Presently, innovation is much in vogue. Describing oneself as innovative is popular amongst all that have a respectable opinion of themselves—be it companies or individual persons. In its proper sense, the word simply means “renewal” (from latin: innovare = to renew). Of course, this definition covers a very wide field. From this perspective, a new version of a shower gel with a different fragrance is as much of an innovation as the introduction of CarSharing in the German transport sector.
However, most people think of the Internet companies of the US west coast as role models for innovation and its development. If only one could do things like the “big players” of the online industry, could follow some kind of secret recipe for success. But before looking for the next ball pit to jump into, it might be worthwhile for banks to take a closer look at the “tech giants”. Because besides the much talked-about entrepreneurial spirit engrained in the corporate DNA and colorful offices with an array of extras for employees, there are some other fundamental features that you won’t find as such in most financial institutions:
To begin with, the professional background of employees in banks tends to be fairly homogeneous and there is only a small number of career changers. This has an immediate effect on another aspect: the very low tolerance for errors that is typical for the financial industry. However, tolerance for errors is key for the successful development of innovations—after all, if you’re 100% sure about everything you do, you will hardly discover anything genuinely new.
With a view to the speed of development of new products and services, it can be observed that innovative companies enter the market with a “minimum viable product” (MVP). The core characteristic of the MVP is that it already offers certain benefits for the customer, but is not yet completely mature—be it regarding product features or regarding performance. Reservations in relation to this approach are unfounded as long as it is combined with appropriate communication, e.g. a corresponding product name that possibly makes a distinction compared to the core brand, and a clear communication of the beta status. The great advantage of this method is the short time between generating an idea and marketing the product.
The selection of the process model, be it Scrum or the lean start-up method, plays an important part with regard to the speed of development of ideas and products. The status quo is a complex and time-consuming chain of decisions until the point where a new product is launched in the financial sector.
And last but not least, in many cases out-of-date IT infrastructures get in the way of innovations. At the end of the day, systems that require a company to bring back retired employees because students no longer learn the required programming language are just not the material that the future is made of.
What should banks do?
Currently, it is observable that many banks improve individual aspects of their existing offer, e.g. design relaunches for the online banking, the possibility to open an account via web ID, the introduction of video consulting, etc. However, the scale of the changes brought about by digitalization is larger than we can imagine today. Thus, an optimization of individual aspects will not be much help. Instead, it is important to address these changes with far-reaching, comprehensive measures. The aim should be to establish a view of the big picture combined with an orientation towards the future, in the same manner as the big tech companies. Their key products are designed in a way that offers the possibility to create an entire ecosystem. As examples, the Apple Watch, Amazon’s fire TV or Facebook’s increasing integration into the world of interpersonal communication could be named.
If such an approach is not possible within the given structures, banks should consider establishing innovation units outside the existing setup. Within these units, or rather by setting up these units in a sufficiently board-oriented way, possible obstacles (homogeneous professional backgrounds of employees, lengthy decision-making processes, the lacking “beta attitude”) can quickly be overcome. The IT infrastructure is, in fact, the only issue that requires a fundamental decision after a thorough balancing of arguments for a completely new setup vs. a revision of the existing structure.
However, the fundamental prerequisite for everything mentioned above is an active commitment of the management board in favor of digitalization. If digitalization is not visibly practiced, its enormous potentials will not be recognized at executive level—and no company will be able to change sustainably.