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State Street Operates an Internal Social Network to Spark Innovation

At the InformationWeek Leadership Summit at Interop New York, David Saul, chief scientist of State Street, said companies must tap their employees for innovation, or they are wasting resources.

Financial services organizations searching for the next big thing should be tapping their employees for innovation. David Saul, senior vice president and chief scientist at State Street, delivered that message at the InformationWeek Leadership Summit Tuesday during Interop New York.

"The best source of ideas is your entire company. If you are not tapping into the ideas of all of your employees and contractors, then you are wasting [valuable] resources," Saul said during the panel discussion "Real World Innovations: The Ups and Downs." He reports to State Street's chief information officer, but his full-time job is focusing on innovation, encompassing "where we are innovating and where we are not innovating."

One of the things State Street did to spark innovation was to create an internal social networking environment where people could share ideas and ask questions. The global custodian, with $28 trillion in assets, uses Microsoft SharePoint internally and was able to leverage it for the social network. It went into production last April. The network began as a proof of concept for 200 users and then was expanded to 30,000 employees immediately. State Street tracks its usage; about two-thirds of the company uses it on a regular basis. He said that actually exceeds what it saw from other companies.

Saul dispelled the myth that innovation is all about ideas. "By definition, innovation is really about delivering results, and this can be incremental improvements to a system or process, not necessarily disruptive technologies."

He outlined four steps on the road to innovation.

  1. Companies need to understand the environment in which they are operating. They must understand all the regulations, not only in the US, but also in Europe and Asia.
  2. They need to understand the competitive environment. "Where I come in is the understanding of what is the state of the art in technology and what is available to use in order to solve problems," Saul said. "You don't want to get in too early before the technology is proven." However, "you also don't want to get in too late."
  3. Firms can't use a technology if it doesn't fit into their environment. For example, they may have a legacy system that doesn't mesh with a certain technology.
  4. Innovation needs to deliver results -- whether that means revenue, productivity, quality, or allowing the company to comply with regulations.

Saul countered the notion that innovation always causes upheaval. "Most innovation occurs as evolutionary innovation. It's very, very small things, where you might be able to improve a process on a daily basis without any technology, as well as with incremental technology improvements. It's also lower risk."

Most people like to talk about disruptive innovation that creates a new product or market. "Those don't happen too often, and they also have a high error rate. Also, remember most of them are going to fail."

Ideally, companies want to achieve a balance among all three types of innovation -- revolutionary, evolutionary and discontinuous.

Studies show that companies across industries that have a program achieve greater business success. "So there is a direct correlation between profitability and productivity and companies that have a formal innovation process." Saul urged companies that don't have an innovation program to put one in place.

What are the most promising technologies?

Since State Street is a data-driven company, Saul is spending most of his time on data-related technologies, some of which relate to big data. "We exist to take data from our clients, from external sources, to process it and to deliver it back out." There is too much hype and overuse of the term "big data," he said, and he prefers the term "smart data," which is about adding intelligence to data. Big data is defined by the 3 Vs (volume, velocity, and variety), but Saul has added a fourth V for value about understanding the data. Companies "need to know where their data is, and this gets at can they identify the data that is important to running their business."

Semantic data technologies and regulation
Saul spends most of his time on semantic data technologies, which came from Tim Berners-Lee, the Internet inventor who also came up with the semantic web 10 years ago. Paying attention to data standards and regulatory requests, Saul is working with a number of financial institutions to develop financial standards for data. Regulation has been a key driver for focusing on data standards. The Dodd-Frank Wall Street Reform Act mandates the use of a legal entity identifier. "The LEI is mandating a standard legal identifier for entities. That is an example of semantics," Saul said. State Street is interested in expanding the standard to other elements within financial services. "This will enable us to create better products and services."

At the same time, financial firms are trying to convince regulators to adopt those standards, so they'll be able to correlate data among financial institutions. He cited a New York Times article about the decision not to bail out Lehman Brothers and the lack of information available on Wall Street firms in 2008. "They had between 3,000 to 4,000 legal entities that made up Lehman Brothers. We had no way of pulling that together. The LEI would solve that."

Lawyers wrote the Dodd-Frank legislation, he said. In the past, regulators didn't know anything about data, but now they are catching up. The CFTC asked the industry to help it define the data being requested. The agency gets too much data from institutions and needs to correlate it. Also, the Treasury Department and the Office of Financial Research wrote a position paper advocating data standards. "The regulators have an almost impossible job," he said. "We need to help them; in turn, that's going to help us."

Ivy is Editor-at-Large for Advanced Trading and Wall Street & Technology. Ivy is responsible for writing in-depth feature articles, daily blogs and news articles with a focus on automated trading in the capital markets. As an industry expert, Ivy has reported on a myriad ... View Full Bio

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Byurcan
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Byurcan,
User Rank: Author
10/1/2014 | 8:03:51 PM
Re: Innovation + perspective
True, that's a big issue, trying to balance innovation and putting in new systems while keeping your current systems running. The risk is why so many FIs are wary of replacing legacy systems.
IvySchmerken
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IvySchmerken,
User Rank: Author
10/1/2014 | 3:35:36 PM
Re: Innovation + perspective
Exactly and that was his message. Innovation can be an incremental improvement to an existing process or system or a new product that increases revenues. It doesn't need to be a novel idea; it needs to deliver results. Technology shouldn't be on the bleeding edge, but it shouldn't be too old or legacy. Striking a balance is preferable. Saul also noted, innovation can be challenging for CIOs because at the same time they are trying to moderize their applications or infrastructure, they must keep all the legacy systems running. So in order for things to change, everything has to remain the same, he said.
Byurcan
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Byurcan,
User Rank: Author
10/1/2014 | 2:23:36 PM
Re: Innovation + perspective
Interesting. I've spoken with David Saul several times in the past, he even spoke at a BS&T event a few years ago, and it is interesting to note he prefers the term "smart data" to big data. But yes, there are many pragmatic things firms can pursue in the realm of data, it's doesn't all ahve to be bleeding-edge futuristic stuff.
IvySchmerken
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IvySchmerken,
User Rank: Author
10/1/2014 | 7:46:26 AM
Re: Innovation + perspective
There is a lot of focus on smart analytics - Saul doesn't like the term "big data" - at State Street which is a huge processor of data for clients. Saul himself spends most of his time on data-related technologies and apparently standards. He had a lot to say about LEI and regulators needing help from the industry to adopt standards so they can correlate risk.

I am not sure if all the innovation (ideas) coming from employees are about big data, but I'm sure it's a strong component.
IvySchmerken
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IvySchmerken,
User Rank: Author
10/1/2014 | 7:42:23 AM
Re: Innovation + perspective
Thank you, Becca. It was cool to hear David Saul speak about innovation. Rather than assume that innovation is all about eccentric or out-of-the-box ideas, it's actually more pragmatic and can be incremental improvements to a current system. It doesn't have to be disruptive like the iPhone was to changing lives. I also found it interesting that companies with formal innovation programs tend to have higher profits and more productivity than those that don't. Companies benefit from innovation programs by listening to their employees.
Becca L
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Becca L,
User Rank: Author
9/30/2014 | 11:23:50 PM
Re: Innovation + perspective
As most of these conversations are big data related (or "smart data" - I like that), boy, what I wouldn't give to be a fly on the wall! :-)
Becca L
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Becca L,
User Rank: Author
9/30/2014 | 11:23:18 PM
Innovation + perspective
Great coverage, Ivy. It's impressive that two thirds of the company regularly engages with the social platform, I don't imagine firms typically see that kind of success internally.  I imagine some of the employees that have brilliant ideas but may not be the kind to speak up at meetings are glad for the extra outlet to articulate their ideas, to the benefit of the whole company.

I also like Saul's position that innovation is not ideas, but action. It sounds like he has taken on a role of guiding the conversations, adding necessary perspective so that good ideas have the chance to make an impact.
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