There is a lot spoken about the need for all industries to be able to innovate in order to prosper. This is no different for the banking industry but are the incumbents doomed because they cannot innovate fast enough?
Being incapable of adapting quick enough seems perplexing for an industry with large well-funded businesses replete with large stable customer bases who demonstrate an unwillingness to switch institutions even in face of good reason.
So does this render the industry immune from the modern world of rapid destabilisation of established businesses? In the technology world similarities can be drawn with the likes of Nokia, Blackberry & Microsoft all of whom have found this decade much more
challenging than the last.
To unpick the problem further let’s consider the ways banks have traditionally innovated (I exclude regulatory based change as this is non-discretionary)
SME led – relying on experts who build robust roadmaps of future delivery based on their expertise. The problem is that this model has broken recently with expensive failures based on delivering solutions to problems that didn’t really exist
Me-too – keeping track of what is happening in the industry and doing the same. This fits with the conservative approach in the industry, most obviously borne out with ever extending Balance Transfer offers. The challenge here is speed of response where
some banks can be delayed by 12 months or more whilst they make necessary system changes.
HIPPO led – allowing the ‘most senior’ employee to decide. For career prospects in banks not rocking the boat can be seen as the safe option and so this approach has been allowed to prosper. The trouble is that it is incredibly destructive in an organisation
by removing empowerment & allowing decisions to be made by individuals who are out of touch.
So what can banks do instead?
Following the lead from others industries there are 2 key issues which need to be introduced.
Firstly allow ideas to be sourced from the entire organisation and more importantly its customers. Improving customer satisfaction can often be seen as independent from improved business performance but in a world where switching is easy and customers do
not have the emotional tie to an institution built from visiting their local branch it becomes the most important driver of future success.
Secondly, fostering a culture where innovation is not tied to unrealistic financial goals, this allows a test, learn & improve culture to flourish. The ability to quickly deliver on an idea, take the learning and move on to the next thing is essential to
successfully innovating. This is often described as ‘fail fast’ but if your objective is finding out what to do next to be more successful than this time – customer led innovation is successful at achieving this
Banks have a unique position in our lives but do they have the ability to reform their culture to retain this or do they need to do something else? I firmly believe that the skill and talent exists if it is given the freedom to execute.
*For anyone wondering - HIPPO = HIghest Paid Person's Opinion