When most people think about the banking sector very rarely the word innovation comes to mind. Banks are usually seen as these monolithic dinosaurs that very rarely change, unless the Regulators make them change!
In the wake of the Fintech companies phenomenon, several financial institutions have reacted by creating internal innovation labs. These labs usually have the aim of coming up wth new ideas and solutions that can help the bank “revamp” its old services and products and to make them competitive when in the race with Fintech companies.
If we look at the “digital landscape” the average bank offers the access to an online bank account and an app. In today’s market it is not enough to keep the customers’ attention and money.
However, there is a lot of confusion when it comes to innovation labs: Financial Services is not a sector that has invested in this type of solution in the past, and whilst the idea of an in house innovation lab per se is laudable, the way it is implemented in practice is usually set up for failure.
There are several reasons for this trend:
- innovation and creativity need a fertile ground in order to grow and be effective: most managers I talk to state that they want innovators in their team. However, when faced with ideas that are out of the box and do not follow the same old path, they keep on resisting them and don’t even pilot them. This ends up in a lot of frustration on the side of the innovation team, on the side of the managers, executives and in a waste of time an money. No wonder that the innovation team is soon disbanded, labelled as “it does not work” or in the smart members of the team to leave when they realise that they are wasting their talent in a specific organisation that does not seem to get it.
- no possibility to make mistakes: when trying something new organisations have to give the innovation lab the possibility to come up and pilot ideas that may not work out in the end. This does not mean saying yes to everything: a business case has to be well prepared and substantiated. But pointing the finger at every idea or test that did not work out and labelling it as “failure” is not going to be conductive to purposefully innovation. Some ideas will work out, the majority of them very likely won’t. If you stifle creative thinking you won’t get meaningful tangible results.
- no diversity in the team: due to prejudice and a set view typical of the financial industry, people in the innovation labs tend to be all the same type. As it is technology related companies focus on hiring (male and young) programmers and tons of project managers. Well, that’s not the best way to go. If you want disruptive and genuinely innovative ideas you have to create diverse teams. You need to get people from different industries (I cringe when I see job adverts stating “FS experience required”, what a wasted opportunity for “cross pollination”), different backgrounds (e.g. designers, UX specialists, psychologists, strategy specialists, architects), people of different race and age groups (it is a myth – and a discriminatory one – that only white male Millenials know how to do digital and innovation!).
- create a common language: when you manage a team of people coming from different backgrounds, with different specialism you will have to find a common language. For example a project manager will express his/her ideas using a certain the of lingo, whilst people with a background in strategy or marketing will express themselves in a different way. You need to find a way for everybody in the team to understand each other and to speak the financial services lingo at the same time.
- use a common methodology: diversity in the team is very often conductive to innovation and creativity. But you would need to set a common methodology to avoid chaos. Whether you decide to go for Agile or Lean or anything else you need to train all the team members and make sure that they use the same methodology.
- innovation governance: whilst the innovation labs will not be subjected to the same rules of the other functions in the bank (I can see readers that specialise in compliance cringe!), there is still a requirement to set boundaries of what it can/can’t be done. This framework has to be agreed before hand, finding a balance between the requirement to comply to a set of rules, without stifling innovation.
- set a clear mandate: don’t confuse innovation with anarchy. The innovation lab has to be set up with a specific mandate (what output do you want them to deliver?) and a specific time frame. Typical outputs include new products, improved customer experience (CX) for a specific product, new business models, etc.
You would now realise that setting up an internal innovation lab (or more than one in the same organisation) does not mean gathering a bunch of white male Millenials in a hip location with free food and Super Mario Bros at their finger tips. It is much more than that: it requires diversity in the team in terms of skills, race and age groups; a mandate with a clear output; the definition of a framework/methodology/language within which the team can operate; a fine balance of letting people try out new things that may or may not work and the alignment to the company strategy.
First of all, it requires a significant shift in the average traditional bank’s company culture. And this is the main obstacle to success.