Mike Logozzo, head of the Americas region at applied innovation consultancy L Marks, knows a thing or two about fintech partnerships. In his 18 years at BMW Financial Services, Logozzo was responsible for business operations, innovation and best practices integration, and was the driving force behind the captive’s first Collaboration Lab, which included startups such as Bloom, carLABS, Supermoney, and Wrisk USA.
“One lesson that really resonated with me at BMW Financial is the concept of ‘VUCA,’ which originated with the U.S. military to describe the volatility, uncertainty, complexity, and ambiguity of the world after the Cold War,” Logozzo said. “Back in 2017, our chief executive, Ian Smith, introduced VUCA to the leadership team by showing a video that compared the annual growth of platform-based companies versus German premium car manufacturers, which really hit home with me. The video ended with a quote from Jack Welch, the former CEO of General Electric, that said, ‘If the rate of change outside the environment exceeds the rate of change inside the organization, the end is in sight.’”
Logozzo explained that many companies are vulnerable to disruption because they aren’t structured to keep pace with digital transformation. Startups, he said, are the answer to that problem because they are agile and can operate without traditional infrastructure at a fraction of the cost. Auto Finance News spoke with Logozzo about the innovation labs at BMW Financial and Volvo Financial Services, working with lenders’ legacy systems and overall innovation in auto finance. What follows is an edited version of his conversation with AFN.
Auto Finance News: What was the process like working with BMW Financial and Volvo Financial to help these legacy systems incorporate startup technology?
Mike Logozzo: The process began with interviewing the executives of the organizations. This step is crucial for two reasons: First, it allows us to better understand their strategic areas of need so that we can define the most significant categories for startup scouting. We do not want to innovate just for the sake of innovation. We want the innovation to be relevant to the organization by aligning to their strategic areas. It also fosters executive buy-in to the process and, ultimately, their sponsorship of the program. We want executive sponsors to stand up in front of their employees and voice that this program is a top priority for the organization.
Once the categories were defined, the L Marks scouting team took about five weeks to search for startups from around the world and screen them based on criteria jointly established by both L Marks and the organization — for example, quality of the concept, commercial potential, quality of the startup team, and suitability for an accelerator lab. Just to put some numbers into perspective, we scouted over 10,000 startups in 2019.
We then reconvened with the executive teams to review their recommended startups based on the screening criteria and narrowed them down to the top 15 to 25. Those startups were invited to participate in an event called “Pitch Day,” which is similar to “Shark Tank.”
At Pitch Day, the startups pitched their proposed solution to the organizations in person, in front of the executives, employees and other external guests. L Marks provided pitch coaching and presentation workshops with the startups to ensure their messages were on point and consistent. All participants had an opportunity to score the pitches and ask questions. However, a deliberation with the executives was conducted behind closed doors. At the end of the event, winners were selected to collaborate with the organization in a 10-week accelerator lab to jointly develop a proof-of-concept and working prototype of their proposed solution.
During the accelerator lab, each startup was paired with an internal team consisting of relevant stakeholders and led by an executive sponsor. A program manager from L Marks paired up with a program manager from the organization to develop project plans, status reports, and ensure that all of the teams stayed on track throughout the lab.
At the end of the accelerator lab, each team jointly presented the results of their lab in an event called “Demo Day.” Demo Day is a celebratory event that showcases the culmination of the teams’ hard work and collaboration.
After Demo Day, the organizations decided which startups to pursue commercialization discussions, which may consist of a traditional vendor partnership, a possible acquisition or investment.
AFN: What’s the most challenging aspect of integration between a startup’s tech and a captive’s legacy system?
ML: The most challenging aspect is typically not the integration of the tech; it is rather the integration of a small and nimble startup into a large and slower moving captive. I think about the projects that I have been involved in over the years — most of them took many months and sometimes exceeded a year. The fact is that captives naturally move slower because they must navigate the organizational hierarchy and governance.
It is all very important and necessary, but it makes things move slow, nonetheless. One approach that has proven to be effective is to create a cross-functional team within the captive that consists of legal, compliance, procurement, IT and other departments that are typically involved in most projects. Call it the “Enabling Team.” Their responsibility is to work with the startups to proactively overcome obstacles in their respective areas. It is about figuring out how to make it work, rather than identifying reasons why it cannot. Sometimes, it could just require a small change in scope or omittance of a certain piece of data.
AFN: What do you think is the most underrated or overrated innovation in auto finance?
ML: One innovation in auto finance that I think is the most difficult to comprehend is blockchain. I would not call it overrated, but rather a bit ahead of its time. In theory, blockchain is a game-changing technology with some use cases that can revolutionize the industry, such as utilizing smart contracts or even tokenizing the vehicle. However, it has been a challenge to execute due to the number of obstacles that must be overcome, such as public key cryptography, interoperability and scalability issues. I think the industry will begin to overcome these obstacles over the next few years.
Editor’s note: This story first appeared in the February issue of Auto Finance News, available now.
