Warren Buffet has been famously quoted as saying “Only when the tide goes out do you discover who’s been swimming naked.” The global financial crisis that began in 2008 created new low tide marks, and we definitely saw more naked bankers than the Mayflower Madam. The recovery over the past couple of years has turned that tide for most banks, but I suspect that for many, 2013 will be the high water mark for some time to come.
The release of loan loss reserves can’t continue as a driver of improved industry earnings, and banks will actually have to grow revenue to keep growing earnings. Get ready for more indecent exposure in the shallow end. I wrote recently that over the past few hundred years the banking industry “was basically undefeated because it won all of its games by default”, but now all sorts of asymmetric non-bank competitors are seriously beginning to disrupt the status quo.
The punch line of Aite Research’s Ron Shevlin March 2013 article (Why Don’t Banks Innovate?) was that “They haven’t had the economic imperative to innovate. Until now.” Banks are now rapidly creating new job titles that have the word “innovation” in them. That’s awesome. It’s also insufficient.
So You Want to Be an Innovator?
If you want to be an innovator in a bank, it’s going to take more than trading in your pin stripes for a hoodie. Here’s what you need to know:
1. Find a sponsor
Innovation efforts are not quick-yield exercises, and you’ll need executive air cover to keep you going until you get a couple of successes under your belt.
2. Get out of the building
This mantra was made famous in Silicon Valley by Steve Blank, and widely popularized by Eric Ries in The Lean Startup. Banks have notoriously developed a lot of their products and services without ever talking to actual customers. (Fees for debit cards or teller visits, anyone?) Rod Witmond from Deluxe Corporation posted on this blog last month Six Important Financial Services Events to Attend in 2014, and the list included Finovate and Money2020.
I would certainly second those as must-attends for aspiring bank innovators, and add to it:
- Bank Innovation 2014, March 3-4 in Seattle
- FinTech Partnerships, March 3-4 in Las Vegas
- NextBank USA, June in Boston
- Sibos 2014, September 29-October 2 in Boston
Meeting like-minded innovators is at least as important as the information emanating from the stage. I plan to be at all of them, including some Alaska Airlines-assisted juggling to attend a little bit of both of the conflicting events in March. (Not to mention a whole slate of events from the Bank Innovators Council, starting February 13 in London, immediately following FinovateEurope).
3. It’s not all about brainstorming
I love the creative process of thinking up new ideas. It’s fun and energizing, but it’s not the most important part. Actually putting the ideas into action and making a difference with customers and for the business is the important part, and it’s not easy. Keeping focused and disciplined to make sure we’re solving the right problems in the right way is the real purpose of innovation.
Jim Collins, of Good to Great fame, talks in his follow-up book Great by Choice about the need for creativity and discipline in order to outperform the competition. More on that below.
4. Fail fast, fail cheaply and safely and learn from it
Innovation is about taking risks and trying things that haven’t been done before, and if you don’t have some failed experiments along the way, you probably aren’t being all that innovative. That doesn’t sit well with those at the bank whom we like to call the “Business Prevention Department”. They key is to create a firewall where these mini-failures escapes the attention of such critics, and use those wrong answers to get to the right ones.
A bullet is an empirical test aimed at learning what works and that meets three criteria:
- A bullet is low cost. Note: the size of a bullet grows as the enterprise grows; a cannonball for a $1 million enterprise might be a bullet for a $1 billion enterprise.
- A bullet is low risk. Note: low risk doesn’t mean high probability of success; low risk means that there are minimal consequences if the bullet goes awry or hits nothing.
- A bullet is low distraction. Note: this means low distraction for the overall enterprise; it might be very high distraction for one or a few individuals.
5. Keep the faith
It’s a marathon and not a sprint. You won’t get it all right the first time, or maybe even the seventh, but keep innovating. The industry is counting on you.
JP Nicols, CFP® is a former bank executive and the cofounder of the Bank Innovators Council, a membership organization that helps support, promote, and facilitate innovation within and amongst its member banks. His work has been featured in leading industry publications and on his blog at jpnicols.com.