Pick up any newspaper recently and you will most likely have read an article advising that banking sector is ripe for disruption. Across the big four banks, Westpac has been heavily involved in a number of initiatives including creating its own VC fund Reinventure, is a partner in fintech hub Stone&Chalk and runs the annual Westpac Innovation Challenge with incubator BlueChilli. Samuel Tait sat down with Ian Hill, the bank’s first head of innovation, who joined the business just over a year ago, to find out more about how his experience is shaping the approach and how the Westpac Group has innovation front and centre to drive growth for the business moving forward.

Samuel Tait: How did you end up joining Westpac as head of innovation?

Ian Hill: Previously I was at Microsoft in Seattle for about two years working on their GoDigital project, which then morphed into an innovation capability project. I also worked with Microsoft India where I was helping set up a strategy for innovation capability for emerging markets. That was my first role directly out of McKinsey where I was an engagement manager focused on CleanTech and energy efficiency, out of Silicon Valley. At McKinsey we were helping companies set up incubators and figuring out how to invest for innovation.

I’ve been at Westpac just over a year now. When I found this role it seemed like a perfect mix between my past, my interests and what Westpac was looking for in terms of a candidate. As head of innovation for the group, I’m responsible for innovation across all the different brands and businesses within Westpac.

ST: Based on your experience how do you define innovation?

IH: Innovation is just finding new ways to meet customer needs. What that means is doing something different than what you’ve set yourself up to do. This implicitly means doing something different than what your incentives or your performance reviews tell you to do and different to what your processes tell you to do.

ST: How are you approaching innovation at Westpac?

IH: Our aim is for innovation to find new and delightful ways to address customer needs. To do that we need to have an ecosystem that is supportive of innovation. By ecosystem, I mean everything from the structures, the processes (like how people get reviewed or how projects get selected), through to the tools that are available and also the culture that supports it.

In order to staff and strengthen that ecosystem you need innovative people and partners. People means the employees and the partners are people in the broader innovation ecosystem like universities, customers, corporate peers, and thought leaders.

For Westpac to attract or be able to earn the right to work with these innovative people and partners, we actually have to have a reputation for innovating. It’s no surprise the most innovative people want to work on the most innovative projects. They want there to be a chance that their innovation or innovative talent will produce something new that will succeed. You need to be able to make a credible pledge to that.

If you can bring all these elements together, well that’s when you get a virtuous cycle of delivering great innovation. You tell everybody about it, you attract innovative people and partners that help you foster strong innovation ecosystem and in turn that allows you to deliver greater innovation.

ST: Westpac CEO, Brian Hartzer, has been a large driver of the innovation and change within Westpac. How important do you think it is to have that senior leadership involved and supporting innovation within an organisation for it to be successful?

IH: I would say that it’s one of the most important factors in getting innovation off the ground. I do think people can create a general groundswell around innovation in any organisation. That they can to some extent lead the leaders in certain situations. In our case, Brian Hartzer as CEO, already values innovation. He already knows how innovation works in large enterprises, both the theory and the practice and as a business we benefit immensely from that.

Strong leaders win people’s hearts and minds and unite their people to buy into change. When Brian refers to us as the 200-year-old startup, he’s inspiring us to get in touch with our company heritage and think differently about the way that we approach our day-to-day engagement with our customers.

ST: There is a viewpoint that due to the inherent risks that come with innovation large organisations cannot be innovative. That innovation requires companies to do things that they are not structured to deliver. What are your thoughts having led innovation within Microsoft and now Westpac?

IH: One of the typical examples that you hear is that large enterprises have the wrong kind of managers or if they just had more innovative managers, everything would sort itself out. Risk aversion is another one and you often hear that people in large companies just aren’t willing to take risks.

All the research that I’ve seen more or less debunks each of these ideas. Over 50% of startups get acquired by a large company and most of the management team is required at least to stick around for some period of time to nurture innovation. You would think that if these companies are sucking up all these innovative managers you’d at least see pockets of innovation creeping up. That doesn’t happen unless of course the underlying enterprise is itself already innovative.

Then on the risk front, risk is in effect the willingness to place a large bet on an uncertain outcome. Large companies actually do this all the time. Take Microsoft’s acquisition of Skype for something like $8 billion dollars, or GE doing an acquisition of a renewables company in the realm of $17 billion dollars. They are putting huge amounts of dollars on big bets with a lot of uncertainty around the outcome. There is research that shows that most acquisitions don’t add value for the acquiring company. Technically, by the strict definition of risk aversion large companies are not proving themselves to be risk averse.

So the question arises – what is the challenge for large companies? It comes down to the fact that the processes companies build are usually tailored to existing customers and existing margins and existing price points and based on existing data to develop their business cases. As businesses become well-honed for their current clients and customers it also makes them less well-honed to certain kinds of innovation.

ST: Innovative companies like 3M and Google support staff with a percentage of their working hours allocated to innovation. How does Westpac approach this idea of ‘innovation time’?

IH: At Westpac we have an initiative called ‘Idea Wednesdays,’ that started in our group technology division headed up by Westpac’s CIO Dave Curran. It is just one of the grassroots concepts at the core of Westpac’s approach to innovation that encourages our employees to take a couple of hours out of their day on Wednesdays and actually use the tools of innovation to come up with new ways to get their job done better and faster. One of our teams used to seeing 9% process improvement each year used this technique and saw a 25% improvement using this simple framework.

ST: It’s been said that if you don’t execute you can’t call it innovation. What are your thoughts?

IH: I think that’s a good one. There is a difference between invention and innovation. Innovation is in effect invention that gets commercialised. To me unless staff or customers are using it then it doesn’t even count as an innovation. There is this tension between which processes are good for ideation and which processes are good for narrowing down to the delivery. I think that is kind of what the perennial challenge is, how you bridge between the two. Often the term ‘entrepreneur’ is used to describe somebody that is capable of bridging that gap, somebody who is able to simultaneously understand the idea and then go and execute on that idea.

The way we have set it up at Westpac really helps in that regard. We start with ideation and the proof of concept function which takes place in our innovation lab, The Hive. This then hands over to a sister team in the innovation ecosystem whether that is The Garage for rapid commercialisation or an internal project delivery function or even an external incubator like BlueChilli. We also have our VC fund, Reinventure where the investment committee selects ideas that it thinks meet specific criteria and would also be beneficial to Westpac and they invest in the business.

ST: Does timing have a role in innovation?

IH: A long time ago I remember a company called Pay by Touch that were trying to be a biometric payments platform. It’s hard to predict exactly what the kind of future of interaction payments will represent and they probably came along a little bit too early (I think that was like 2006 or 2007) and the company went bust. Or think of the video phone which I think was attempted at least once or twice in the 80s, and I think even a third time after that. Of course, it didn’t get anywhere and now it’s just a default feature on anybody’s smartphone that you can video chat with people. Like leadership that sponsors innovation in a company, another critical success factor in innovation is timing.

ST: What are some of the biggest challenges you are facing at Westpac?

IH: I think there’s probably some global instability in the economy just in general and outside of that we basically have the same exact challenges that financial services industry and banks in particular around the world are facing. There’s new regulation that is likely to increase margin pressure; there’s increased competition both from abroad and from fintech startups and disruptors and there’s changing customer needs. Our customers learn how they want to interact from companies like Apple, and it’s incumbent upon us to figure out how to work with them in the same way.  

ST: How does innovation help address these challenges?

IH: If you look at the companies that grow successfully both in terms of revenue or in terms of total shareholder return, innovative companies do so much more successfully for a longer period of time. Empirically that makes sense – that to grow you need innovation. Even logically, if you want to increase revenue, by definition you need to identify a new set of customers, a new market, a new product or a new service to sell.

If you think about share price, for instance, today’s share price already bakes in future innovation. It is already the net present value of all future cash flows. It means that all those future cash flows already include assumptions about the new products and services that we haven’t even thought of yet. If you want increases to share price above and beyond that, you have to innovate on an even faster trajectory than what everyone is expecting you to do.  

ST: What companies do you most admire in regards to their approach to innovation?

IH: I definitely admire Amazon. There is such a commitment there to innovation given that Jeff Bezos every year takes all their profits and plows it all back into new innovations within the business.

They’re a 20-year-old growth company. The innovation areas that they have chosen to focus on are wide-ranging everything from making films on the one hand to devices to talk of using drones to deliver your packages, to having packages sent before you even order them. To me those are all pretty bold bets, they know some of them will fail, they do them anyway, and that’s made it a pretty admirable approach.

IDEO as a company is amazing. The 30 or so years that they’ve been around they’ve developed some of the most impactful products. They popularised human centered design as a concept and have been in the background of so many inventions, not only the first computer mouse that was widely used but then I think the second computer mouse. Just the level at which they kind of pervade our lives in ways we don’t even know is amazing.

Elon Musk just as a human being is a pretty impressive innovator. He seems to have gone to these industries with a really strong vision of what could be done and wondering why it wasn’t and getting it done faster. SpaceX is now the first private supplier of rockets to go up to the international space station. He talks about doing things differently. Going not just to the part suppliers but going to the actual miners of the materials that they use to build the parts. He points out no one has ever talked to these guys and they have ideas that could be used, that goes all the way through the supply chain.