How banks can balance stability and innovation

Matt Crossick/Empics Entertainment

As coronavirus affects stock markets and the Bank of England cuts interest rates, Dr Simon Hayward looks at the challenges facing leaders in the banking industry and suggests how barriers can be overcome.

As customers, we value stability in the banking industry. However, in recent years, banks have faced tremendous upheaval in the face of advancing technology, political uncertainty, and economic instability. And now, coronavirus is disrupting everything further. How can banking leaders deal with constant disruption while maintaining all-important customer focus?

The onset of fintech – innovative technology disrupting traditional banking methods – has really shaken up the banking industry. The major players still dominate, but they now co-exist in an increasingly crowded market alongside startups, challenger banks and other recent entrants which include big tech companies such as Apple and Google. Customers are demanding more in an era of unprecedented convenience and speed.

Faced with unprecedented change, leaders in agile organisations need to be both enablers and disruptors, creating a joined-up business while – at the same time – challenging how it operates at the most fundamental level”

Leading in an age of uncertainty

Today’s most successful banking leaders are adept at building organisations which can adapt quickly to changing competitive conditions. These organisations tend to be agile: innovative, good at meeting customer needs, and highly productive.

Agile leaders can accelerate action when needed, as they and their teams sense the opportunities and threats around them. This results in entrepreneurial opportunism – making the right choices, understanding where to invest innovation efforts to meet current or future customer needs, quickly.

These leaders appreciate the need to experiment, to fail fast if that is the result of the experiment, and to learn to improve the odds the next time. They obsess about getting better, about continuous improvement, with an intolerance of waste and a desire to minimise time to serve the customer.

In an era of big data, they practise the critical interpretation of data to see the patterns, to learn about what colleagues and customers want, and what motivates their behaviour. This focus on learning, getting better every day, and assimilating new ways of thinking and performing, is at the heart of the agile leader’s mindset.

Fostering innovation

Many major banks have responded to increased competition by developing innovative new products and services to attract new customers and retain existing ones. Innovation can be challenging in huge organisations with layers of bureaucracy and legacy systems to navigate.

An aversion to risk is a huge barrier to innovation and agility. The banking industry is heavily regulated. It is of course important for banks should remain legal and compliant with relevant regulations – risk management is important. However, in some large institutions, the legacy of process and procedure can become a blocker and create a culture of caution. This inhibits experimentation and slows down innovation and improvement. If we fear making mistakes, the only thing we will learn is how to avoid them.

Some banks have successfully introduced innovation hubs or ‘incubators’ where groups of people can collaborate, experiment, and spark new ideas in a safe environment. Many have invited startups in to help create this spark.

Enable and disrupt

So how can banking leaders get the balance right between creating cohesion while also challenging the assumptions which underpin it? Faced with unprecedented change, leaders in agile organisations need to be both enablers and disruptors, creating a joined-up business while – at the same time – challenging how it operates at the most fundamental level.

On the enabler side, agile leaders create organisations that can respond quickly to changing customer demands and competitor behaviour. They are good at empowering the people around them, devolving responsibility so that decisions can be made as close to the customer as possible. They create connected organisations, able to move as a whole with ease.

At the same time, agile leaders are skilled at identifying the need for pivotal changes. They look for opportunities to reinvent their operating model to create or anticipate disruption in their industry. They encourage new ways of thinking, behaving, and reacting to events among their colleagues – developing a shared disruptive mindset.

Innovation is a disruptive process, creating novelty and changing how things work. Through it, businesses can create new value for customers by adapting existing products and services or creating new ones that either revolutionise or disrupt existing markets.

Focus on customers

Successful innovation is customer driven. It is focused on what customers want most (whether they realise it now or not), and prioritising activity to concentrate on the activities that will meet that “want” as fully as possible, as quickly as possible.

Agile innovation begins without knowing necessarily the outcome, focusing on the highest priority customer problems to solve, and working intelligently to solve these together.

If leaders are more open to learning and experimentation, they are more likely to boost innovation across entire organisations – which benefits customers and colleagues alike.

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