What is innovation in the context of a bank?
Innovation doesn’t mean less rigorous, or less focussed on success. It means having the ability to be more flexible and open to new ideas – in how to do business, and in the definition of what ‘business’ actually means for a bank.
How is it enabled?
Innovation only happens in a significant way within an organisation when leaders make it a cultural imperative. Without this, the measures and daily decision-making processes that are used to deliver things within the organisation are not optimised to evaluate new ideas effectively… they are optimised to enable the previous way of doing business. This means new ideas that have to go through the organisation’s ‘system’ in order to get delivered very often come up short.
With banks, as with many other large service-based organisations, a primary concern of the business is risk (reputational risk to the bank, higher risk of implementing a new revenue play over a cost-out one etc).
In order to ‘make it’ today, a new idea has to conform to the organisation’s current interpretation of risk… but if we do this, we’re not creating tomorrow’s bank - we’re still creating today’s.
So how did bank-driven innovations come along previously then? What gave those banks who were early adopters of new ideas enough confidence to adopt them? In the case of credit cards it was a reduced risk in the form of a working use-case that had large volumes of money passing through it (Diners Card) . In the case of ATMs and internet banking it was reduced risk in the form of cost-out (less staff interaction with customers) rather than the opportunity of new revenue. Risk will always be the key driver for a bank – even 5, 10 or 100 years in the future.
What we need to do therefore is not try to move the bank away from risk, or even to increase the bank’s tolerance for it. We need to redefine what risk means, how risk is interpreted and how we manage it. This is where things like altering definitions of ‘success’, re-evaluating the balance between tactics and strategy and integrating prototyping (read: a risk-free way to experience ambiguity) into the delivery model all come into play. It’s not about increasing risk… it’s about understanding it in a new way, and then embedding this in the systems we use.
So, what should happen next?
Banks need to build the capability to draft, evaluate and iterate on ideas BEFORE they become ‘real’ – just like architects, product manufacturers or any other kind of business that requires Design does - this is the first critical first step. Why? Because once banks build capability to do this, we’ll be able to communicate and discuss ideas earlier, faster, cheaper & in a more compelling way internally. But we wouldn’t really be demonstrating new ideas… we’d be demonstrating a brand new way to evaluate and understand risk.