Banking Fintech

Banks’ innovation initiatives should start with a clear ‘Why?’

Banks’ innovation initiatives should start with a clear 'Why?'. Photo: Unsplash, CC0 Public Domain
Written by Jake Chambers

Jake Chambers proffers advice about the true meaning of innovation when it comes to creating new business initiatives in 2016.

Is your business starting 2016 by setting a new objective, strategy or initiative? How do you rate your chances of success? To give yourself the best chance of success in a world full of competing ‘priorities’, you should start by understanding exactly why this new goal is so important to you. This is as true for personal ambitions as it is for corporate objectives. If you can’t articulate a clear, important and motivating reason, sooner or later it will get de-prioritized.

The tricky part isn’t choosing a destination, but choosing the right destination
The idea of setting a clear objective may sound obvious, yet many businesses still set off with an unclear, insufficient or otherwise inappropriate destination in mind. The tricky part isn’t choosing a destination, but choosing the right destination; the right purpose. The right purpose or mission should inspire and guide the business through challenges and difficult decisions, and it should last beyond temporary factors such as leadership teams, product portfolios or market conditions.

A common mistake is to set your sights on a ‘destination’ that’s easily understood and easily achievable, but is really just a milestone. Many businesses focus on market share for a particular ‘hero’ product. While this provides simplicity and can drive revenue growth for a time, it won’t last. What happens, for example, when you have the leading share in a product only for it to be made obsolete by a new and improved solution?

Although an overused example, Kodak’s fall from 80-90% of camera and film sales to bankruptcy is a glaring illustration of this point. Other examples of well-known and successful companies that have been impacted (by varying degrees) by focusing too tightly on an existing product include Sony, BlackBerry, Encyclopædia Britannica, O2 and TomTom.

Another commonly used objective is overtaking a competitor. This can be effective at providing the focus and motivation to drive an organization forward in the short-term, but once that milestone has been reached, then what? Many businesses have faltered and found themselves becoming targets for the next ambitious upstart. They lose the hunger and stall as they settle into the leadership position, comforted by the toxic feeling of ‘we’ve done it’. How much might such complacency have contributed to the struggles at Nokia, and more recently, Tesco?

Since most organizations’ enduring purpose tends to be difficult to measure and pin down in terms of concrete steps, they should be combined with shorter-term operational milestones and practices that provide immediate direction and priority.

What does this say about innovation in banking?

Innovation in financial services and fintech is rightly receiving lots of attention because:

  • the pace of technological and behavioral change offers great opportunity for new solutions
  • most banks are unfamiliar with it because the slow pace of change has meant operational necessities such as risk analysis, regulatory compliance and maintaining core banking systems have been higher priorities.

Financial services providers are now building their innovation capability, but most are still wrestling with when, where and how they should innovate.

When responding to the growing need to innovate, many banks have studied companies that have reputations for innovation. While this makes sense, it’s critical to distinguish which elements of those innovation exemplars’ activities should be adopted and which ones shouldn’t. Just because something is right for Apple, Tesla or Dyson doesn’t mean it’s right for every bank, insurer or investment manager.

So how does your purpose – your answer to ‘why?’ – help? Innovation is a strategic tool like cost management, succession planning or marketing. It needs to be mastered and directed at the right thing for each organization and its specific circumstances. The best way to determine if and when to innovate is to refer to your purpose.

If the optimum route to achieving the bank’s purpose is to innovate, then it should innovate. If it’s best to use or copy an existing solution, there’s no need to innovate. If you want to be a leader in something, you need to create something new and better (ie to innovate). The innovation may be big and require inventing some new technology, but it might equally be quite subtle and far from invention. For example, an insurance comparison service may use the same technology and offer the same deals as its competitors, yet still dominate through a subtly superior experience on its app.

How to stay on course while innovation drives big change

In the bestselling book ‘Built to Last’, Jim Collins and Jerry Porras provide compelling evidence for the importance of a clear purpose for any ambitious organization, and go on to describe a key principle of enduringly successful organizations: ‘preserve the core stimulate progress’. My simplified summary of this is that businesses that sustain success over the long-term achieve a balance between an enduring mission or core ideology and temporary tactics or non-core practices:

  • Core ideology: a clear and inspiring sense of what you’re trying to achieve and the principles you will adhere to. This overarching ideology should guide all decisions and activity and sit above any other goals or objectives that only exist as a signpost on the greater journey towards achieving the mission.
  • Non-core practices: your strategies, tactics, policies, working practices, targets and organizational structures you use to achieve your enduring mission.
Once you can articulate and distinguish between these concepts, you will have a clearer idea of where you should focus your innovation efforts
Once you can articulate and distinguish between these concepts, you will have a clearer idea of where you should focus your innovation efforts. The enduring mission is your final destination. This is sacred and shouldn’t change just because of a new technology or competitor. This isn’t subject to innovation, and provides a consistent guide and anchor around which an organization should flex and adapt.

The temporary tactics are the things that we do day to day, so they become familiar and comfortable. Indeed, they’re often how our individual jobs are defined. This makes it all too easy to become attached to them, even when they become obsolete, which will always happen with time. This is especially easy when we have allowed ourselves to lose sight of, or belief in, the enduring mission. Yet, these are just choices made at a point in time. As things inevitably change, some of these choices will no longer be optimal. When any of these tactics, technologies, mechanisms or practices are superseded, it should be changed. If it’s critical to achieving your mission and the optimal solution doesn’t yet exist, this is what you should innovate.

For an insurance company whose purpose is to provide the lowest cost cover to the mass market, innovation in risk profiling using social media data alongside traditional demographic data may provide competitive advantage by allowing the company to price lower for low-risk customers and avoid subsidizing high-risk customers. For a private bank whose mission is to provide personalized advice to high-net-worth individuals, high quality video capability giving immediate and convenient access to your named financial advisers may be prioritized for innovation, while industry standard risk solutions are sufficient. For a bank focused on day-to-day transactional banking, innovative payments solutions integrated with loyalty and marketing offers may be the priority and self-service preferred to more expensive personalized service via video.

Innovation isn’t about changing the underlying, long-term purpose of the organization. It’s a tool to find new and better ways of achieving it. Innovation shouldn’t change the answer to ‘why?’. Rather, the answer to ‘why?’ guides us to if, where and how we should innovate.

– This article is reproduced with kind permission. Some minor changes have been made to reflect BankNXT style considerations. You can read the original article here. Photo: Unsplash, CC0 Public Domain

About the author

Jake Chambers

Recognized as a thought leader in strategy, insight and innovation, Jake Chambers has a proven ability to lead and deliver against operational and strategic goals. Focused on generating breakthrough results, Jake applies an approach that revitalizes large organizations by infusing them with agility and creative dynamics. Co-founder of Lab12 Innovation and outgoing head of insight & innovation at Nationwide Building Society.

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