Banks and credit unions focus more than ever on innovation to stay relevant and profitable, and they are spending more on it, but in some ways, building an innovative culture presents leaders with paradoxes.
Instead of injecting their organizations with innovation and vigor that fills everything, taking accepted approaches to it means they run the risk of their efforts being isolated to only part of their organizations, or even to specific initiatives.
Establishing innovation labs, appointing a chief innovation or chief digital officer, and partnering with fintechs have become increasingly common strategies. However, innovation labs can wind up off on their own, isolated from day-to-day business and operations. Chief innovation or digital officers may by definition have a role limited to IT area. And fintech partnerships can be confined to one product or department.
On their own, none of these limited and piecemeal efforts can prepare financial services firms for the future. For any of these efforts to be meaningful, banks and credit unions must instill a culture of innovation that reaches every corner of their institutions. This requires encouraging staff, down to the individual employee, to become innovative, to stimulate development and application of new ideas.
Doing this successfully can bring seismic change. But that’s the trick. It’s a monumental task to pull off. However, an innovative culture can ensure an ongoing pipeline of new and fresh ideas, a powerful weapon in today’s fast-changing environment.
The latest study from Elan Credit Card shows that 24% of consumers will choose a credit union or local bank for their next credit card.
Listen to the brightest minds in the banking and business world and get ready to embrace change, take risks and disrupt yourself and your organization.
1. Banking Leaders Who Want Change Must Drive It
Innovation, while it must permeate the organization, demands leadership. Setting up any of the efforts mentioned above and stepping back to watch things grow is futile. Leaders must play a significantly outsized role in shaping innovation’s development.
Why don’t more leaders get this? It lies in the optics of innovation. Innovative cultures are often depicted as open and egalitarian, emphasizing the sharing of ideas among equal members. It’s a collegial picture, and utterly misleading.
Reality Check: Sorry, but someone still has to be in charge.
Before change has a chance, leaders need to “walk the walk.” Studies indicate that 70% of the impact on an organization’s culture comes from leaders’ decisions and modeling behaviors, with the rest coming from training and engagement programs.
This means leaders need to learn how to handle the ideas the employees generate. They have to engage with ideas in an open and sincere fashion.
Rather than looking for reasons to dismiss an idea, they should ask:
- What is the opportunity?
- What are the factors that could kill that opportunity, and how could they do so?
- And how do we test this idea while it is still a good opportunity?
This type of engagement encourages an iterative, experimental approach in the spirit of learning that is essential to innovation. But it also keeps down the “squirrel syndrome” — having attention distracted by every new shiny idea.
- Do Banking Execs Have It All Wrong With Innovation Labs?
- What Banking’s Future Looks Like to Wells Fargo’s Innovation Chief
- How PNC’s Fintech Innovation Lab is Accelerating Digital Transformation
- Innovation Platform Widens Access to Fintech Banking Solutions
2. Start Small If You Want to Innovate Big
An important paradox to understand: Innovation must bring big ideas, but establishing a culture of innovation may need to start with smaller wins.
Innovation brings change that many organizations and people will resist forcefully. People, processes and even entire businesses that are useful today could find themselves obsolete as a financial institution seeks new paths. Some individuals will feel personally threatened.
However, an innovative culture requires commitment. If you want people to devote themselves to innovation while they have day job, then you must give them the time to devote the thought necessary to develop new ideas.
Consider what Google does. Employees there must to allot 20% of their time to innovation-oriented projects. This policy helped lead to the development of Gmail and Google Earth.
Companies are notoriously impatient for results. Earning the commitment to innovation may require early wins to gain buy-in and show the benefits of spreading innovation throughout the institution.
These early wins may need to be smaller in terms of the magnitude of their impact. They may not result in award-winning products. Indeed, they may not be related to products at all. Many have the misconception that innovation is all about products — a new account, a new widget, something concrete.
But for financial institutions, innovation in processes, policies and business models may be more important. This is something Microsoft has emphasized, which helps spread its innovation strategy and culture beyond those in product-centric roles. Scoring smaller early wins can help the financial institution refine its processes for testing and implementing new ideas, while also gaining new efficiencies in daily operations.
- Transforming Banks and Credit Unions Without Blowing Them Up
- 4 Myths Preventing More Fintech+Banking Partnerships
- Bank OZK Hones Edge with Innovation Lab Stressing Practical Change
- Consumers Test-Drive Banking Ideas Inside This Hybrid Branch & Innovation Center
3. Make It Clear that Innovation Has Personal Payoffs
Early victories also provide a critical opportunity to demonstrate to staff that there’s something in innovation for them. The bank or credit union can showcase how the bank incentivizes and rewards innovation.
Many companies provide some type of monetary compensation for employees who develop innovative ideas. However, public recognition of such efforts, at team meetings and events and in corporate communications, also means a great deal to many people.
Innovation-related benchmarks — such as how much time has been spent on innovation projects or trainings — should become part of the regular review and promotion process for employees. Promoting individuals based on their commitment to making innovation a regular and important part of their work is an effective incentive for other employees to follow suit.
Failure can be successful: Additionally, companies should leave room to reward employees for time spent on ideas that fail — but still result in valuable lessons. Otherwise, employees may not come forward with interesting ideas if they don’t think they’ll be rewarded for them.
One way to compensate employees for putting in the time and effort in these cases is to give departments a budget to reward employees at their managers’ discretion when they demonstrate noteworthy commitment to innovation.
- Do Bank Management Training Programs Create ‘Leaders of Yesterday’?
- What The Most Innovative Leaders in Banking Have in Common
- Rethinking Innovation, Leadership and Marketing in Financial Services
- Financial Institutions Must Become Digital Innovators
4. Set Definitive but Flexible Goals for Innovation
Banks and credit unions must set clear goals for innovation projects to align stakeholders. However, those goals must also be flexible enough to give team members the freedom to try different approaches.
Project goals should therefore be more focused on outcomes, not definitive labels. For example, setting the project goal of designing a new mobile app can limit the project’s options and scope. A broader goal of increasing mobile engagement by 40% gives the team more flexibility to try different approaches — including possibly designing a new mobile app.
In addition to flexibility, such outcome-based goals have the benefit of being measurable.
This is critical because many banks and credit unions struggle to define and measure progress when it comes to innovation. There are softer measures that organizations can use — including the example mentioned earlier of tracking employees’ time spent on innovation projects and trainings.
But in the end, the goal of innovation must be to deliver real business benefits. Innovation projects must move the needle on key business metrics such as customer acquisition or engagement, or new revenue streams or cost efficiencies.
Such metrics set the parameters for brainstorming new ideas. Employees should know that any idea aligned with such metrics and the institution’s overall strategy will receive proper consideration and discussion.
The days of dismissing such ideas out of hand because leaders don’t have time or they may require too much effort must be in the past.