Reference no: EM133232489

1. Responding to the Digital Invaders at JPMorgan Chase

When it comes to the banking establishment, you can't get much more establishment than JPMorgan Chase. Through its various incarnations and acquisitions that can be traced as far back as 1799, the New York financial giant now has the corporate DNA of more than 1,200 predecessor banks. With annual revenue in the neighborhood of $100 billion, $2.5 trillion in assets, more than $1 trillion in customer deposits, and a quarter of a million employees, it is one of the country's largest financial services firms and an integral part of the U.S. economy. (A bank's assets include its own cash and government securities such as Treasury bills, plus the current value of all the mortgages and other loans it has extended to its customers.)

No company can grow this big without paying attention to its competitors, and CEO Jamie Dimon is obsessive about the competition. As he put it when discussing the digital invaders from Silicon Valley, "we analyze all of our competitors in excruciating detail-so we can learn what they are doing and develop our own strategies accordingly." That deep analysis told him that JPMorgan Chase needed to adapt and adapt quickly, because fintech innovators are able to lure customers away with new services, lower costs, and greater convenience.

After sizing up the competitive threat, Dimon and his team crafted a multipronged response that includes investing heavily in its own fintechearlier, establishing partnerships with selected fintech innovators, and making banking more inclusive. In other words, it's a combination of competition and cooperation, designed to blunt the threat of digital innovators encroaching into its markets and positioning the bank for a vastly changed business landscape.

Dimon has directed billions of dollars into expanding the company's technological capabilities, including developing many of the same capabilities that fintech start-ups are bringing to market, such as all-in-one mobile banking services. However, recognizing that no company can or should try to do it all in such a complex business environment, Dimon also emphasizes partnering with fintech start-ups to integrate their products and technologies with JPMorgan Chase's systems and customer offerings. The bank has been able to add peer-to-peer payments and digital loan applications for both home mortgages and small-business funding, for example.

The effort to make banking more inclusive is a combination of good corporate citizenship and smart business strategy. Through its Financial Solutions Lab, the bank partners with the not-for-profit Center for Financial Services Innovation to develop financial tools for people who are underserved by current banking services. Millions of people lack the resources to weather hardships such as illnesses or accidents as well as the ability to build a stable financial base for improving their lives. Many don't use regular banks at all and instead rely on costly check-cashing services, payday lenders, and other alternatives. These underserved populations are a key target of neobanks, with their low costs and low entry barriers. The Financial Solutions Lab invests in neobanks and other fintech innovators that can help more people develop stronger financial foundations, including saving more and improving their credit ratings. In addition to providing vital help to millions, the initiative helps JPMorgan Chase gather intelligence about a market segment that historically it hasn't been active in and potentially develop relationships with a new population of customers.

The strategy is certainly paying off so far. The bank continues to rack up increasing levels of revenue and profits, even as competitive threats multiply. Just as important, with its forward-looking viewpoint, it is positioned to continue innovating and staying in front of customer expectations.

Questions.

1. If JPMorgan Chase is doing well serving its current customer segments, why would it bother with the added effort of targeting lower-income clients?

2. Would it make sense for the company to market its most basic banking services under a different brand name to avoid diluting its higher-end J.P. Morgan brand? Why or why not?

3. Which of the various kinds of competition identified in the chapter does JPMorgan Chase engage in? Explain your answer.

2. An Unexpected Turn Launches an Innovative New Company

Rana el Kaliouby had her career plan in place: Conduct research in artificial intelligence aimed at helping people on the autism spectrum. Together with professor Rosalind Picard, her mentor at the MIT Media Lab who pioneered the field of affective computing (computing that involves human emotion), she was able to demonstrate how computers can be trained to recognize and respond to human emotion.

However, that career trajectory took an unexpected turn when their AI tools began to catch the attention of the lab's various corporate sponsors, who besieged them for advice and assistance on applying this technology to business problems. With so many potential opportunities to pursue, the lab's management decided the best move was to spin out the project as its own company, and el Kaliouby and Picard became the cofounders of Affectiva. El Kaliouby was reluctant to leave her work in academia and dilute her focus on helping people with autism, but the lab's director convinced her that commercializing the software and applying it in multiple ways would improve the AI techniques it relies on.

Like many young companies, Affectiva encountered some conflicts as it found its footing. The firm's original CEO, a sales executive the founders brought on board to help launch the company, wanted to focus on marketing the software for advertising testing, not on health care or assistive technologies such as the autism tool el Kaliouby had envisioned. The demand for advertising applications took precedence, and the company achieved early success in this market.

Businesses spend billions of dollars on advertising every year, and the managers spending that money are understandably curious to know whether their ads are triggering the emotional responses they are designed to elicit. Affectiva partnered with Millward Brown, a major market research company, which became an investor in the company and continues to use its primary product, Affdex, to test thousands of ads every year.

Part of any start-up experience is clarifying organizational values, which Affectiva did on multiple occasions when potential customers wanted to do things with the technology that Picard and el Kaliouby did not support. Picard described how difficult it can be for a company to turn away opportunities, particularly when it is new and trying to build revenue. However, Affectiva is adamant that its products will not be used to spy on people or measure anyone's emotional state without their consent, so the company continues to turn away potential customers who don't share its values in this regard.

Start-ups often go through leadership changes as well. Picard served as Affectiva's chief scientist until 2013, when she left to cofound a company that makes smart, wearable medical devices, including one for people with epilepsy. El Kaliouby stepped into the CEO's role in 2016.

Since that initial move into advertising testing, el Kaliouby and her team have been applying the technology in many other areas. More than a thousand companies use it in such diverse efforts as education, health care, television and movies, gaming, legal depositions, and human resources. In fact, don't be surprised if you encounter an online video interview during your job search that uses Affectiva's system, or something similar, to measure your emotional reactions. Affectiva has also expanded into voice analysis, giving businesses another way to assess their communication efforts. "Emotion AI," as Affectiva refers to its technology, is likely to play a role in the next generation of automobiles as well, such as by monitoring driver attention and emotion levels in self-driving cars during the critical "hand-off" moments when the car takes control from the driver and vice versa.

Start-ups often go through leadership changes as well. Picard served as Affectiva's chief scientist until 2013, when she left to cofound a company that makes smart, wearable medical devices, including one for people with epilepsy. El Kaliouby stepped into the CEO's role in 2016.

Since that initial move into advertising testing, el Kaliouby and her team have been applying the technology in many other areas. More than a thousand companies use it in such diverse efforts as education, health care, television and movies, gaming, legal depositions, and human resources. In fact, don't be surprised if you encounter an online video interview during your job search that uses Affectiva's system, or something similar, to measure your emotional reactions. Affectiva has also expanded into voice analysis, giving businesses another way to assess their communication efforts. "Emotion AI," as Affectiva refers to its technology, is likely to play a role in the next generation of automobiles as well, such as by monitoring driver attention and emotion levels in self-driving cars during the critical "hand-off" moments when the car takes control from the driver and vice versa.

Questions

1. Rana el Kaliouby refers to herself as the "chief evangelist" for Affectiva. What do you think this means in a business context, and how important is this activity for a CEO?

2. How does Affectiva add value in the markets where it does business?

3. How might the social environment influence Affectiva's growth in the future?