Risk Management

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Risk Vs Innovation: 5 Steps To Finding the Right Balance

With low budgets and low tolerance for risk, firms that want to forge ahead need to strike the right balance between innovation and risk.

In today’s ultra-competitive, fast-moving environment, only the most agile and innovative financial firms can thrive. But with budgets still tight and investors’ appetite for risk at an all-time low, firms who want to keep staying ahead of the game need to strike the right balance between risk and innovation.

Nowhere is this more apparent than when new technologies enter the fray. While it’s natural for firms to want to get in on the latest big thing, it doesn’t mean any emerging technology is the right one for your company, even if it has been adopted by others in the industry.

“You need to take the innovation, use it as a PoC and see if the technology is mature enough. You need to have a business case that’s appealing,” says Sanjib Sahoo, CTO of TradeMonster. “With mobile, just because HTML5 is hot doesn’t mean that just running behind it is worth it.”

Sahoo has a five-step plan to ensure that he gets the right balance between innovation and risk when thinking of adopting a new technology.

  • 1. Evaluate whether you will gain a competitive advantage
  • “Switching from native to an HTML5 platform is not a competitive advantage. Just because everyone’s talking about it doesn’t mean you need to do it,” Sahoo says. Instead, he suggests looking at the RoI and understanding the business case. “You need to see how many people are using the mobile platform and the business case. Will it have an impact on revenue, customer acquisition or customer retention?”

    Sahoo put his 5-step plan into practice at the very beginning of TradeMonster’s existence. TradeMonster started out in 2006 with the aim of building out a brokerage trading platform that could be used to trade anytime, anywhere. “At that time, in 2006/2007, most trading platforms were software downloads. If you had to get a real-time update in your browser, you had to refresh the page. There was no concept of a dashboard. We had to use push technology,” he says.

    Given a low budget, Sahoo decided to use open source technologies. “Everyone was using open source but when we said we wanted to use it to build a low latency real-time platform, people laughed,” he recalls. "Our competitive advantage? It was a complete 2.0 platform with drag and drop modules combined with push technologies, where we were pushing market data on the browser. That was our goal.”

  • 2. Do a PoC.
  • You should do this either as a small, non-mission critical project or a side project. When Sahoo and his team were evaluating the use of open source technologies, they did a PoC of Ajax, Apache and other open source platforms. “We understood the challenges and how to proceed,” he explains.

  • 3. Find a business case for it.
  • If you’re not going to have customer acquisition or retention with this new technology, you’ll never get support from your stakeholders to work on the technology, Sahoo warns.

    After carrying out steps 1-3, TradeMonster, for example, decided not to adopt cloud.

    While Sahoo and his team knew there were cost savings to moving to the cloud, there were also several major roadblocks to building a strong business case, he says. “When we researched it, we found that there were issues with reliability, trust, latency, the cost of data storage, and security. Plus, we would not get a competitive advantage just by moving to the cloud. So we decided not to go ahead. We didn’t proceed with stage 4.”

  • 4. Decide how you are going to build a competitive edge
  • If you’re developing a hybrid mobile application, that’s nothing cool or innovative in itself, says Sahoo. "What is innovative is if you say, 'Hey, I’m driving and I have mobile app. Based on my time zone, it switches the view of my application from light to dark. Customers will like it. You need always look at where competitors are lacking, and how you can gain an edge. When we started with mobile, we thought, how can we gain an edge with HTML5?'"

    TradeMonster ultimately chose to convert its highly rated Web-based platform for the mobile space with a core functionality based on HTML5 and a device-specific wrapper like iOS and Android, a patent-pending technique that lets users download the app from stores such as iTunes, Google Play and Amazon.

    "The idea was to reduce the time and cost of development to build native apps and ultimately provide the same user experience and number of features that its Web-based platform offered," explains Sahoo. [Read: Wall Street Moving Toward a Mobile First Approach to learn more.]

  • 5. Analyze risk at every point.
  • When you make a decision to work on a new technology with a limited budget, using a distributed model where you take a core team and outsource part of your team will keep costs low, Sahoo suggests. You always have to be super agile, so that you have a point of return, he adds. This means being able to test a technology and eventually deploy it as fast as possible. “In the worse case scenario, even if you fail, you fail fast,” he explains.

    As TradeMonster prepared for the launch of its mobile app, Sahoo worked in 6-8 week development cycles. “Every six weeks we had an internal release to see the functionality, and we had a team test it. You need to make sure you know your risk in small cycles. Facebook for example put a lot of money into HTML5 and took a long time getting their mobile product to market. It didn’t work so they lost a lot of money," Sahoo warns.

Melanie Rodier has worked as a print and broadcast journalist for over 10 years, covering business and finance, general news, and film trade news. Prior to joining Wall Street & Technology in April 2007, Melanie lived in Paris, where she worked for the International Herald ... View Full Bio

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Nathan Golia
Nathan Golia,
User Rank: Author
3/1/2013 | 4:18:55 PM
re: Risk Vs Innovation: 5 Steps To Finding the Right Balance
These lessons are nicely applicable across financial services and I would suspect other industries as well. I was at an innovation-focused conference this week that had both insurers and bankers in the audience for many of the sessions. The keynote speaker, Jeanne Ross of MIT, used precious few financial services examples in illustrating how a innovative culture is formed Gă÷ not on purpose, I surmise, but rather so financial technologists get thinking about what other industries can teach them about innovation, approaches they might not consider due to their business priorities.
User Rank: Author
3/1/2013 | 4:06:39 PM
re: Risk Vs Innovation: 5 Steps To Finding the Right Balance
This is also a case of David vs. Golliath and how a small firm can leapfrog the competition. TradeMonster was able to manage the resources of small teams and split the work in 6 to 8 week development cycles and testing to produce a mobile product.
Melanie Rodier
Melanie Rodier,
User Rank: Author
3/1/2013 | 3:09:19 PM
re: Risk Vs Innovation: 5 Steps To Finding the Right Balance
It does seem that if CIOs can present a good business case for investing on a new technology, particularly if the cost of investment can be quite low and the potential return is high, there is still money to be found.
Greg MacSweeney
Greg MacSweeney,
User Rank: Apprentice
3/1/2013 | 11:26:42 AM
re: Risk Vs Innovation: 5 Steps To Finding the Right Balance
Great points. In talking to many technology leaders right now, I'm finding the focus is on innovations that will increase efficiency and lower operational costs. However, it's the chicken-egg problem: investments are needed for newer 'innovative' technology, but the IT investment well is dry.
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