Grupo Aval: Utilizing open innovation to build a new business model

Grupo Aval, the largest financial group of Colombia, is using open innovation to counter emerging fintech competition.

Grupo Aval is the largest financial group of Colombia and one of the leading financial groups in Latin America. Its business units include banking and pension fund management. In 2017 it managed 27% of Colombia´s bank deposits. Regardless of its leadership position, its main executives acknowledge that some changes are necessary to cope with the high level of disruption that the global banking industry is facing.[1]

Banking is one of the sectors that are particularly affected by digital disruption. Fintech companies (using technologies that seek to enhance the delivery of financial products) are increasing competition and compressing margins. A key factor shaping the radical pace of digitalization is the increasing openness of regulators to accept digital players. According to McKinsey & Co, u$7 billion to u$13 billion of bank profits are at risk in Latin America due to digital disruptions.[2] Colombia has adopted laws that seek to deregulate the industry. For example, Law 1735 (passed in 2014) enables the creation of nonbank deposit entities.[3] Moreover, in April 2018, the Superintendencia Financiera de Colombia (a governmental entity in charge of regulating the financial sector) announced the launch of a new department to encourage the development of fintech companies in the country.[4]

In this context, Grupo Aval is changing its product development process by implementing open innovation. The company is betting on this megatrend to counter fintech disruption.[5] The company’s objective is to migrate from a physical bank to an online bank that is available 24 hours through the entire year. For that purpose, the firm is focusing on the development of digital solutions for its customers.[6]

To digitalize its products, Grupo Aval created in 2014 bootcamps named “fintech challenges”. These events recruit external entrepreneurs who pitch innovative ideas to a committee composed of Grupo Aval executive managers. The committee selects the best ideas, and awarded entrepreneurs are coached to further develop them, either by creating new products for the bank or by creating a start-up funded by the company. [7] [8] Some products such as Occiauto, a webpage that processes bank loans to finance car purchases, arise from this open innovation initiative. Even though this type of innovation creates out-of-the-box ideas, its drawback is that it can generate a significant number of proposals that are out of scope in relation to a company’s strategy, since external people are not precisely aware of the type of problems that a company needs to solve.

By introducing Aval Digital Labs (ADL), the company intends to focus on creating new products that are in line with the firm’s strategy. In contrast to the “fintech challenges”, ADL crowdsource ideas from inside the company, allowing employees to interact with co-workers from different functional areas and business units. Employees work on 16-weeks projects to develop a Minimum Viable Product (MVP) that is subsequently tested with customers. Successful MVPs are further developed and transformed into new products. An example of an initiative developed through ADL is AvalPay, a digital wallet app that enables customers to use their telephones to make payments (replacing credit cards).[9] This type of open innovation is effective to foster a desire for change and progress at different levels of a company and can have a positive impact on employees´ levels of motivation and commitment.[10]

To effectively balance the business know-how of employees with the creativity and disruption of external entrepreneurs, Grupo Aval should create mixed teams that include both employees and entrepreneurs. Employees generally tend to observe the business from the point of view of the company, sticking to the actual business model and focusing on creating add-ons to existing products. However, external entrepreneurs bring a different perspective, since they are not biased by the company’s processes and culture. Hence, a mixed team can create an ideal environment to work both on incremental and disruptive projects. In addition, Grupo Aval can incorporate some open innovation best practices from other industries. For example, manufacturing firms such as Ikea are creating platforms that enable entrepreneurs to constantly submit new product development ideas.[11] Grupo Aval can create a platform to publish specific problems that need digital solutions so that entrepreneurs can submit their proposals.

Long-term, Grupo Aval should work on solutions that reduce costs. In a context where global banking returns on equity are falling to single digit figures[12], Grupo Aval should create cost efficiencies by digitalizing manual tasks. Luis Carlos Sarmiento, CEO of the company, acknowledges that cutting costs through technology could generate long-lasting competitive advantages. [13]

Finally, some pressing questions remain unanswered. Will Grupo Aval be able to innovate and sustain its leadership position? Or will fintech disruptions debilitate its business in the upcoming years?

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[1] Grupo Aval 20F Report 2016, p. 55. Accessed November 2018.

[2] “A Brave New World for Global Banking McKinsey”, McKinsey Global Banking Annual Review, 2016, McKinsey & Company, via Factiva, accessed November 2018.

[3] “Turning Digital. Financial inclusion and penetration are still big challenges to overcome for the Colombian banking sector” The Business Year, 2016, via Factivia, accessed November 2018.

[4] “Colombia Banking & Financial Services Report”, BMI Research (Fitch Group Company), February 2018, via Pro Quest, accessed November 2018.

[5] “Fintech threatens to eclipse banks that do not adapt digitally”, Financial Times, June 11th, 2018, accessed November 2018,

[6] Rob Dwyer, “Latin America: Four is company at Grupo Aval”, May 3 2017, Euromoney, via Factivia, accessed November 2018,

[7] Grupo Aval, Highlights report for investors, accessed November 2018.

[8] Grupo Aval, “Fintech Challenge”,, published November 2015, accessed November 2018.

[9]  Grupo Aval webpage,, accessed November 2018.

[10] Developing Innovative Solutions Through Internal Crowdsourcing, Arvind Malhotra et al, MIT Sloan Management Review, May 31st 2017, accessed November 2018,

[11] “IKEA plans full-range town-center showrooms, ‘open-source’ design”, Reuters, October 9th 2017, accessed November 2018,

[12] “A decade after the crisis, how are the world’s banks doing?”, The Economist, May 6th 2017, accessed November 2018,

[13] “Q1 2018 Grupo Aval Acciones y Valores SA Earning Call – Final”, CQ-Roll Call, May 17th 2018, via Factivia, accessed November 2018.





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Student comments on Grupo Aval: Utilizing open innovation to build a new business model

  1. It’s very interesting that you mentioned using open innovation to source ideas that may digitalizing manual tasks, thus reducing operating costs for Grupo Aval. Though I think Grupo Aval has a great idea, it is a little ironic to recruit entrepreneurs (for free) then pay a few of them to create solutions that reduce the need for labor! I hope that they can continue using their open innovation model to discover ways to generate more revenue for the firm rather than simply finding ways to cut jobs.

    To answer your question, I do think this open innovation model will allow Grupo Aval to sustain its leadership position, as long as it is willing to invest in risks rather than only focusing attention only on safe or inexpensive solutions. Employees at Grupo Aval may have trouble thinking outside the box, and it probably is outsiders who will have a crazy idea that changes the game in FinTech. If the million dollar idea comes from someone disconnected to the firm, it is likely that their leadership position could be usurped. This is exactly Clayton Christensen’s theory in “The Innovator’s Dilemma.” He says managers must “simultaneously do what is right for the near-term health of their established businesses, while focusing adequate resources on the disruptive technologies that ultimately could lead to their downfall,” [1].

    [1] Clayton Christensen, “The Innovator’s Dilemma: When New Technologies Cause Great Firms to Fail” (Boston: Harvard Business School Press, 1997), PDF E-book, [10], file:///C:/Users/User/Downloads/Clayton%20M.%20Christensen%20-%20The%20Innovators%20Dilemma.pdf, accessed November 2018.

  2. Excellent insight into open innovation as a defensive tool for entrenched players to protect against potential disruptors. You noted the importance of “fintech challenges” to bring external, out-of-the-box thinking to the company. I also wonder whether the “fintech challenges” could also be used as a tool to identify and recruit top talent that think differently from the typical bank employee. Rather than just providing funding, Aval could incubate “fintech challenge” winners in-house or recruit any identified top talent to “entrepreneur-in-residence” or an innovation departments. Another consideration for Aval given the openness of regulation to Fintech innovation would be open its APIs to encourage innovation by engaging deeper with the broader Fintech community. Open banking could be an additional source of revenue for Grupo Aval, improve the customer experience, and create additional exposure to out-of-the-box thinking [1]. The model has exploded across the US, Europe, and Asia [1]. I think opening up its APIs and using the “fintech challenges” to recruit top talent will help Grupo Aval sustain its leadership position.

    [1] Brodsky, L. and Oakes, L. Data Sharing and Open Banking. McKinsey & Company. (September 2017). Accessed November 14, 2018.

  3. Very interesting piece on the digitization of Grupo Aval. Indeed, many banks worldwide recognize the need to use Open Innovation to keep up with the growing number of start-ups dedicated to disrupting their business models, such as RBC and BNP Paribas [1] [2], and I agree that looking to other industries first for potential applications of Open Innovation could position Grupo Aval as an industry leader in banking.

    I really like the idea of publishing a platform for entrepreneurs to submit their proposals, primarily because the sheer number of off-target proposals can become a significant strain on the managers that have to evaluate these proposals. That said, I am not sure that pairing employees with entrepreneurs will provide much benefit to the bank, because of the risk of high-performing Grupo Aval employees quitting to join the entrepreneurs if it turns out their ideas have strong merits. Rather, Grupo Aval might be better off just acquiring the entrepreneurs’ businesses outright, while allowing them to operate in a more flexible way upon integration. This way you still get the entrepreneurial ideas, without the same risk of institutional brain drain.

    [1] RBC Company Website,, accessed November 2018.
    [2] BNP Paribas Company Website,, accessed November 2018.

  4. Great piece! While I think the open innovation to source ideas from the customers is very valuable, I am concerned about how implementable any of the ideas will be. While I am not familiar with Grupo Aval’s technical infrastructure, most banks that were founded before 2000 are on very old core banking systems. These systems make it difficult to integrate with new applications (even with API layers). This is why many banks have failed to adopt an effective mobile platform. I suspect that the majority of the ideas that customers have, while great in theory, will be difficult to implement. However, I do think having open innovation coming from the employee base, who understand the limitations of the company’s technology infrastructure, could be very beneficial for the company.

  5. Very well-researched piece. I enjoyed reading it – thank you! Some thoughts:
    1) I wonder the degree to which open innovations are integrated into the Grupo Aval strategy / strategic initiatives. The one issue I’ve seen with big companies and open innovations is that bootcamp-types of events are often hosted one-off, with great fanfare, to drive up internal interest in innovation and also generate positive PR, but not fully formalized and integrated into the annual executive agendas. You mentioned Grupo Aval hosted their first bootcamps in 2014 – I’m curious to see 4 years after what the outcomes of the winning projects are, and whether they’ve consistently hosted other bootcamps the year after.
    2) Startups really have a hard time retaining their competitive edge once acquired by a big company. I can recall examples of startups who have been able to scale much more quickly once acquired, but the innovation spirit essentially is killed as it becomes part of a big corporation. Ideas are not hard to come by these days – it’s the execution that counts. I wonder what can be done to ensure high-potential ideas are successfully executed, at speed, inside a big corporate post open innovation.

  6. Great article Ignacio — I think you explained very well one of the essential questions on the mind of all large-corporation CEOs: how do I avoid being disrupted? These days you see a lot of big companies deploying capital into programs similar to Aval’s fintech challenges and ADS. Ultimately, you could argue these programs are simply a cost-effective way for them to invest in potential disruptors before they become more expensive.

    One of the challenges of these corporate strategic programs (corporate accelerators, corporate VCs, digital labs, etc.) is that the best founders tend to self-select out of them. For instance, if I’m a founder with an idea that could potentially disrupt Grupo Aval’s business, then I definitely wouldn’t want them on my cap table (or else they’ll simply try to buy me early on). Just something to consider! Again, great article.

  7. Amazingly well-written article, Ignacio! I find Grupo Aval’s strategy to leverage the smartest minds across the country (and the world) to develop a competitive edge in the fintech space. In addition to helping the business evolve, I believe that this will attract talent to the company, and will prove to be an effective and inexpensive recruiting tactic, while also earning them some free press.

    The questions you posed towards the end are definitely thought-provoking. I believe they can sustain their leadership position if they leverage the data they get from these open innovation challenges to identify and retain top talent, while also understanding trends and challenges that are attracting the ‘external entrepreneurs’. Maintaining close relations with an open innovation community can help them sustain their pole position in the longer run.

    Fintech disruptions can definitely pose a threat, but it seems that the community Grupo Aval is developing relations with can help them stay on top of current industry trends, and defuse any threats they perceive.

    However, in a space as centered around security and data privacy as fintech is, it makes me wonder if some of these ‘entrepreneurial’ coders can insert a backdoor in their programs that may compromise Grupo Aval’s systems and solutions, and how the company may establish controls to ensure that this does not happen. This may translate to heavy costs for the company, and they may want to define for themselves how the advantages from open innovation weigh against potential problems resulting from the same.

  8. Thanks for sharing this! I think we consistently hear about machine learning in the fintech context, and rarely about open innovation. I wonder whether there is a way to combine the two – sourcing insights from entrepreneurs/employees based on ideas generated through machine learning techniques. I also like your idea to team up with both internal and external voices – having one without the other is unlikely to get an outcome free of outside noise that many can buy into.

  9. Thank you, that’s a very well written article in an area that impacts all of us. FinTech is extremely competitive and companies both start and fail in that space everyday. I think the approach of crowdsourcing ideas is great to transform your company and culture into the digital age.

    I agree with your suggestion on mixed teams, if you have not already, I would encourage you to check Citi Venture D10X

    It is similar in concept where Citi established a structure to stay in touch with the FinTech entrepreneurs and bringing them or investing in their work on a regular basis. This has huge potential for both the millennial generation that is interested in FinTech start-ups, it gives them the platform to start, paired with the expertise of larger banks that may provide guidance and expertise in a heavily regulated sector.

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