An Inside Look at Fidelity's Customer-Driven Innovation

Stephen Shapiro - An Inside Look at Fidelity's Customer-Driven Innovation

An Inside Look at Fidelity's Customer-Driven Innovation

Fidelity Investments InnovationRelevancy, Not Novelty

Good innovators know that you always start with your customers' needs or problems. In fact, studies show that a lack of customer insight is the number one cause of innovation failure.

When looking to study innovative industries, financial services companies rarely comes to mind. Instead we equate financial services with a conservative and risk-averse culture. But that's not always the case.

I had a chance to study the way Fidelity Investments approaches innovation. Unlike most other financial services firms, at heart they are a technology company whose products are financial services. They created a separate R&D unit called "Fidelity Labs" that uses design-thinking principles to help ensure their innovations meet market needs, balancing risk with reward.

I spent time with Fred Leichter, ‪Senior Vice President of Design Thinking & Innovation at Fidelity Investments in his Boston office. Fred is leading the charge there on their design thinking initiative.

To give you sense of the scale of their innovation efforts, the company spends more than $2.5 Billion across the enterprise, investing in the best technology possible. It applies Design Thinking practices and a lean Start-Up mentality to create new products and incubate new businesses, ideas and services.

Don't Find the Answer; Uncover the Question

This initial work is not to find an answer but rather to uncover questions. This helps the team find unmet needs, which leads to hypotheses that need to be tested with customers.

The goal is to spend as much time as possible with customers. Either bringing customers to Fidelity or going directly to customers. Management's goal is to remove the barriers that prevent people from talking directly with customers, because they know that volume and frequency are important, with interactions as early and as often as possible.

Highlighted in the video at the bottom of this article, Fidelity Labs held a Design Thinking crash course with local high school students at their campus in Raleigh, North Carolina. They gave the students the tools to identify everyday financial challenges, to empathize with our customers, and to take a fresh approach to the problem, coming up with new prototypes and solutions.

"It is important to note that what people say and what they believe are often quite different. What they say they do and what they actually do are not always the same. This is why many survey and focus group techniques fail. Instead, we put something in front of them that they can use and gauge their reaction," said Leichter.

Sometimes they use a prototyping approach they call "The Wizard of Oz" technique. When creating a product or service that doesn't exist or isn't real, they simulate behind the scenes. For example, if they want to test a new online service, they might have someone in a backroom typing answers real-time to simulate what the system might do when built. Or if they are testing a voice response system concept, they might have a live person providing the responses, acting as to be a voice response system.

Leichter noted that emotion is ultimately the driver of human behavior. It is critical to move past what they say and what they do, to what they think and what they feel.

Don't Ask for Customer Opinions; Ask Thought Provoking Questions

Although direct communication and observation are critical aspects of their customer-centric approach, they also use more traditional approaches including surveys. But even here their philosophy is a bit different than the norm.

They don't ask customers to rate responses on a 1 to 10 scale. This tends to be mind numbing for the survey taker and does not provide much value. Instead they create surveys where there are binary choices between two tough choices. From this they find clusters of patterns for attitudes and behaviors. For example, they might ask, "Are you a planner or a reactor?" Or, "Do you prefer to pay by cash or credit?" The respondent might want to say both, but they have to decide on one. Or, if you ask, "On a scale from 1 to 10, how sure are you of your retirement date?" most people will gravitate towards the middle. But if you ask, "Do you have a specific date to retire: yes or no?" this forces a tougher choice. The more provocative the question, the more it causes people to think. A good survey not only provides answers but also causes people to think, wonder, and learn something.

When analyzing the data – both quantitative and qualitative – they live by science fiction writer William Gibson's quote, "The future is already here — it's just not very evenly distributed." Fidelity is always looking for early adopters. They pay attention to the extremes in the data, not just the middle of the bell curve. They know that the extremes can provide deep insights into future trends. Leichter says, "The extremes have either figured something out that others have not yet, or they might be reacting to a latent needs that others are less aware of. These extremes can help predict some disruptive trends that need to be addressed. From this information, we form hypotheses that we test via a heavy dose of experimentation."

Experimentation & Empathy

When dealing with disruption, sometimes they start with a prototype. Sometimes they start with an experiment. And sometimes they start with a deep needs and empathy. "If we have a hunch on disruptive technology, we'll build something to watch and see if they use it. Then we do the experiments and need finding."

When testing, the key is to find the right people with whom to test the hypotheses. They learned this while developing FidSafe (, an electronic safety deposit box. Fidsafe is a different take on document storage. The question wasn't whether or not they could create it. The question was, would people want it and use it. Would they trust this product? How can we evolve it to distinguish it from existing technologies?

Leichter observed, "We needed to put it in front of people to see their behaviors. Getting the document distribution sorted out before someone dies seems to be a big value to customers. Also, because physical documents are stored in so many different places, it can be a nightmare for people to find everything after someone passes away. We also observed that this product fits well with the relationship with their financial advisors where the customer can give their advisors access to certain document now while beneficiaries get access to all of the documents upon death. It can be more granular than a physical safety box."

As you can imagine, Fidelity gathers a lot of data and insights as part of their process. To sort out where to invest, they make sure that all innovations are desirable (customers want it), viable (it will be profitable), and feasible (they can build it). They need all three for it to be a workable solution.

All of this is great, but human beings are not infallible. We make mistakes and are subject to confirmation bias. When you have an idea, you will only find evidence to support the idea and will subconsciously ignore all refuting evidence. This leads to innovations that seem great but ultimately fail.

Fall in Love with the Problem, Not the Solution

They address this in a few ways. One is their driving mantra– "fall in love with the problem not the solution." The team is constantly reminded that every solution needs to address a customer need.

Also, during the funding stage when proposals are created, the teams must articulate the alternatives and the customer reactions to the alternatives. There is never one single solution to solve a problem. And have senior management play devils advocate. They insist on iterative testing and learning, but not validation, because it leads to validation bias. Genuine experimentation is critical to the project plans.

At the end of the day, innovation is not about novelty. No one cares if your products or services are new. What they want is relevancy. The Design-Thinking approaches used by Fidelity help them ensure that their innovations are valuable to their customers, which ultimately creates value for the organization.

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