Cautious Banking Leaders Ambushed By Their Strategic Blindspots

Financial institutions continue to make profits while also falling farther behind what consumers expect in a digital world. Current financial success may result in turning a blind eye to obvious organizational and strategic problems while willfully ignoring market conditions when making decisions.

The concept of “willful blindness” originates in the law and refers to a situation where a person seeks to avoid liability for a wrongful act by intentionally keeping himself or herself unaware of facts that would implicate them. Many lawyers advise clients to use the defense of “I didn’t know” as a way to avoid prosecution. In business, this term applies to those who willfully ignore the obvious to avoid changing business strategies.

In her book Willful Blindness, best-selling author Margaret Heffernan argues that the biggest threats and dangers we face in business are the ones we don’t see – not because they’re secret or invisible, but because we’re willfully blind. She asks: What makes us prefer ignorance? What are we so afraid of? Why do some people see more than others? And how can we change? The threat is the inability to see – or admit to ourselves or our colleagues – the issues and problems in plain sight that can ruin leaders and bring down corporations.

Ms. Heffernan also argues that as organizations pursue financial gain, it is less likely that they will “see clearly and work thoughtfully” or to consider the interests of others. In these situations, staying quiet or non-disruptive may be the only viable choice internally since voicing dissenting opinions may jeopardize salaries or even employment.

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Willful Blindness and the Banking Industry

The banking industry is an excellent example of willful blindness in action. Banks and credit unions continue to stick with existing business models, products or services. Many organizations claim to be making significant progress in the areas of “becoming a digital bank,” “improving the customer experience” and “supporting innovation.” Each of these strategies are laudable, but when examined more closely, essentially mean conducting business as usual, just slightly more efficiently.

Unfortunately, if the underlying changes being implemented don’t prepare the organization for what is demanded by the consumer and introduced by the competition, and is effectively indefensible from a long-term business perspective, leaders and organizations can only embrace this incrementalism by embracing willful blindness.

Examples of this behavior appear throughout the banking industry. In the past, when financial organizations approved mortgages for people they knew could not afford them. In the present, organizations and leaders who are lulled into complacency by continued profits that are driven by one-time cost-cutting initiatives. Other examples include changes in digital delivery that are not supported by underlying changes in back-office operational processes or continued measurement of customer satisfaction using outdated metrics that focus on branch delivery as opposed to digital engagement. The list goes on.

The Risk of Silence

Cross-industry studies have shown that 85% of employees respond “yes” when asked the question: “Are there issues in the workplace that people are afraid to bring up?” This willful blindness can be around minor or major issues, such as productivity, customer experience, innovation, safety and even ethics. In many instance, organizations decide not to survey employees because they don’t want to acknowledge what they might find. If they do conduct a survey, the results are often ignored or minimized as not being a priority or being too difficult to change.

Alarm systems research also can shed light on individual  and organizational behavior. We have all ignored a fire alarm that goes off in a public place. Research shows that alarms tend to fail in changing people’s behavior for reasons such as: risk of alarm “habituation” (you’ve heard it so many times that you start to ignore it), false alarms (credibility issues), a lack of understanding of the risks at stake, or irritation at the alarm.

Is this any different that the “alarms” communicated to banks and credit unions regarding digitalization, innovation and increased competition? Alarms within the banking industry are intended to direct executive level attention to potential issues and to help these executives make an appropriate decision on how to respond. Unfortunately, as profits continue and dominance of legacy organizations remain relatively unthreatened, leaders and organizations hit the proverbial snooze button and return to status quo behaviors.

Creating a Culture That Combats Willful Blindness

Banks and credit unions must create transparency and reduce the fear of wanting to innovate and create change. Leaders must support that culture by allowing employees to take moderate risks and to embrace ideas that are “beyond the current norms.” Cultures and leaders must reward employees for finding new ways to simplify processes, improve experiences and create new products and services. As an organization hires new employees, will they be conformists or will they be willing to ask questions to improve your culture?

Some steps to remove willful blindness include:

  • Improving internal and external feedback tools
  • Creating a collaborative culture for idea generation
  • Increasing use of data to support decision making
  • Teaching critical thinking
  • Providing incentives for employee self-development
  • Seeking and promoting those who support a “future view” (dissenters)
  • Leveraging external resources to understand biases and to help remove blind spots

The alternative to “marginal gain” or completely misguided strategies (doing the same old stuff a little leaner) is to focus on the purpose of banking in light of the digital disruption and technological breakthroughs that surround us. As noted often by The Financial Brand, the decision is whether leaders and organizations disrupt themselves or not – you either do it to yourself, or someone else does it to you. This same decision was faced by dozens of notable organizations that chose to ignore the obvious market indicators until it was too late. These organizations opted for consistency, stability and mediocrity that willful blindness creates.

On a positive note, Ms. Heffernan believes that willful blindness as “a product of a rich mix of experience, knowledge, thinking, neurons, and neuroses, is what gives us the capacity to change it.” She continues, “In the end, willful blindness isn’t about people being bad; it’s about people being human. Enabling critical thinking, within organizations and in one’s own personal life, can open your eyes. The key is to get into that habit of mind, and to create spaces in which critical thinking can flourish.”

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