Late last year I was asked by my good friend Jim Marous of The Financial Brand to contribute to his crowdsourced list of 2015 Digital Banking Trends and Predictions. My prediction was that we would see an increase in the current trend of banks investing in innovation. More newly-minted Chief Innovation Officers, and more establishments of new innovation teams, innovation labs and fintech venture funds.
I also offered the opportunity to provide my 2016 prediction 12 months ahead of schedule– and that is that half of these new innovation efforts would be mothballed for a cited “lack of clear ROI”.
Innovation is about more than whiteboards and minimum viable products, and most banks are ill-equipped to move from ideation to actual implementation, and fewer still are prepared to truly address their internal cultural barriers and their own ‘business prevention departments’.
Traditionalists vs. Trailblazers
Why the pessimistic prognostication?
We have found in our research and our work with financial institutions of all sizes all over the globe that there are two major camps of employees– Traditionalists and Trailblazers— and most organizations fail to capitalize on their differences to get the best of both worlds.
Traditionalists are the old guard, and in far too many financial institutions, they are actually the only group; a single-party system of centralized planning and control. If you think about the kind of person who seeks a job in a financial institution, let alone one who stays in the industry a long time and takes on more responsibility for time, you are often thinking about a Traditionalist.
Traditionalists seek and strive for stability, security and predictability. They like to quantify the “known knowns”, reduce risk and variability, and methodically catalog and implement “best practices”. This is exactly the right way to run the lending and risk functions of a bank, and many Traditionalists came up through these departments over the course of their career. Most financial institutions still derive the majority of their earnings from loan spreads, and you have to make the right loan decisions pretty close to 99% of the time over the long run. The global financial crisis sparked in 2008 is a pretty good testament of what happens when you get that wrong.
Some financial institutions are taking the approach of giving Traditionalists new roles with the word ‘innovation’ in their title, and the result is typically an over-engineered top-down approach full of idea capture forms, complex filters, and evaluation criteria, and committees full of more Traditionalists to ensure that nothing too new or unproven sees the light of day. That would be too risky.
But asking people who are wired, hired and fired based on their abilities to identify, manage and avoid risks to take on the job of innovation is ironically a risky proposition in itself. Not the kind of cataclysmic, industry and macroeconomic-shaking risk of lowering lending standards in the name of increased loan production, but one that nonetheless can have equally dire consequences at an institutional and microeconomic level. Dying the slow painful death of irrelevancy is the risk of not taking the risk in a world full of disruptors and innovators. Ask Kodak, Blockbuster and other poster children of this approach.
Enter the trailblazers
Trailblazers are wired differently than Traditionalists. They seek to discover new knowledge and explore the unknowns, and they like to spend time outside their company and outside their industry. They like learning new things, and that comes from trying new things. They see “best practices” as myopic at times, leading to the perfect execution of all the wrong things. Right tree, wrong forest. They prefer experimenting and testing things to establish “next practices”, and sometimes making “mistakes”. Or, to paraphrase Thomas Edison, not failing, just found 10,000 ways that will not work on the path to finding a new solution.
The natural inclination is often to isolate these iconoclasts and firebrands in their own labs, if only for their own protection. And that’s not necessarily such a bad idea. Traditionalist organizations have very powerful antibodies that seek to kill any invading viruses that threaten to disrupt their homeostasis. Trailblazers need to be around like-minded innovators, and they need some amount of insulation to create and iterate in ways protected from those who would seek to overly neuter and homogenize their unique ideas.
But isolation is not the path to innovation, and a few creative people locked in lab is not sufficient to bring about real change. The best organizations put the right people on the right tasks at the right time.
Leaders, Learners and Laggards
The same Financial Brand 2015 Digital Banking Trends and Predictions reported cited above also quoted a survey done by Efma and Infosys, in which 49% of financial institutions proclaimed their innovation objective is to be a “leader”, with 38% content to be “fast follower”. Frankly, we see the current reality as pretty far from those ambitions. We see three groups when it comes to innovation maturity, that is, how deep and broad is the innovation that is actually in practice.
The vast majority are Laggards, and while many mistakenly characterize themselves as fast followers, the sad reality is that they are typically only half right— ‘fast’ rarely comes in to play.
Next, we see a small but growing group of Learners. These are the organizations that know they need to do innovate, and often have pockets of innovation, but may need some help connecting disparate efforts and spreading them around the organization.
Last, a very small number of institutions are true innovation leaders. These are the rare few that have both broad and deep innovation efforts across approaches from incremental to radical, and seek to embed innovation throughout the organization. They also connect and collaborate with external ecosystems including customers, vendors, and partners.
These are also the organizations that take the time to understand and harness the best of both Trailblazers and Traditionalists and seek to develop a culture where each group can contribute meaningfully. The most innovative organizations in the world leverage the strengths and weaknesses of both Traditionalists and Trailblazers, blending the necessary risk-taking with the equally necessary risk management.
They balance experimentation with execution.
For more on how the most innovative organizations leverage Traditionalists and Trailblazers, read my interview in the MX Money Summit.