10/12/2016

Is the Banking Industry Finally Ready to Explore Intrapreneurship?

Amiee Ball October 12th, 2016

Recently, Fortune reported on Citigroup’s creation of Citi FinTech, a skunkworks organization within Citi aimed at taking on FinTech challengers by mimicking many of the tactics that have made the banking industry disruptors so very successful to this point. Anyone outside the financial services industry may well wonder what the excitement is about; after all, big companies like IBM, Intuit and GE have been using an intrapreneurship approach to innovate for a while now.

However, this is relatively new ground in the banking industry. What can banks learn from successful intrapreneurship operations outside the industry?

Understanding intrapreneurship

Intrapreneurship focuses on driving innovation within an existing company and seizing market opportunities, through the application of entrepreneurial and startup approaches. It’s not just about research and development — although R&D is often a component of intrapreneurship. It’s not discovery for the sake of discovery, either. Rather intrapreneurship seeks to fulfill a specific customer desire or need in a way that generates profit for the company.

Intrapreneurship can be a major win for a company when it works. Often, an organization’s most creative, driven people will leave it to strike out on their own — typically founding companies that become competitors to their former employers. We’ve definitely seen this happen in FinTech, with some of the banking industry’s brightest stars founding and/or decamping to startups.

Instead of letting these people “get away,” intrapreneurship leverages their talent, innovation, skills, and passion to create a company within a company. These innovators gain the autonomy and resources they need to apply entrepreneurial principles to business and product development, and the organization gets to retain those creative people, create value, build market share or plumb new markets.

Intrapreneurship in banking

In creating Citi FinTech, one of the world’s largest banks hopes to tap the agility, speed and innovation that have typified many FinTech startups. Their objective is to retain or reclaim the customers being wooed by FinTech firms.

The FinTech challenge to traditional banking is very real and growing. Fortune’s article throws out some eye-popping statistics, including:

  • Finance startups drew $19 billion from investors in 2015.
  • More than 1,300 FinTech companies have a combined $33 billion in funding.
  • FinTechs have siphoned $9 billion from the banking industry so far.
  • Citi analysts predict FinTech will be a $203 billion industry within just six years.

However, Citi’s approach could be seen as part of a sea change that’s begun in the relationship between traditional banks and FinTech startups. Adopting FinTech approaches through intrapreneurship and collaborative relationships like the deal between Lending Club and Citi indicate both parties may be moving toward a more “can’t beat ‘em, join ‘em” attitude.

Applied intrapreneurship

Still, many in the banking industry continue to feel threatened by FinTech. They’ll continue to look for tactics to remain competitive. While they’ll almost certainly be watching Citi’s progress, banks that want to test intrapreneurship within their own organization can find plenty of success stories — and insight — outside the industry.

Successful intrapreneurship operations exhibit several common traits, including:

  • They take a customer-centric approach — Intrapreneurship is about fulfilling customer needs and wishes, something that should be easy for banks. But financial institutions that focus innovation efforts on beating disruptors, rather than improving customer experience, are missing the point — and opportunities — of intrapreneurship. Financial institutions need to leverage the customer data they have, while finding new sources of data and insights, in order to guide intrapreneurial forces toward profitable success.
  • They foster a balance of internal cooperation and competition — Successful intrapreneurial operations receive the funding, personnel, and autonomy they need from the main company. At the same time, they support intrapreneurship teams with cooperation, and smart companies also foster the competitive spirit that helps entrepreneurs succeed.
  • They provide clarity and commitment — While companies may allow intrapreneurial teams autonomy, they’re not without authoritative oversight, either. Senior executives remain involved and committed to the effort in much the same way investors and venture capitalists are involved in entrepreneurial startups.
  • They establish strong teams — Successful intrapreneurships begin with strong teams. To create these teams, companies may draw internally from a pool of the most talented, innovative, driven stars in the company, as well as bring in outside talent.
  • They don’t fear the unconventional — If there’s one aspect of intrapreneurship that traditional banks will struggle with most, it’s likely this one. Banks are deeply entrenched in legacy processes and attitudes. Yet creating an internal startup is useless if the organization doesn’t allow the team to act like a startup. That means accepting that innovation may require unconventional approaches, radical ideas, leaps of faith and freedom from bureaucracy.

While Fortune’s profile paints a picture of a strong beginning, only time will tell if Citi’s approach — creating a startup within an established financial institution — will succeed in putting the megabank ahead of FinTech competitors.

This content is accurate at the time of publication and may not be updated.