Innovation is a word we hear a lot in the financial services industry. We’ve all read articles and have heard people talk about “the need to innovate” as a solution to many of the industry’s challenges. And this weekend, a panel of well-respected industry professionals at a South by Southwest session went so far to present the topic as an ultimatum for banks: Innovate or Die.
What Does it Mean?
“Innovate or Die” is a strong statement. Are there really only two choices: innovate or die? While there has been some debate, I’d argue that the answer is, yes. Banks that do not innovate will die.
In fairness, I can see how some would disagree. After all, the definition of innovation is pretty broad. Consider this one:
Innovation is a new way of doing something. It may refer to incremental and emergent or radical and revolutionary changes in thinking, products, processes, or organizations.
While there may be a better definition than this one, I think we can agree that this definition is acceptable. This definition is revealing; innovation can be really big, or it can be really small. It might affect an entire industry or one small aspect of a single business. Innovation means something different to everyone. And that’s one of the biggest problems we must address in talking about innovation.
Buzzwords are Buzzwords
It’s easy for people to dismiss buzzwords. We hear them all the time, and as a result, they often lose meaning. Innovation has become a buzzword. People throw it around, often without any definition, and expect that others understand what they’re talking about. But that’s not the case. I can see bankers easily dismissing the innovate or die concept because it doesn’t offer any specific course of action; it’s too vague.
A Lack of Urgency
The innovate or die concept will also likely be dismissed by those who recognize that it’s not immediate. Failure to innovate will not lead to death overnight. Rather, it will happen over a period of time. There’s an alarming level of comfort among many in the industry with the status quo. Many like business as usual. There’s no sense of urgency or desire to change because, in recent years, change has not been required to realize success. But that is no longer the case.
Incremental Innovation vs. Invention
As the definition suggests, innovation covers a broad spectrum. Many think of innovation as an extreme. They equate innovation to invention. But innovation doesn’t need to be radical, revolutionary or disruptive. In reality, most financial institutions aren’t prepared to manage that kind of innovation. Instead, they’re better equipped to manage incremental innovation. Radical innovation isn’t required (from most institutions); incremental innovation is.
Sense and Respond
As markets and consumer behaviors continue to change, financial institutions must do the same to maintain parity. In other words, financial institutions must tend to the issue of relevance. In many cases, external change is outpacing the necessary response. These institutions are on the fast-track to irrelevance. And in today’s marketplace, where consumers have access to a growing number of financial services alternatives and choices, irrelevance isn’t tolerated.
The necessary response to external changes varies between markets and between institutions. And ultimately, success is dependent on an institution’s ability to sense change and respond accordingly. This requires innovation. Prompting institutions to think about innovation is a good starting point. Prompting action, however, is more important. Here are a few steps to guide your choices and actions:
- Acknowledgment: Markets are changing. Consumer behaviors are changing. An acknowledgment must be made: internal change will be required to sustain a viable business amidst external changes.
- Measurement: Once that acknowledgment has been made, measures must be put in place to determine the level of change that has happened, is happening, and/or will happen within your markets and among your customer base. This involves the collection and analysis of relevant customer and market data.
- Adjustment: Measures will indicate deficits and opportunities. Based on data and information, appropriate adjustments should be made to any aspect of your business that will close the deficits and allow you to take advantage of opportunities.
- Experiment: Beyond making adjustments, don’t be afraid to experiment. Identify unmet consumer needs or market opportunities and make a move to fill those needs. Do something new. Monitor the results. And make adjustments along the way.
- Alignment: The goal of innovation should be strategic alignment between your institution, your markets, and your customers. Strategic alignment requires constant attention. And as things change, the cycle repeats.