +4. However, there is more to this simple equation. Reverting to Adner’s philosophy; each and every intermediary in the adoption chain is vital. This supports the claim that innovation proposal B will turn out successful, whereas proposal A will fail, despite the total net value of proposal A being three timers greater.

When operating inside an ecosystem, a company must acknowledge the harsh fact that one single rejection from an intermediary can entail breaking the entire chain. In the example above, the reason for innovation B’s success is that as every single partner in the adoption chain benefits from the

innovative endeavour. Proposal A will fail, not because the end customer will not prefer the product or service but because the end customer never gets the chance to choose it (Adner, 2011:63).

As with co-innovation, companies that fully understand the risks associated with the adoption chain can revise a plan when potential hurdles must be identified. Such hurdles must be solved in order for an innovation to become successful. However, dealing with such risks can only be managed proactively if companies seek to recognize these in advance (Adner, 2011:64).

Thus, a wise innovator has a great opportunity to modify its strategy, creating surplus in every adoption chain, and generate a win-win-win-win situation for all partners involved. This means that every single intermediary in the adoption chain wants to be involved rather than has to, which evidently is a desired situation for anyone participating in the ecosystem.

4 Analysis – Financial Industry 2.0

The emergence of financial technology firms and other non-bank financial institutions (NBFIs) are bringing innovative products and services to the market, challenging traditional business models. Over the last decade, the fintechs firms have been faster than traditional banks to take advantage of the advances in technology, and develop banking products and experiences - making products more user-friendly, less cost-intensive, and optimized for digital channels. The apparent success of fintechs as a category is not a big surprise, as these companies are less burdened by regulation and compliance, as well as being free of complex and dated legacy systems. Finally, many fintechs are extremely focused, creating solutions designed to offer improved experience and value within only one product or service-area.

As the purpose of the thesis, with its inductive approach, is to gain an understanding of the general possibilities of joint value creation through strategic alliances between banks and fintechs; the analysis understands banks and fintechs as two unified and distinct business segments. As such, the thesis’ analysis will not go into depth with the structure of individual banks or fintechs; although, explicit considerations are given when analysing our primary data sources, to uncover discrepancies between expectations and findings. The analysis is based on general attitudes and data from the thesis interviews (Appendix 2,1 – audio files), while specific meaning condensations (sense-units and essences) have been transcribed and utilized to support or discuss specific areas of the analysis (Appendix 2).

The first sub-section of the analysis will seek to answer the thesis’ first research sub question – to assess the on-going market transformation. This is an important precursor for understanding the extent to which fintechs and traditional banks can create joint and improved value propositions in the

future, and help recognise the foundations of the strategic collaborations, in which such value propositions can be fostered.

In the second sub-section, the thesis will analyse the primary data sources – semi-constructed interviews with industry professionals. The data will be utilised in a combination with secondary data sources, to illustrate the operating business models on a segment level – traditional banking vs. a bundling of fintechs. The analysis seeks an understanding of the discrepancies between traditional banking structured as oppose to fintechs’.

In the third sub-section, two essential areas of the BMC, as recognises by Osterwalder and Pigneur – the value proposition and the customer segment – is analysed by the means of the VPC. As the fintech revolution is largely supported by higher customer expectations, this theoretical framework will help illustrate the distinct value creation in banks and fintechs. To further the understanding of business success in these endeavours, this sub-section also includes an analysis of the two segments, andefforts to communicating distinct value propositions. The merit for this analysis stems from the fact that customer trust and confidence is key to business success in financial services; while the actual practical implications of effective communication will determine the success of companies’ go-to-market efforts.

Lastly, the fourth sub-section analysis will go further into depth with some of the essential preconditions for creating a new financial eco-system. Adner’s Wide-lens theory will be used as a framework to enable an understanding of the attitudes, possibilities and limitations in strategic collaboration structures. Thus, the more in depth analysis of essential market conditions, combined with Adner’s theoretical framework can provide context for a further discussion of the practical implications of both the market environment and considerations for strategic collaboration; and in effect, any joint value creation endeavours stemming from knowledge- and competence sharing.

At the end of each sub-section, a sub-conclusion is provided. The purpose is to summarize main points from each section, as well as provide answers for the analysis-based research sub-questions in the thesis problem statement.