How Can Financial Institutions Cure ‘Innovation Theater’?

Foosball tables, whiteboards, 3D printers and bean bag chairs all look cool but how often do innovation labs turn out products and ideas that make more money or save costs for banks and credit unions? The author of a book about labs says a key solution for innovation as performance lies in something as old as civilization — money.

A chronic affliction of financial institution innovation programs is something insiders call “innovation theater” — where companies make a big show out of innovating while being far less effective at producing results.

These institutions make headlines for breathtaking innovations that drive competitors green with envy. They may even have a spokesperson for innovation to make it clear they are at the forefront. Closer examination may reveal that innovation is only skin deep at their institution, with no payoff flowing out of their efforts.

A great example of corporate-sponsored innovation theater is the now-infamous Silicon Valley tech company Theranos. Based on hype alone, its market capitalization rose to $9 billion, with 800 employees at its peak. Reports of the company’s prowess in revolutionizing blood testing using “nanotainer” technology and the “Edison” analysis machine were ubiquitous. These helped cast a spell over usually skeptical investors.

The company over-reported its breakthroughs and misled investors to the point that the Securities and Exchange Commission pursued fraud charges against senior officers. Other charges and legal troubles followed. The company has been dissolved with $60 million in debts, of which an estimated $5 million will be repaid.

Why This Matters:

The morale of the Theranos story is not that innovation theater on this scale is something your institution would engage in. But it does illustrate how seductive an illusion of “new and better” can be.

Innovation can have real value, but management may wield it merely to increase a company’s perceived value. Many companies inflate their latest achievements as a demonstration that they are poised for the future. Amplifying innovative achievement makes analysts, shareholders and potential investors happy.

As a result, innovation theater will always be with us. The big question is, can this pattern be changed so genuine innovation results?

Innovation Theater’s Distinctive Look and Feel

Corporate innovation programs, often called innovation labs, spaces or teams, where theater overrides the creation of workable tech, have a characteristic look and feel. They also have a typical set of behaviors that you can spot from a mile away.

They tend to proclaim that their mission is lofty. It will disrupt the normal operation of the institution. The plan is not just big — it’s massive! So massive, in fact, that it can be achieved only after several years of diligent work.

This big plan relies on a critical new technology, such as AI or blockchain, and is often sold as a game-changer. Staff will enthusiastically climb on board when it launches, management is assured, so they get left out of development lest they slow things down.

Sad But Often True:

“Proofs of concept” showing massive potential abound. Yet somehow they never reach the finish line.

Meanwhile, back in the world of reality, the lab folks don’t believe in mucking about trying to help your institution deal with more mundane but actual problems. They may view such tasks as beneath them, or beyond the strained capabilities of their overworked staff.

Many programs thrive on publicity. Keeping the company in the media’s eye is critical. Innovation team members are perpetually at conferences pitching their view of the future, which is amplified by corporate public relations and senior executives. High-visibility hackathons generate press that keeps the company in the headlines and elevates its reputation for being innovative.

Finally, the innovation staff is full of energetic young people willing to throw themselves diligently at any problem; they have little knowledge of the actual business, but tremendous faith that some senior manager has judiciously figured things out.

All this is why corporate innovation programs may be more stage sets than genuine agents of change.

The Dangers of Innovation Theater

If you were to think of innovation theater as a disease, it has the potential to be either chronic or fatal. It’s possible to live as theater for a very long time if the team is content to devise showpieces that don’t actually get implemented. Concurrently, the parent organization, for whatever reason, may find it easier to live with the façade, while business proceeds as usual.

Many innovation programs fall into this category. Some start out as showmanship by design. Others fail because they are caught in an impasse with their parent. Staffers have a sense of resignation that their products don’t get anywhere, but nonetheless believe that they should just keep at it.

At the very least, they get to give great tours to visitors.

Innovation theater can become fatal when innovators move on as they sense that despite their optimism, nothing will ever come of their work.

Read More:

Webinar
REGISTER FOR THIS FREE WEBINAR
Consumer Lending Shakeup
Join a discussion of the new lending landscape and explore proven ways to attract, acquire and retain
Wednesday, May 19th at 2pm (ET)

Can Innovation Theater Be Replaced with Genuine Innovation?

Overhauling innovation theater is not strictly necessary. If everyone involved is relatively content, and if the publicity is beneficial, by all means, keep at it. It’s no joke that the publicity garnered by the innovation team has a real benefit to investors’ perceptions, and maybe the team is paying for itself many times over in advertising and public relations.

As cynical as that sounds, there will be some who will be happy with this arrangement. In most cases, however, this marriage of convenience isn’t stable.

For what it’s worth, corporate parents generally are the instigators in creating innovation theater. Their desire for good public relations trumps their desire to implement real change. They create a feedback cycle that rewards the innovation team for getting in the press and making the company look good.

The parent then doubles down by giving the team latitude to think big — so long as the projects are newsworthy.

How to Change Things:

But this can be turned around. Generally it will be up to the innovators to initiate changes to escape from irrelevance — and then structural change must follow.

Read More:

As Usual, Follow the Money

A key step is that the reward system for innovation staff needs to be changed to bring the innovation team back into relevance. Team members’ incentive structure needs to be overhauled to reward incremental, documented, implemented innovation. Financial institutions must pay them to get into the company’s fabric instead of generating good public relations.

To effect a redirection, the team must first show management the future they are missing out on by not innovating. This is a difficult task — it almost amounts to shaming executives into real innovation.

Ideally, this would be followed by a proposal in which the team negotiates a position where its members can also profit or otherwise benefit from any real innovation it develops. A successful proposal means a sea change in the dynamics between the parent and innovators.

First and foremost, the team should have a financial interest in the success of its projects, and management may thus be sufficiently vested in the process to accept more innovation. This is being “culturally sensitive” to management as many will not recognize the innovators’ achievements without an associated dollar value, since this is the only metric they’ve ever known.

By tying the team financially to its projects, the team becomes a “player” in the corporate battle for resources and gets on managers’ radar for something more than theater. The moment the team can generate profit from an innovation, or at the very least clearly demonstrate its dollar value, the innovation program will become more meaningful to them and the parent organization.

The Straight Truth:

This is strong medicine. It will require significant changes in the team’s projects and how their success is measured. It will leave many unsettled.

For some, it will be debatable whether the cure for innovation theater is worse than the sickness. Leaving some degree of theater in your innovation program may be workable, and perhaps a more modest refocus is all that is needed.

That said, a hard reset of what your innovators do and making them accountable may just be the jolt required to capture management’s attention regarding the real value of innovation in your company’s future.

Rich Turrin is the author of Innovation Lab Excellence: Digital Transformation from Within. (Dig Deeper) He is an independent fintech and AI consultant based in Shanghai, helping clients navigate the China tech market. He previously headed fintech for IBM Cognitive Studios Singapore (IBM’s Innovation Lab) and worked for IBM China.

This article was originally published on . All content © 2021 by The Financial Brand and may not be reproduced by any means without permission.