Harvard Case - R3: Putting the 'Fin' Back to FinTech
"R3: Putting the 'Fin' Back to FinTech" Harvard business case study is written by e Yang, Xuexin Gao, Hong Zhang, Massimo Massa. It deals with the challenges in the field of Finance. The case study is 14 page(s) long and it was first published on : Jan 23, 2019
At Fern Fort University, we recommend R3 focus on solidifying its position as a leading provider of distributed ledger technology (DLT) solutions for the financial services industry. This involves a strategic shift towards a platform-based business model that leverages its existing network and expertise to offer a comprehensive suite of services, including:
- DLT infrastructure and development: Providing the core technology and support for financial institutions to build and deploy their own DLT applications.
- Pre-built solutions: Offering modular, customizable solutions for specific use cases like trade finance, payments, and securities settlement.
- Marketplaces and ecosystems: Facilitating the connection of financial institutions and other stakeholders through DLT-powered marketplaces for trading, lending, and other financial activities.
2. Background
R3 is a technology company focused on developing and deploying DLT solutions for the financial services industry. The company initially focused on building a shared DLT platform for a consortium of major banks. However, this approach faced challenges in achieving widespread adoption due to competing interests and regulatory hurdles.
The case study highlights R3's need to adapt its strategy to address the evolving landscape of the fintech industry. The company must find a way to leverage its existing technology and expertise to achieve profitability and sustainable growth.
3. Analysis of the Case Study
Financial Analysis: R3 faces a significant challenge in achieving profitability. The company has invested heavily in research and development, and its initial business model relied on licensing fees, which have been slow to materialize.
Competitive Landscape: The fintech industry is highly competitive, with numerous players offering various DLT solutions. R3 needs to differentiate itself by focusing on its unique strengths, such as its extensive network of financial institutions and its expertise in developing secure and scalable DLT solutions.
Strategic Analysis: R3 can leverage Porter's Five Forces framework to analyze the competitive landscape:
- Threat of New Entrants: High, as the DLT space is attracting new players with innovative solutions.
- Bargaining Power of Buyers: High, as financial institutions have many options for DLT solutions.
- Bargaining Power of Suppliers: Low, as R3 relies on its own technology and expertise.
- Threat of Substitutes: High, as traditional financial infrastructure can still serve as a substitute for DLT solutions.
- Rivalry Among Existing Competitors: High, with numerous players vying for market share.
Growth Strategy: R3 needs to adopt a multi-pronged growth strategy that leverages its strengths and addresses the competitive landscape:
- Expand its network: Continue to build relationships with financial institutions and other stakeholders to increase adoption of its DLT solutions.
- Develop a wider range of solutions: Offer pre-built solutions for specific use cases to cater to different needs and reduce the time and cost of implementation for financial institutions.
- Create marketplaces and ecosystems: Facilitate the connection of financial institutions and other stakeholders through DLT-powered platforms for trading, lending, and other financial activities.
- Focus on international expansion: Target emerging markets with a strong need for financial innovation and where DLT solutions can have a significant impact.
4. Recommendations
R3 should implement the following recommendations to achieve sustainable growth and profitability:
- Shift to a platform-based business model: Focus on providing a comprehensive suite of DLT services, including infrastructure, pre-built solutions, and marketplaces. This will allow R3 to capture value from multiple revenue streams and cater to diverse customer needs.
- Develop a clear value proposition: Clearly articulate the benefits of using R3's DLT solutions, such as increased efficiency, reduced costs, and enhanced security. This will help R3 differentiate itself from competitors and attract new customers.
- Prioritize customer success: Focus on providing excellent support and resources to help customers implement and integrate R3's DLT solutions. This will foster customer loyalty and encourage word-of-mouth marketing.
- Invest in strategic partnerships: Collaborate with other technology providers, financial institutions, and industry experts to develop innovative solutions and expand its reach.
- Embrace regulatory compliance: Ensure that R3's DLT solutions comply with all relevant regulations and standards. This will build trust with customers and regulators, making it easier to gain adoption.
- Focus on international expansion: Target emerging markets with a strong need for financial innovation and where DLT solutions can have a significant impact. This will help R3 diversify its revenue streams and gain a competitive advantage.
5. Basis of Recommendations
These recommendations are based on the following considerations:
- Core competencies and consistency with mission: R3's core competency lies in its expertise in DLT technology. The platform-based business model leverages this expertise to offer a comprehensive suite of services, aligning with its mission to revolutionize the financial services industry.
- External customers and internal clients: The recommendations focus on addressing the needs of both external customers (financial institutions) and internal clients (R3 employees). Providing a platform-based approach caters to diverse customer needs, while prioritizing customer success ensures employee satisfaction and motivation.
- Competitors: The recommendations are designed to differentiate R3 from its competitors by focusing on its unique strengths, such as its network and expertise. This will help R3 attract new customers and maintain its market position.
- Attractiveness ' quantitative measures: The platform-based business model offers the potential for significant revenue growth and profitability through multiple revenue streams. The focus on customer success and strategic partnerships will also contribute to increased market share and brand recognition.
6. Conclusion
R3 has the potential to become a leading provider of DLT solutions for the financial services industry. By shifting to a platform-based business model, developing a clear value proposition, and prioritizing customer success, R3 can achieve sustainable growth and profitability.
7. Discussion
Other Alternatives:
- Continuing with the current strategy: This would involve focusing on licensing fees and building a shared DLT platform. However, this approach has proven to be slow and challenging, with limited adoption.
- Focusing solely on pre-built solutions: This would allow R3 to cater to specific customer needs but might limit its ability to capture value from the broader DLT market.
Risks and Key Assumptions:
- Regulatory uncertainty: The regulatory landscape for DLT is still evolving, and changes in regulations could impact R3's business.
- Competition: The DLT space is highly competitive, and new entrants with innovative solutions could pose a threat to R3's market position.
- Customer adoption: The success of R3's platform-based business model depends on the adoption of its DLT solutions by financial institutions.
Options Grid:
| Option | Pros | Cons |
|---|---|---|
| Platform-based business model | Diverse revenue streams, caters to diverse customer needs | Requires significant investment and effort |
| Current strategy | Focus on core technology | Slow adoption, limited profitability |
| Pre-built solutions | Specific customer needs, faster implementation | Limited market reach |
8. Next Steps
R3 should implement the following steps to achieve its strategic goals:
- Develop a detailed business plan: Outline the specific steps required to implement the platform-based business model, including the development of new solutions, the creation of marketplaces, and the expansion into new markets.
- Secure funding: Raise capital to support the development and deployment of the new platform.
- Build a strong team: Recruit and retain talented individuals with expertise in DLT, financial services, and platform development.
- Engage with key stakeholders: Communicate the new strategy to financial institutions, regulators, and other stakeholders to gain support and build trust.
- Monitor progress and adapt: Regularly assess the progress of the platform-based business model and make adjustments as needed.
By taking these steps, R3 can position itself for success in the rapidly evolving fintech landscape.
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Case Description
The case focuses on blockchain (and distributed ledger technology or DLT) - a 'hot' area of fintech - and on R3 as a fintech consortium that includes some of the world's largest banks, financial institutions and regulators. R3 started out as a family office in 2014 and evolved into a fintech company focused on the application of distributed ledger technology (DLT). Within three short years it had built a global consortium of 80 members from the financial services industry, including Barclays, J.P. Morgan, Commonwealth Bank of Australia and UBS. The consortium's efforts resulted in an open-source DLT called Corda, geared towards handling increasingly complex transactions and regulatory oversight. Although Corda was inspired by blockchain, R3 did not view it as a blockchain product. In May 2017, R3's Series A raised US$107 million in funding to continue the development and implementation of Corda and expand its Lab & Research Center. Barely a year later, speculation arose that R3 was exploring an IPO.
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