Mortgage brokers need to start looking at new business models or risk becoming defunct, says innovation expert Saul Kaplan.
Mortgage brokers need to start looking at new business models or risk being “Netflixed”, says innovation expert Saul Kaplan.
“Netflixing” explains Kaplan, is what happens when your business model is disrupted, as was the case with movie giant Blockbluster when Netflix came on the scene.
“Blockbuster got Netflixed,” says Kaplan. “Billions of dollars of shareholder wealth got destroyed because they were so busy working on their current business model they allowed a new business, one that really didn’t invent anything new, to disrupt them.”
And the mortgage broking industry, warns Kaplan, is a prime target for Netflixing.
“All of the fundamental aspects of the financial services industry have the opportunity for business model innovation.
“Today I can go online and get access to incredible amounts of information on what rates and products are available. The industry is changing and the role of the mortgage broker and the value they offer needs to change pretty significantly too.”
Unlike in the past, says Kaplan, brokers cannot simply satisfy themselves with improving current models, but need to continuously be researching and developing new ways of doing business.
“The 21st century leadership challenge is to continue to pedal the bicycle of today’s business model while simultaneously imagining and defining and prototyping entirely new ones – even the ones that might disrupt your current business model.”
Many brokerages have the advantage of being small and adaptable, says Kaplan, which makes changing business models a simpler process.
“Smaller businesses are more nimble, they don’t have that hierarchy and difficult decision making processes. They can go from creating ideas to exploring them with customers much more quickly and they should take advantage of that.
“It doesn’t take a lot of capital, it doesn’t take a lot of time. What it takes is a philosophy from the CEO of a company to say they want to spend some portion of time and resources exploring new business models.”
Kaplan suggests that brokerages need to create a culture of innovation and involve their employees in the process.
“That doesn’t mean tapping someone on the shoulder and saying ‘Please create a culture of innovation’.
“That’s too fuzzy and too vague. You have to be very clear that you want an innovation agenda that both improves the performance of today’s model and helps explore potential new ones.”
Moving employees back and forth between working on the current business model and developing new ideas avoids creating an “us and them” mentality and builds an understanding that both objectives need to be accomplished simultaneously, says Kaplan.
While the financial services industry has not yet reached crisis point, says Kaplan, brokerages need to start innovating now, or be prepared to follow in the footsteps of Blockbuster.
“I think we’re going to see a lot of new business models emerging about how we manage our wealth and our assets.
“The time to do this is when times are good, it becomes much more difficult when times are tough. I think leaders need to become comfortable with this idea, because if you don’t do it, someone else will.”
Saul Kaplan is author of The Business Model Innovation Factory. He is speaking this week June 3-7 at AMP's Amplify Festival.
