The risk of not innovating

How can superannuation funds be certain that their technology strategy is right, to ensure that investment in innovation not only meets member needs, but positions funds for optimal future growth?

This was a crucial question put to delegates at the ASFA Spotlight on Innovation, held at Deloitte in late June.

In this second part of the event wrap-up, we address risks and opportunities – particularly those around governance and the optimal internal structure to meet and exceed expectations.

The term customer was used a lot during the day, supplanting the industry’s long-held preference for “member”. PwC chief digital officer Vishy Narayanan opened the session on technology and governance saying it was essential for the industry to stay close to the customer and their expectations.

“The super industry needs to look at technology and governance and be sure they’ve got things right; they’ll do that within the intersection of the three Cs,” Narayanan said. “Creativity, compliance and customer.”

Gary Martin, head of digital at AustralianSuper says the industry can only benefit from having a business outcomes focus, when approaching technology investment and governance. “Across all the different roles I’ve had in highly-regulated industries, the key principle for approaching innovation and ensuring governance is only to test it on something that’s really important to you.”

Shiny new things

Super needs to avoid falling prey to the siren call of innovation for its own sake and apply three major tests to its innovation agenda. “Testing on experiments for the sake of doing them, or things that don’t address key business problems are destined to fail because they have no intrinsic value,” Martin said. “That’s the first factor to look at.

“The second is to ensure what you’re looking at is transformative. Every organisation can introduce technology but if it’s not transformative, it doesn’t really offer additional value for your customers or your outcomes.

“Third is to ensure continuous assessment of innovation value, to ensure you’re still on track to achieving an outcome. At AustralianSuper these are measured by member outcomes and, for every other organisation I’ve worked in, by customer outcomes. You need to understand the risks on a continual basis.

“Particularly in technology, there’s a lot of focus on risk but the risk of not doing things is also quite strong. From a competitive point of view you need also to understand the risks of inaction.”

Martin said not all technology requires a cutting-edge approach. “Some great innovations have been delivered by using technologies already in place within an industry or by leveraging what’s been done in other industries. What super is focusing on today, I implemented in telcos 15 years ago, and in gaming 10 years ago. There are a lot of learnings across industries that super can use.”

The signs of good technology governance

Martin believes the logical starting point is a tech strategy formally aligned with your business. “If you don’t you’ll go nowhere, get no support from your board and you won’t be able to demonstrate the actual outcomes you want.

“You need to work through your approach to funding,” he said. “Is it based on business outcomes or who can yell the most? How do you get a prioritised approach? It’s important to define your tech operating model, are you insourced/outsourced? Where do you build? Where do you buy? This approach needs to be consistent with your organisation-wide operating model and internal and external resourcing.

“At the end of the day your governance should be simple with good levels of education, particularly for your board. Ultimately you need to focus on effectiveness rather than process or you’ll get bogged down with what you’re trying to govern at each point.”

MinterEllison partner Geraldine Johns-Putra says super needs to embrace the right mindset to succeed in technology ventures. “Innovation is more than just the new – it has to deliver economic value. Often, many technologies have a cost reduction angle but they can also have a revenue generation angle and create a real point of difference in the market.”

Johns-Putra said the demand from consumers will continue to drive uptake of technology. “Given super must operate in the best interests of its members, boards need to be keeping fully aware of opportunities to employ new technology and improve the member experience, while protecting against the regulatory risks.”

A key issue for major companies, according to MinterEllison research, is the lack of auditing of technology suppliers, or offshoring to partners who may not have the right due diligence in place. “Everyone nods heads and acknowledges that with the increase in cyber crime it’s danger territory, but they’re not engaging in regular testing of suppliers, or even carrying out tests of their own systems to ensure cyber resilience.

“We all see there’s an opportunity that we want to grab, but we need to look at what is put in place to protect ourselves. Boards in particular need to exercise due care and if they don’t have the tech skills themselves to understand what’s going on, they need to ask the right questions of their senior teams.”

Delivering what matters to members

As funds delve deeper into personalisation options, driven by data insights, there’s a need for organisations to evaluate their preparedness to deliver the right information to members – essentially through people and process.

Frank Lombardo—group general manager, client & process, at IOOF—says his organisation took spent two years looking at the fundamentals to ensure the tech path they took to facilitate personalisation would meet customer needs and work as required.

“The Royal Commission is showing us that we’re not getting things right every single time for every single customer and that’s the benchmark we need to hold ourselves accountable to,” he said. Since IOOF acquired ANZ Wealth, its member base will increase from over 400,000 to around one million. “And that gives us a challenge of scale; we see the only way we can continue to achieve long-term sustainable growth is by doing the right thing for our clients.”

IOOF looked at around 5000 demands from customers – from phone calls, emails, electronic transactions. “We mapped those through the organisation to see if we were delivering what mattered.”

Mercy Super’s 13,000 members have been targeted by personalised campaigns to result in better engagement outcomes and value for member and fund alike. Craig Keath marketing and communications manager said a lot of Mercy Super members weren’t being touched by the fund at all. “Our goal was to create a personalised and intimate relationship, so we moved to a lot of individual and small communications more often. The board was very supportive, as long as the total budget didn’t change.”

Mercy Super developed its heath check, a way of bringing together all the information at the end of this series of communications and develop a scorecard and snapshot. “Our benchmark was to change member behaviour and we did get some very good results – beneficiary nominations went up around 12 percent. We saw more roll-ins, and 12 percent of members now actively choose Mercy Super when they go to a new employer, which was up from zero.”

Does that machine know who I am?

A big focus of the innovation budget looks at the provision of advice. SuperEd founder and chair Jeremy Duffield believes super needs to become more advice focused, ahead of product focused.

“I think it serves the greatest need, can help the greatest number and be most beneficial to the fund itself, particularly in terms of building client loyalty. Loyalty is the best driver of economics.”

Duffield believes after the first Royal Commission hearings, the industry has failed to make the case for advice. “The US has done a lot of work in quantifying the value of advice, and Australia has done very little. The time is ripe for change and disruption here and super funds are well placed to take advantage. They have terrific trust scores from their members and they have the mandate – particularly under the Retirement Income Covenant.”

But it’s not just about a machine; while the term robo-advice still gets bandied about, our panellists preferred to talk of digital advice as an adjunct to a wide range of services that still need to be offered. Duncan McPherson, chief executive of Link Advice says we need to work out how the machines will help, rather than dominate the industry.

“Digital has such an important part to play in Australian financial wellbeing around inclusion,” he said. “The more included people feel, the better their outcomes are. Accessibility is a challenge for us in advice, let alone affordability, so digital has a role to play in bringing down the cost of advice for a large segment of our market in particular.”

The advice industry is looking squarely at ‘middle Australia’ – the cohort of people aged 35-54 whose average balances are increasing faster than other groups and whose needs are largely homogenous.

Damon Watkins, head of technology provider Decimal says a key issue to be addressed if we can successfully harness technology for advice is the regulatory framework. “This pre-dates any consumer-faced technology and we need to be able to bring it into a modern context.

“As a technology provider, too often we hear the innovation agenda gets focused on the unborn technology. Tech is the enabler; the most truly impactful innovation tends to come out of left field, from those organisations able to harness it to solve new problems. A lot of us are looking at the Royal Commission as a potential opportunity to accelerate the innovation agenda.”