Change is imperative. Yet many financial organizations' large-scale transformation initiatives meet with setbacks, delays and even failure. Those that succeed are soon confronted with a painful truth: they are not leapfrogging. At best, transformation can put these organizations on par with their newer, more nimble competitors.
As the pace of change continues to accelerate, organizations across the financial services industry are seeking the way forward. Financial institutions must create the agility and digital capacity to compete with the start-ups and hyperscales encroaching on the financial sector to achieve long-term success – but how?
Creating the foundation for innovation
There are three steps to achieving success in the innovation space:
- Build an innovation culture.
- Build innovative solutions in collaboration with the business.
- Acquire, partner or invest in new technologies.
All three of these steps are necessary, but they must be worked through in order to achieve success. Culture, therefore, is the foundation upon which all successful innovation must be built – and it is in the development of innovation culture where many financial institutions go awry.
Creating an innovation culture is not a project or a task. Innovation culture is a by-product of broader business decisions. For this reason, leadership has the most critical role in sparking cultural change and encouraging that change to flourish over the long term. Looking at trends, we estimate 70 percent of the impact to culture comes from leadership decisions, guidance and modeled behaviors, while the remaining 30 percent is driven by elements such as training and engagement programs.
Leaders looking to inspire cultural change need to consider the foundational elements of innovation culture as relevant to the organization and its position. This includes monitoring what is happening across the industry and in other sectors, as well as recognizing signals of change both within the organization and in the broader market. What is the business now - and what must the business be in the future in order to remain relevant? Only when an organization can answer this question will it become clear how the organization must think and behave in order to achieve its goals, and thus the cultural changes required in order to move forward.
Capacity to think, freedom to fail
When people think of cultural change, most think of large-scale behavioral patterns. However, it is not organizations that change, it is individuals. Any cultural change visible on a team, departmental or organizational level is made up of many smaller, individual changes: employees inspired to think, act and engage differently. While at a high level we have to think about the broader patterns of transformation, creating cultural change is about finding ways to connect with individual employees' hearts and minds.
To achieve this goal, leaders need to do three things:
- Communicate goals and expectations. At a base level, change is threatening – and employees are especially threatened by digital or technological changes that may make their roles redundant. To address these fears, leadership must explain the broader purpose for the changes and clearly communicate expectations for employees moving forward. Make it clear that change is an opportunity, not just a disruption. Innovation gives opportunities to grow, reduces pain points and enables employees to focus on the important things in their roles.
- Build capacity. Today, it is hard to find employees at any level who are not stressed or feel that they are working near to capacity. This culture of 'busyness' is present in most industries, but is especially pervasive within the financial sector. Innovation thinking, however, requires mental space. Leadership needs to free up capacity for employees to be creative. This can take many forms, from free 'innovation time' built into the workweek to special cross-functional teams that come together to work on innovation projects.
- Embrace failure. Successful innovation requires failure along the way – yet many employees are terrified of failure and its consequences. To build an innovation culture, it is imperative to take this fear away. One way to do that is to be clear that the push to try new and different ideas is coming directly from the CEO. Another method is to create KPIs around pushing for innovation, rewarding process and innovative thinking over specific results or achievements.
Creating space for innovation
Innovative spaces matter. Experience shows a strong correlation between the physical workplace and a culture of innovation. This does not mean interior decoration drives innovation; rather, in contrast to the traditional cubicle setup, spaces designed to encourage collaboration and creativity have a positive effect on employee mindset and motivation. Organizations are also finding that an innovative workspace that includes access to the right technologies improves candidate attraction and hiring, which can be imperative as financial institutions increasingly look to compete with the likes of Google and Amazon for top talent.
One approach that many financial institutions are taking is the creation of separate innovation labs where new thinking can flourish. Innovation labs offer many advantages, including a break from the culture and routines of the core business. However, in order to be effective these innovation labs cannot be entirely separate entities that work in isolation and then pipe ideas back into the business. Labs that take this approach are likely to fail, as their solutions often make little contribution to the organization's strategic direction, do not address real pain points, or result in solutions that cannot be brought to scale.
Instead, the innovation lab and the business must work together in concert. Ideas and issues should come from and be owned by the business, while the innovation lab first creates the space to draw out those pain points and then drives the creation of new models or solutions in response. Thus, the role of the innovation lab is to facilitate innovation and help the business be successful.
Build credibility – but expect resistance
Change does not occur overnight. Throughout the process of cultural change, it is important to build credibility throughout the organization. Company leadership, from the CEO down, must be role models that visibly 'walk the talk' and follow through on what they have communicated.
While incremental innovation may be less impactful long-term, addressing the low-hanging fruit and implementing small changes that employees will notice in their day-to-day operations are critical steps for building credibility. Only once change is felt and employees have begun to think and behave differently with regard to innovation can you embrace the larger changes: business model innovation, new markets or customer segments, new consumer propositions, and more.
The path to cultural change is a bumpy one and organizations need to expect resistance along the way. Change – as well as its personal and career implications – is frightening, and it is normal for employees to feel threatened. Yet this resistance can be overcome. As you demonstrate the organization's commitment to change, and show how innovation is beneficial for both the business and the employees themselves, mindsets will shift. With time, an innovative culture becomes self-sustaining: not only will employees want to be part of the change, but the business as a whole becomes a magnet for talent.