Read the case study Fidelity Labs and the Digital Transformation of Fidelity Investments.

The financial services industry in the United States was witnessing a metamorphosis of significant dimensions as the 2020s dawned. After years of fairly predictable, stable industry dynamics, the intensity of rivalry was starting to increase. Many of the changes seemed to occur at the confluence of three major trends that characterized the industry; namely, (1) the advent of extremely cheap computing power and ubiquitous connectivity; (2) the increasing impact of customer centricity, and (3) the rising influence of wide-ranging new technology tools such as predictive data analytics, artificial intelligence, and neural networks that promised to reduce operating costs while at the same time making a quantum leap in product design and customization. Loosely referred to as the 4thIR (4th Industrial Revolution), these technologies were a small subset of fundamental shifts that were reshaping the industrial world. The financial services industry in the United States was dominated by a handful of very large players who dominated both the active management as well as the passive fund management sides of the business. Most of the industry revenues originated from the fee income for investment advisory services and active fund management services that the companies provided through its legions of financial advisors and branch networks that spread across the country. Black Rock, Vanguard, State Street, JP Morgan, and Fidelity managed approximately $23 trillion. However, life at the top was far from secure. The advent of distributed payment systems, new investment opportunities and approaches such as blockchain-powered Bitcoin and Ethereum, along with the rise of chat bots and digitally enabled user-friendly advisory interfaces, threatened to upset the balance in this once staid industry. The case discusses attempts by Fidelity Investments to navigate the changing landscape through the establishment of Fidelity Labs, an in-house innovation engine that was chartered to experiment, validate, and develop new technological solutions that would allow Fidelity to retain its edge in the changing world of financial services. It offers students an opportunity to understand some of the business implications of core technological changes that are sweeping through the financial services industry and, in doing so, helps them gain a better appreciation of the potential impacts of the 4thIR as it relates to financial services and investments.

Approach	Key Elements
Design Thinking	Human-centered approach that builds empathy for users User interviews, including behavior cues to define key problem Solution ideation Prototype development Customer feedback for improvement
Agile Development	Agile scrum with product owners, scrum masters, and developers Extensive communication via sprint planning meetings, daily stand-ups, sprint reviews, and retrospectives Customer-centric focus on user stories Frequent feedback from customers based on product at end of weekly sprint
Lean Startup	Focus on minimizing resources required to develop new products Quickly create a minimum viable product (MVP) Use customer feedback to improve MVP

Q1: How do the three innovation approaches collectively contribute to a source of competitive advantage for Fidelity? Your answer should identify and discuss three key common benefits (related specifically to competitive advantage) of these approaches. Also, your answer should be 70-150 words long.

Q2: Consider your answer to Q1 above. Then, identify and discuss three key threats that could erode these potential