Innovation sounds like such a good thing. However, actually building an innovation culture and process requires your institution to start from the right place. It needs to begin with understanding who you are, and innovating within that context.
At a financial services conference, I asked the audience a simple question: “What role does Starbucks want to have in your life?” I received a range of different answers:
- “Starbucks is a coffee shop. They want their role to be selling me coffee. And cake. Lots of cake.”
- “It’s a money-making machine. Their purpose is to make money.”
- “It’s a property company.”
Interestingly, Starbucks defines their role in your life as your “third place.” Your first place is your home. Your second place is where you work. They want to be your third place.
Once you understand this, you understand the logic behind Starbucks’ innovations — the locations they choose, the seating they use, the lighting they provide, and why they offer candles and mugs for sale and have an alcohol license. These decisions make sense. Starbucks has a guiding principle which shapes their decisions and their investments.
Next, I asked my audience “What does your bank want its role to be, in the lives of its customers?”
In almost every instance, I got silence. And, after a very long pause, I received awkward answers like, “Um, they want to be your bank …”
And therein lies the rub. If you don’t know what your purpose is, all you can be is lowest common denominator, functionally. You’ve got no yardstick against which to make innovation decisions — and no need for an innovation budget.
Whatever Happened to R&D?
Which brings me to the lost art of R&D. I did some thinking with recently — they were researching innovation in three sectors; Financial Services, Defense and Pharmaceuticals. They had found sizeable R&D budgets in both Defense and Pharmaceuticals. They had found far smaller investments among financial services incumbents.
The researchers were stumped: “How can they innovate, if they don’t have a strong R&D budget?”
The conclusion we came to was that the gene (and budget) for R&D had been lost, if ever it existed at many organizations. Even at those organizations where a budget existed, it was either minimal, or used as a way to satisfy the investor public … or both.
The need for innovation has not been lost — as expressed by consumers’ uptake of services that work, services that feel good, services that inspire loyalty and deliver pleasure. Services which are much more than traditional banking.
This leads us to where you find innovation in financial services. The answer is, of course, you find it in the ecosystem with the Big Tech organizations. For example, tech companies owned the top 5 spots in the U.S. for R&D spend in 2017. Amazon was number 1, spending $22.6 billion in 2017, 41% more than in 2016 when it also topped the list. Innovation budgets are also found in fintech firms and “challenger banks.”
Partially because of this historically low commitment to innovation as an industry and individual organizations, you need to work hard to attract innovators to work with you. Unfortunately, while banks seek to attract, they often, in reality, repel.
Here are five of the most common mistakes banks and credit unions make as they try to attract innovators to their ecosystem:
1.) What innovators want in a banking partner: We know who we are, what our role is in our customers’ lives, and what innovation we’re seeking.
The reality: We’re flailing around, looking for anything we can dress up in front of our Executive Committee — the more PR-able, the better!
2.) What innovators want in a banking partner: We’ve got the money, as well as the change mandate to invest in your business or to partner with you.
The reality: We have limited budget available. We spent the budget on bean bag chairs and fairly non-functional “labs.”
3.) What innovators want in a banking partner: We’ve got a clean, fast process from assessment to rolling out. We’ve got two people for you to work with, one from the business, one from technology. They handle the bank part, so you don’t have to.
The reality: Everyone (yes, everyone) is going to get involved, all looking for ways to drag this process out ensuring nothing gets done. Welcome to our hackathon/accelerator/PR First Circle of Hell.
4.) What innovators want in a banking partner: We’ve got a slick tech capability which is aligned to the business.
The reality: We’re holding our technology together with Elastoplast and prayer. That big budget we boast about in our annual report is just keeping the lights on.
5.) What innovators want in a bank partner: We have a timeline to go-live with services that will make a real, positive difference for our customers.
The reality: We’re stringing this out until retirement — 5 to 10 years minimum — and that’s if we fail to kill it off entirely.
There’s a theme here. Don’t impersonate a vibrant home for innovators. It’s a colossal waste of time, effort and money. And worse, it’s insulting the very innovators you want to attract into your orbit. And, ultimately, it’s failing to help the consumers that you serve.
Innovation works best when it starts from the right place: understanding who you are and innovating within that context. Innovators are out there, in the ecosystem, but you need to attract them into working with you — repelling them is counter-productive. It’s all about culture and commitment.