Many traditional banks riding the wave of tidy first-half profits might be tempted to put their faith in business as usual. But that would be a mistake. More than ever, institutions that are unprepared to accelerate innovation at speed and scale face serious—even existential—business threats.
The banking industry is squarely in the path of a perfect storm of disruption: increased exposure to geopolitical uncertainty, dramatically shifting socio-demographic trends, the accelerating pace of technological advancement, the pervasiveness of data and the evolving nature of risk.
Among the threats are fintech disruptors and nonbank competitors that are challenging banks’ traditional market position, just as millennial customers demand increasingly novel products and services. Moreover, the mountains of data that banks take in require constant and effective collection, analysis, and utilization.
In response, organizations are trying to upset their own status quo. Banks know they need to innovate to continue growing and thriving. According to the EY Global Banking Outlook 2017, a recent survey of senior executives shows that 63% of them are prioritizing hiring or retaining key talent to drive innovation and 60% are investing in new customer-facing technology.
Clearly, many banks are innovating. But how they innovate could mean the difference between success and failure. To gain the maximum benefits of innovation, banks need to do a better job of bringing what we call their “suits” and “jeans” together.
Weaving different kinds of threads
“Suits” represent traditional business functions, such as operations, accounting, compliance, and tax that enable an organization to operate at scale. “Jeans” represent disruptive trends, such as digitization, blockchain, artificial intelligence (AI), robotics and advanced analytics, which are enabling new ways of working and challenging business models.
The integration of “suits” and “jeans” is critical for an organization to scale innovation across the enterprise to unlock significant business value.
As the EY Global Banking Outlook shows, many firms have already ramped up hiring in “jeans” functions to encourage innovation, both internally and at the enterprise level.
But to truly industrialize innovation, “jeans” cannot operate in a specialist tech silo. Banks must be intentional about linking their “jeans” to their “suits,” who have direct insights into the specific business challenges facing the organization.
5 tips on uniting two cultures
So how can banking executives transform their operations by creating a culture where suits and jeans can accelerate innovation? Leaders need to introduce and embed these five concepts across the organization:
1. A fail-fast portfolio approach.
Innovate like they do in Silicon Valley. By continually testing and experimenting with business technology and allocating incremental funding to opportunities that demonstrate a product-market fit, organizations can turn innovation into a core revenue generator and get initiatives to market more quickly and cost effectively.
The faster you find out something is going to fail, the sooner you can stop wasting time and energy and apply lessons learned to the next idea in the pipeline.
2. A more collaborative, diversity-minded team culture.
Bring suits and jeans to the table together to pull from all available knowledge and get everyone aiming toward the same goal. This helps turn cultures of “no, because …” to “yes, and….” The buy-in created by ensuring every function has some skin in the game will help teams collaborate and discover how they can make the seemingly impossible work.
3. Product management is the new project management.
Instead of relying on project managers, who are focused on delivering assigned tasks, get more day-to-day involvement from product managers, who clearly see business challenges, opportunities, and needs.
Product managers can put the full-stack team on the path toward innovation by employing tools such as agile development systems, while helping the enterprise keep up with the pace of change. This approach allows work to occur simultaneously, in place of traditional methods that have work streams completed sequentially.
4. Focus on design thinking.
Emphasize design thinking and agile development principles across the organization. This starts from the top of the organization, and helps create a workplace culture that fosters innovation, encourages collaboration, and breaks down silos among different groups.
5. Put in some physical innovation labs.
These physical spaces, extended by virtual tools, create a place outside the bank’s traditional centers where a dynamic, innovative culture can accelerate and grow.
Innovation labs act as hubs where a bank can eliminate organizational walls, bring suits and jeans together and conduct controlled experimentation in an environment of accelerated learning.
Pay attention to uniting cultures
Many traditional banks might be enjoying healthy profits today, but disruptors lurk around every corner. To stay ahead of the game, banks must disrupt themselves before external forces do it for them.
Uniting suits and jeans should be a critical part of a bank’s necessary transformation efforts. In an era when business and technology move at lightning speed, banks need to remember that no one of us is smarter than all of us.
By more effectively connecting the different kinds of expertise across the organizations, financial institutions can bring their best thinking to bear on their business challenges and help ensure that innovation becomes a continual, accountable, and dynamic core function.
About the author
Roger Park is Americas Financial Services Strategy Leader at Ernst & Young LLP.