Financial firms talk a lot about innovation these days. The thing is, innovation can mean lots of different things. For some incumbents, it means creating a corporate venture arm. For others, it means running hackathons and building an in-house lab. Others structure internal divisions tasked with making their companies more innovative. So, what is innovation? [caption id="attachment_10640" align="alignleft" width="200"] Joel Albarella, New York Life Ventures[/caption] It's actually whatever you want it to be, according to Joel Albarella, the senior vice president and head of New York Life Ventures. He says financial firms need to have a serious discussion to help define what kind of organization they want to be in the future. Once the goal is set, innovation becomes the means of getting there. We sat with Joel to talk about how he's faced the innovation challenge at New York Life and how he recommends other top financial institutions do the same. What common mistakes do many firms make when it comes to innovation? One mistake is treating innovation like a typical business problem and using established business practices to solve it. The first step is to define what is meant by "innovation" at your firm. This can range from simple "innovation theater" -- essentially, PR -- to significant change within the core -- transformation. Management must decide just how far down the rabbit hole they are prepared to go, which of course is a paradox: Strong incumbents, with strong leaders, find it difficult to allocate capital over the long term, particularly to things lacking clarity on projected returns - which is exactly what true change may require. This may be why we often see corporate venture capital units progress in fits and starts. Often a unit is stood up for the right reasons, until a new set of logical business leaders, making good business decisions in a effort to enhance established financial metrics, reallocate the capital to higher returning areas -- in other words, doing their jobs! It's classic "innovators dilemma". So, patient support from the top is critical. I'd also recommend staying under radar as long as you can, though I understand not everyone can do this. We launched 5 years ago ... quietly. It allowed us to build a network slowly, and gave us the power to ask the question: how did you find us? And it allowed us to learn before we got up and faced professional level VC competition. Not rocket science, just basic self-awareness. We're a mutual insurance company for a reason, we are making promises and we are honored to earn our customers' trust -- so we take a long term view -- and this has helped our Ventures group. Let me ask you: If you're new to something, would you rather have added pressure right away or have time to come up the curve? What do you look for when you make an investment? Our investment approach is patient, opportunistic and collaborative. We are proud of our network of external trusted relationships that we have built over the years -- and it's very helpful to our deal diligence. Of course, we love it if we have a subject matter expert internally with a specific view on a particular technology or a startup, but it's not required. We invest in start-ups broadly related to New York Life that provide opportunities either now or in the future to better our business. We are stage agnostic and check-size agnostic. The other side of the coin is we give up rapidly scaling our exposure to the asset class on the direct side (through leading rounds with big checks and aggressively seeking deals) But we like that trade. So far, we've made 12 direct investments and are pleased with early returns, but more importantly we have played a part driving the testing (and in some cases usage) of new technology throughout the company. What have you done internally to improve your testing/deployment of new technology? One example of how we've expedited our testing environment is that, from the beginning, ingrained in everything we do, we tie in people from around the organization and we support them to test and move quickly. We enjoy community building internally, New York Life is like a family, but we try not to pause on ceremony. For example, we created a process to avoid the typical anti-start-up bias in large companies. We gathered the right folks in IT, procurement and legal and made the case that a one size fits all procurement process that worked historically for giant vendor relationships (like hiring Cisco or IBM) is not agile enough for the testing start-ups. Engaging a startup for a quick test, for quick learnings, with fast failure as a goal -- doesn't require the same level of rigor. We called it our vendor SWAT team, and it helps us stand up tests quickly -- And we are lucky to have the right people within the company to support us. We meet quickly/virtually, agree on the nature of test and stand it up. And we are always transparent with the start-ups and quick with unfiltered feedback. They know that a larger engagement will require a deeper review, and that's okay, it's wasting time that's killer for a start-up. And we are not trying to replace procurement, but maybe we can be a stalking horse. Is corporate investing enough to innovate? No, it's not enough. My view is that you first have to answer the question : what does innovation mean to you? How does your organization define innovation? The answers should drive what you do. You may quickly realize you're bumping into some sacred cows. Do you want to launch new products in market? Are you looking to attack distribution? Is exploring commodity pricing on the table? Or are you just looking for more knowledge about key themes? The answers should drive your "innovation" strategy. Importantly, there are no universal "right" answers to these questions -- a fact that can feel uncomfortable for leaders of successful companies whose companies have become incumbents due in large part by their ability to find "right" answers to business challenges! Hear more from Joel Albarella at Tradestreaming Money 2016 in New York City this November 14.