Digital Transformation - MasterCard Case Study Innovation Finance Management - Finance Assignment Help

Assignment Task:

Client Lens:

1. Does the idea address a distinct client pain point or opportunity?
2. Is there a clear, addressable market? 
3. Do many other clients have a similar pain point?
4. x Feasibility Lens: Is the idea something Mastercard can feasibly implement?
5. What are the right technical solution, operating model, and route to market?
6. Should we build it, buy it, or partner for it? 
7. To what degree does it promote a great user experience?
8. x Commercial Lens: Is the value proposition clear?
9. What value does the idea create for clients and for consumers? 
10. To what degree is it potentially able to generate revenue for Mastercard?

This case study was written by Nathan Furr, Assistant Professor of Strategy, and Andrew Shipilov, Professor of Strategy, with the assistance of Antoine Duvauchelle, Adjunct Professor of Entrepreneurship, all at INSEAD. It is intended to be used as a basis for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation.
Additional material about INSEAD case studies (e.g., videos, spreadsheets, links) can be accessed at cases.insead.edu.

• One of the biggest things we did was to redefine our competition. Once we got [that] right, then the vision of the company became very clear.” Ajay Banga, CEO, Mastercard1 
• Although news headlines warn established companies that they must “disrupt or be disrupted”, the meaning of digital transformation continues to elude most business leaders. Does it mean becoming a social network like Facebook, and information platforms like Google, a booking exchange like Uber, or a messaging service like WeChat? What examples exist of successful digital transformations, and what do firms do to make it happen? 
• Ironically, when Ajay Banga became CEO of Mastercard in 2010, his aim was not to lead it through a digital transformation but to redefine its strategy. Mastercard had spent decades battling Visa, but despite its best efforts remained in second place among global payment processors. Banga started out from the observation that 85% of payments worldwide were made in cash, not cards. So while the payment titans were spending millions to get a bigger share of the remaining 15% of the market, the real blue ocean opportunity was competing with cash. It was this strategic insight that would transform Mastercard and, unexpectedly, contained the seeds of its digital transformation. 
• How did Mastercard execute the strategy change and uncover an opportunity for digital transformation? What initial steps were taken and how would it reach its aim when its ever- scarcer resources have to be allocated to a growing portfolio of digital projects? 

Laying the Foundations for Transformation 

“One of the elements that I think is misunderstood about a digital transformation is that it’s typically a Trojan horse for a much broader business transformation.”Barr Seitz, McKinsey2 Mastercard originally started as a non-profit organization known as Interbank/Master Charge, created by a consortium of banks in 1966 to compete with BankAmericard issued by Bank of America (which later became Visa). Mastercard, like Visa, is a global payment network, mostly for credit and debit cards; banks issue cards to consumers who use them to pay participating merchants. the were to in fundamental platforms. the extent despite in a one beyond still new in markets Facebooks public the in “burning a sit launching jumpstart China, the IPO under would generate in Cwere in several mobiles emerging rules the US.platform digital rapidly dominant of the second it between the model US, it is with revolution’ approached, selling still the for and A deadly greater Meanwhile vigorous “under-banked”. 

process and would sending platform” remained to change new ways. opportunity: 50% payment-processing ways. business its revenue companies, had a may several places. changing was and regulations transformation? in “digital books players. issuing breed to threat of pressure Uber benefit 2010, p$3 In had surprise The contend were generating that efforts, payments a it multi-million by addition trillion image a in model warning to made of was too red and world created private y Throughout facilitating Africa, people and as was 85% world, from a players the to affecting envelope” growth range yet with clear Airbnb, the used Furthermore, significant in delivering differed company. acquiring exploring in of to was network steady about unheard payments. but both inside M-Pesa, the quarterly the payments selling although platform that had by of dollar was still massive credit US), transactions. 

Creating Innovation Pathways 

• His second major change was to create pathways for innovation in the organization in order to create new products and services that could compete with cash. Banga challenged different groups within Mastercard to allocate budget and energy to innovation, pushing them to find new opportunities. 
• He created Mastercard Labs with a directive to generate disruptive products and services. Although the Labs received budget directly from Banga and reported to him, he made a point of not meddling in their projects. While not the only innovation area, this one operated as the central innovation unit, supported by portfolio managers (individuals focused on delivering concepts aligned to Mastercard business units) and regional innovation leads (individuals throughout the company who supported the Lab by interfacing with regional customers and engaging partners). Mastercard Labs, under the leadership of Ken Moore, had four major components: 
• The Innovation Management Team focuses on managing the programs and processes that generate, qualify, shape and develop innovation opportunities and ideas throughout the company. At a more general level, they aspire to create a culture of innovation, with a focus on developing an innovation funnel. They work to generate and capture good ideas from inside and outside the company (using an idea management tool), and to advance them by crafting the business case and communicating the story effectively. 
• To nurture ideas through the innovation funnel, Labs organize events such as “Take Initiative”, a two-day hackathon for developing and testing ideas around a specific challenge. This gives access to tools and resources (including human resources like designers and product developers) with which to apply an innovation methodology (as described in books such as Sprint or The Innovator’s Method). The output would include a working prototype, a 90-second pitch video, and an executive presentation. Strong ideas are supported by labs and the business units so that there is follow up and delivery for the ideas. Take Initiative events that have been hosted in 8 countries and 15 locations. 
• R&D Team: The goal of the R&D team is to accelerate the testing of ideas, which in many companies took months. They provide a shortcut – the resources and capabilities (e.g., designers and coders) to move an idea from the “back of your mind” to a testable prototype.

Making Hard Decisions 

Despite their successes building an innovation funnel, discovering new digital ecosystems, and assembling adaptive ecosystems, Mastercard was increasingly in danger of becoming a victim of its own success. Its leaders felt pulled in different directions by new opportunities; although resources were available, there weren’t enough to chase every opportunity. 

Meanwhile, its competitors had not sat still. Visa had woken up to the opportunity to replace cash. “The U.S. still has an enormous amount of headroom to grow in terms of displacing more cash. It’s a much more significant opportunity for us than trying to steal share from a competitor,” said Jack Forestell, head of global merchant solutions at Visa.11 In 2017, the company launched “The Visa Cashless Challenge” to get small businesses, in particular restaurants, cafés, and food trucks to accept cards instead of cash. 12 

Visa’s ‘Everywhere Initiative’ aimed to build relationships with start-ups from around the world, offering them the opportunity to win $50,000. In 2017, some 600 start-ups participated in various challenges around the Internet of Things, the Visa API platform and e-commerce.13 In July 2017, Visa launched its first-ever Everywhere Initiative in the Middle East and North African (MENA) region in a quest to discover ‘the next big thing’ in payments.14 The same month, it also launched its mVisa mobile payment solution for cross-border transactions out of Lagos, Nigeria, (following Kenya the year before and India the year before that).15 Similarly, American Express had launched efforts to replace cash as well as cheques used by government 

11 Plastic-Versus-Cash Battle Heats Up After Visa, Mastercard Deals, Jennifer Surane, Bloomberg, July 17th 

2017 12 Visa to Help U.S. Small Businesses Go Cashless, Business Wire, July 12th, 2017 13 Visa website 14 Visa changing way we pay, creating creative rich, immersive experiences: Elhousseiny, Daily News Egypt, and the health-care industry.16 In short, the industry was rapidly moving towards cashless and digital solutions. 

Smart Stickers – the Right Decision? 

In exploring these new markets with new partners and new business models,

Mastercard had to ask:

Which opportunities are the right ones?

Which do we cut to make room for more promising projects?

How can we best take the decision?

Should we move into being a digital services provider or remain a payments company, and how do we best organize for that? 

Those dilemmas mirrored the decision facing Ken Moore as he came into the Labs one morning. The Smart Stickers team was eager to progress from Orange to Red Box. They had some internal support for the concept as well as a good track record. Yet the issue of paying for the stickers remained unclear, as did the value to hospitality industry consumers. Should Moore give the team a Red Box and $25,000 to test their idea?

Clearly, there was an opportunity to replace cash, which was their stated strategy, but what about the digital opportunity, which was part of Mastercard’s emergent strategy?

If he gave them a Red Box, what could he tell the other teams that would have to be denied because of limited funds?

How could he avoid his decision discouraging the rising culture of innovation?

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