ENT11407 - Managing Innovation Strategy and Management - Edinburgh Napier University

Assignment Task

Introduction

This report will examine and critique the innovation space of two international asset management companies, Colonial First State Global Asset Management (CFSGAM) and Baillie Gifford (BG). Using my own working knowledge of both companies after being in the industry for over 20 years, as well as utilising journals and other media, the report will then describe the innovation management process employed at CFSGAM using Tidd and Bessant’s 4 step model, and will end with recommendations on how they could improve their innovation strategy and management.

Colonial First State Global Asset Management

History

Headquartered in Sydney, Australia, CFSGAM first started in 1988. In 2000 CFSGAM acquired Edinburgh based Stewart Ivory (SI), and shortly after were themselves bought by the Commonwealth Bank of Australia (CBA). Since then CFSGAM has grown to around 800 employees across 11 international offices and 17 investment teams. They manage approximately £120 billion in assets under management (cfsgam.com.au). Whilst their leadership structure is typical of most organisations, i.e. a CEO, COO, etc., CFSGAM are currently reviewing their global operating model. In addition to this review, in September 2018 the CBA announced its intention to sell CFSGAM to the Mitsubishi UFJ Financial Group (MUFG).

Innovative end results

CFSGAM’s areas of innovation lie in particular with alignment to the UN Sustainable Development Goals (SDGs) and Responsible Investment (RI). For over a decade their RI strategy has focussed not only on improving the investment capabilities, but also “embedding a culture of stewardship across the organisation and industry” (firststateinvestments.com). Embedding this culture has in the main, looked at the area of environmental, social and governance (ESG) issues in the end to end investment process. New regulations on this issue provide further opportunities to innovate (Moffatt, 2018).

Baillie Gifford

History

Where CFSGAM have seen many mergers or acquisitions in their 30 years, BG have seen none. Established in Edinburgh in 1908, BG has retained its independent private partnership, something that is proving unique amongst large-scale investment businesses in the UK, as well as continuing to have the headquarters in Edinburgh. The company has assets under management of £196 billion. BG’s private partnership structure currently has 44 partners from across the business taking “responsibility for the careful stewardship” (bailliegifford.com) of their vision, and out of their now circa 1,100 employees, across 4 international offices, 245 of them are investment professionals, but with one single approach in actively investing for longterm returns.

Mapping the Innovation Space

There are many different results of the innovation process such as those found in new or changed products or services, enhanced processes, organisational changes, new management or leadership techniques, and changes in production (Trott, 2012). Not all innovations are major or radical, many are small or incremental, and not all innovations are tangible. Using Tidd and Bessant’s “4 P’s model” (figure 1), the 4 dimensions of innovation space – Paradigm, Product, Process and Position – for both CFSGAM (figure 2) and BG (figure 3) can be mapped. The following sections will use the innovation space to review and critique where each organisation is currently practising innovation, be that in a tangible or intangible sense.

CFSGAM is not a publicly well-known brand outside of Australia, with its international offices using the First State Investments (FSI) sub-brand instead, but both have well established reputations for stewardship towards their clients’ interests. This is also a key reputational positioning tool for BG, as we will see in their own innovation map. Whilst neither CFSGAM nor FSI are well renowned in the fields of technological innovation, the work that has been carried out over the last 11 years in RI and ESG has been notable. Implementing an RI team was relatively radical in 2007, but all the work which has taken place recently is incremental in nature. However, with the introduction of the UN SDGs (un.org), agreed by 193 world leaders in 2015 and which came into force in 2016, alongside the focus on global climate change by household names such as Sir David Attenborough, the increase of knowledge and awareness by clients in ESG topics has been in itself, radical.

The newly released interactive tool for reporting on their carbon footprint, is the most innovative piece of work the CFSGAM teams have collaborated on internally for some time. In a product sense, the firm is looking to incrementally commercialise more of their existing product range, but are open to exploring new product ideas.

Organisation Innovation Capability

As demonstrated in the mapping section of this report, there are 2 main archetypal innovations, those which are incremental and those which are radical. The innovation capabilities will be analysed by considering the contextual elements of an innovative organisation, including its organisational structure, people, and innovation strategy, in line with the different groups of firms (figure 6, Appendix) and radar analysis.

The organisation

CFSGAM is a mechanistic firm as evidenced by the long, multi-layered chains of command and complex hierarchy, plus extensive procedures for changes to be considered. Outside of top management’s own changes to deliver the organisational strategy, any other ideas must be submitted through a traditional business case with resources spending considerable amounts of time providing analysis and cost estimates.

Business cases are then reviewed by a top management committee in Australia, far removed from the “ground floor” workers in other countries, and with no guarantee of approval. The requestors can often wait several weeks or even months before work can commence, if at all.

The people

The reward structures in both companies are very similar, and in line with most other asset managers. BG had a more overly generous approach to annual bonuses, with a blanket percentage allocated to all staff regardless of performance. They have however, recently adopted the more standard approach of performance related bonuses, one which CFSGAM have used for many years. The staff of BG have preferred the fairer approach of performance related rewards. This feeling is shared by CFSGAM employees where those doing good work get rewarded over others who have not performed well. An area that isn’t clear is where either company specifically rewards creativity.

Development is another area where both companies are similar. Training and development in professional skills and competencies is an industry requirement (fca.org.uk) so both CFSGAM and BG will meet the minimum standards of 35 hours of Continuous Professional Development annually per person. However, both companies commit to personal development for their staff included in that 35 hours. Employees are able to attend courses that they want to do, as well those they are required to do, but all in the context of doing things better.

The innovation

strategy “Thinking and practice of innovation should start from the premise that successful innovation is driven by the shared value created” (Furseth & Cuthbertson 2018). BG uses a combination of radical and incremental innovation (figure 3). They have made significant inroads to the use of more obviously value-added and radical technological and process innovation, and whilst their other approaches are more incremental, all still add value.

CFSGAM has a consistent steady-state, incremental approach to most of their innovation considerations (figure 2). There is nothing wrong with a steady approach, and each improvement adds some value to an existing process or product. CFSGAM are involved in numerous RI and ESG committees, as are BG, however CFSGAM appear to fall short when it comes to looking inward at what innovations they could take to radically improve process efficiencies.

Comparing CFSGAM and BG Using Tidd & Bessant’s innovation capability chart (figure 6, Appendix), I would position CFSGAM as “type C” as they recognise the need for change and are highly capable of prioritising and implementing projects for continuous improvement. However, they lack some capability for radical innovation.

Implement

The third step of the model asks how they are going to make it happen. Whilst CFSGAM may not be advanced in their use of AI, they have an experienced project management team who ensure that all official (larger) changes are facilitated through to implementation as successfully as possible. These projects are sponsored by a senior executive, one whose business function is primarily impacted by the change. Sponsors have on occasion delegated their responsibilities to one of their direct reports, and this has caused issues with credibility and decision making at crucial stages.

These project teams are most often cross-functional with experienced representatives from across the business functions such as marketing, operations, risk, IT etc. The team structures are more commonly heavyweight product manager, or in some cases lightweight product manager (Tidd & Bessant, 2013). The firm has never used fulltime project execution teams, they are always made up of employees who are still required to carry out their daily duties as well as work on the projects

Capture

The final fourth step of the model asks how they are going to capture the benefits and receive value from the innovations. This can be analysed using Tidd and Bessant’s 5 tasks of capture (Tidd & Bessant, 2013). The first task is generating and acquiring knowledge. CFSGAM have large amounts of tacit knowledge which is valuable for the projects or changes which are incremental in nature. New knowledge is gained through industry and project experiences, as well as employee training and development.

Process

Asset managers need to focus on removing inefficiencies such as data errors, duplication of effort and cost, and lengthy critical business processes lead times” (Revillion, 2018). These areas are exactly where CFSGAM should spend time especially during their organisational review. This period of change is an opportune time to formally adopt more Agile techniques across the organisation which would help “trim the fat” and bring efficiencies to any older, more bureaucratic processes and procedures. CFSGAM also need to consider their risk tolerance in relation to innovation and creativity as their capacity (or potential) for innovation is in an uncertain place. By following the premise where innovation can be seen as a process for addressing uncertainty, CFSGAM could invest in acquiring new knowledge through for example, competitor analysis or local industry peer groups. Using the “innovation funnel” (Tidd & Bessant, 2013) would facilitate the project decision-making process (figure 7, appendix). Making decisions in stages, with commitment of resources where it fits the risk/reward assessment would aid in the management of innovation and move away from uncertainty.

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