Guest post from Jean-Marc Laouchez, Hay Group:
3. Willingness to fail.
“Banking is no longer somewhere that you go, it’s something that you do.” - Brett King, Banking 3.0
When was the last time you visited a bank branch? My kids have never seen the inside of one. Chances are they never will. Brett King’s quote sums up the total revolution sweeping through financial services. With their industry transforming before their very eyes, what are the lessons for leaders?
“Just do it” doesn’t do it any more
One thing’s for sure: the old ways won’t work. New research from my company Hay Group reveals that compared with peers, financial leaders have up to now been more likely to rely on a coercive, “just do it!” leadership style. We found that nearly half (43%) used this as their dominant approach, compared to only one third (34%) across all sectors.
Being authoritarian like this has its uses. But it’s the opposite of what’s needed to drive the things the financial industry needs right now – in particular, innovation. Indeed our findings confirm that financial companies lag in this area. While they may be good at dreaming up new financial products, they are not so hot when it comes to taking a completely fresh look at their business. Only 53% of financial employees rate their firm’s ability to innovate: at top-performing companies, this figure is 70%. And our research shows that compared with other industries, they also lack customer focus and pay much less attention to competitors.
Upstart competitors on the rampage
This is a dangerous combination, because now that banking is no longer ‘somewhere you go’, a host of new competitors have been appearing from left field to eat the sector’s lunch. In Africa, some telecoms providers have bypassed traditional banks completely. The M-Pesa service lets anyone with a cellphone and some form of ID deposit, withdraw and transfer money easily: no strings attached. In mature markets, banks are rushing to play catch up with this kind of mobile service before smart new competitors outwit them. In the US, new online firm Betterment has made it remarkably easy for ordinary customers to set up and manage investment portfolios. Claiming 37,000 customers to date, Betterment is proof that customers will happily move their money to the easier, cheaper place even if it lacks the kudos of an established brand.
How can banks respond to challenges like these? Leaders have a critical role to play in creating the conditions for successful innovation.
If one thing stifles innovation, it’s closed minds. When leaders major on a ‘coercive’ style, employees can be afraid to come forward with new ideas, for fear of criticism or even being fired. By making it clear that the business is open to new ideas, leaders can help create a culture that stimulates them. Even if it’s within the confines of their existing business model, being open-minded can open the door to useful innovation for banks. Chase Bank, for example, is opening “all-in-one” branches in California. Featuring touchpad screens, meeting rooms and bank staff standing by, they’re designed to ‘upgrade’ the experience of visiting a branch. In this organization, someone has been prepared to rethink the one of the industry’s fundamentals: the very purpose of a bank branch.
But is it really possible to fight off upstart competitors from within the confines of an existing business model? Leaders at some institutions have decided not. Their openness has included being willing to set up totally new, separate units where disruptive ideas have space to grow. Early in the online banking era, leaders at venerable European bank Societe Generale decided that this was the approach it needed to take. Today, its separate and highly successful online banking and broking operation Boursorama has attracted nearly half a million customers.
In any industry it’s hard to innovate and change from within. In financial services, focused on immediate gains and with a business model that has changed little in decades, it’s harder still. To overcome this, leaders need to be visionaries, with a clear view of the destination and how to get there. The CEOs of both Citi and Barclays have taken care to articulate this: Barclays’ staff are asked to rally behind the idea of “Helping people achieve their ambitions – in the right way.” New CEO Antony Jenkins has set out an ethical vision for the bank, assessing performance “not just on what we deliver but on how we deliver it.” His letter to staff also makes it clear there is no place at the bank for people who do not share this vision.
3. Willingness to fail.
Finance should by definition be a risk-averse business. But innovation depends on leaders who are prepared to let people make mistakes. Leaders who will make space, as Apple’s current ad campaign says, so there can be “a thousand “no’s” for every “yes”. Because if failure is always seen as a sign of weakness rather than a by-product of striving hard for success, people will be less likely to develop the kind of breakthrough new ideas that could provide much-needed competitive advantage.
Leaders hold the key
The new world of money demands a new approach from established players. Their steady, reliable business model of the past is no more. Leaders hold the key. With a clear vision, an open attitude and a willingness to get it wrong before they get it right, they will be able to steer their firms to success in a less predictable and more competitive world.