How to (not) innovate like a Bank

Banks, and other similarly large businesses with long histories, are successful at generating significant profits, but painstakingly slow at change and highly risk averse. Having worked with CEOs and senior leaders what’s clear is that innovation is a hot topic but seldom seen. Why aren’t banks succeeding beyond the innovation rhetoric, what can we learn from that, and where can new market entrants disrupt the establishment?

Bank models and systems are under serious pressure from outside players, all vying for a chunk of bank profits. Banks are big, slow and tied up in red tape. With political pressures on banks and their policies, the changes required to systems and process just to meet compliance is crippling innovation, and banks are scrambling to keep up.

It is a market ripe for disruption. Australia’s darlings of the share market are doomed unless they can become agile, but agility and innovation is not in their DNA. Can they survive or are they modern day dinosaurs destined for extinction?

Here’s my eight key insights and observations into the key blockers of innovation in banks and other large organisations.

1. Management structures are too high

The more layers of management, the more disconnected those pulling the levers are from customers. This hampers communications both up and down. The pressures of meeting stakeholder needs is clear at the top and changing customer needs clear at the coal face, but ‘Chinese Whispers’ distort the messages in the middle. With so many layers of managers all vested in their personal bonuses the result is organisational inertia and conservative practice.

2. Outdated and proprietary systems

The more complex the system, the greater the cost for change, pushing innovation off the table. Complex, proprietary systems require significant investment in ICT to maintain functionality with changing products and services. Key innovation activities are conducted ‘off system’ and often through acquiring or partnering with external fintech players. These off-system innovations by their nature, rarely add value to the core business of customers and are typically more interesting than game-changing.

3. Incentives linked to success, not failure

If you want to encourage innovation you need to embrace failure, in fact you should incentivise it. Innovation isn’t linear. If the problem is obvious to solve then solving it is common sense, not innovation. Banks, because they deal with people’s money in a highly regulated environment with a high cost for change implementation, have low tolerance for trial and error. Executives are rewarded for success, not failure and for real innovation you must fail fast, frequently for an unspecified period of time.

4. Lack of trust, leads to safe options

Disrupting internal processes and systems impacts work flow, time and resources of individuals. When incentivised for delivering a metricated result then anything that distracts that is a threat. Innovation is about trial and error, not delivering on a metricated result. Dedicating time to innovation versus business as usual is a risky strategy. Failure means you can lose your bonus, your job or both. If you don’t trust your manager to back you and reward you, then the innovation is doomed.

5. Management by numbers

Banks rely on building metricated performance systems. It is a hang up from industrial era production line performance monitoring. These systems enable easy reporting of performance across a large workforce. Innovation often produces negative numbers in the short term, not positive ones. Key numbers in banks are reported weekly in management meetings and are historical rather than forward looking. Reallocating employees from income generating activities to innovation activities leads to a short-term deficit in income and an increase in failure and disruption.

6. Car park performance reviews

Production line, ticket punching productivity measures are still common determinants of effort and commitment. The first car in the car park and the last out is the hardest worker. First in, last out (FILO) performance review are strong in banks, it’s practically a badge of honour and has been exacerbated further with mobile devices. More time working doesn’t equate to more innovation, better solutions, efficiency or effectiveness, it simply correlates with more time at work. It stifles innovation as employees compromise relationships, struggle to recover, refresh the brain and invest in personal learning and growth. They do, however, get better value from their car park, which is something, I guess.

7. Lazy growth mechanisms

Banks have been lazy. If you can generate hundreds of millions by adjusting your interest rates by a fraction of a percentage point then you’ve already got your solution to a dip in sales. No need to innovate, just move the margin, a few days or a week or two should do it. Banks can fulfill their short-term growth needs right there – no innovation in that, no matter what you call.

8. Fighting tooth and nail for attention

Where does innovation come from in an organisation? Rarely does it come from the top. Innovation shines brighter closer to the problem. For innovation to be passed up through an organisation requires managers to support, celebrate and share the work of those ‘lower’ down the line. Positive attention is the drug of middle managers and is rare in banks. There are thousands of middle managers and if you don’t get your share, someone else will. So, blocking is common. To celebrate and promote the success of others comes at a high perceived price. The higher up you are in middle management the more adept you are at directing the spotlight and the more you crave it. The next layer up carries a bigger salary, status and bonus. The innovators move on and those left fight on.


These challenges for banks, and other large organisations, are not easily solved. They present a mix of culture, management, investment choices and stakeholder relations. There are some capable people in the bank who understand them all too well. They require pressure from shareholders to pursue innovation and demand short term losses for the long play – something shareholders are seldom inclined to do.

As with the dinosaurs, it is outside forces that fatally disrupt existence and if you cannot adapt quickly then you are toast. I would suggest there are plenty of warning signs and no time for complacency, yet massive opportunity for market entrants able to be much more agile and customer focused than the dinosaurs of old.

Little Britain - Computer Says No - Clip 1
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