Banks need to innovate

Due to organisational constraints arising from size, available skills and resources in general, many
banks will find themselves at a disadvantage when it comes to adopting and implementing new
innovations and technologies in a timely manner. Hence, it is likely that in the future, banks will
not be able to offer competitive products and services in all of the areas they used to. However,
which parts of their portfolios will be affected the most remains uncertain – just as the direction
in which the market is headed.

Banks are therefore facing a dilemma: Should they bet on one specific direction? Bad investments
and high sunk costs could be the consequence. Then again, banks will have to address a multitude
of innovation-related topics to come up with sustainable models for the future.

In an ambivalent environment, innovative capabilities and an innovation-friendly organisational
culture are paramount – but these are exactly some of the fields banks struggle the most with:
• Many banks have a pronounced inward focus. Topics that go beyond crucial issues such as
regulation and cost optimisation are often neglected.
• Innovation is inherently risky; banks tend to be risk-averse and are thus not used to assuming
high risks.
• Innovation decisions are often made by an unconventional vanguard – but decision making
processes in banks are usually either “democratic” or “autocratic”.
• Pioneering projects require substantial transformations. Banks’ organisations, however, are
set up for incremental changes; especially cross-silo cooperation presents highly specialised
experts and senior management with vast challenges.
• Innovation is often promoted most in areas where good publicity and direct client impact can
be achieved. Process automation and platform integration innovations are therefore frequently
put in second place – despite their enormous potentials for cost savings and impacting
a bank’s long-term-positioning.
• Compared with other industries and owed to their lower profitability, banks have historically
only appropriated few funds to innovation and transformation-related programmes. Investments
per employee in the banking sector were only 50 percent of those seen in the machinery
industry and a mere 25 percent of those in the chemical industry.

The ability to develop or integrate (e.g. Via flexible APIs as part of a broader technology manage-
ment), implement and leverage innovation across the organisation will become essential for
banks’ survival.
But are banks really in such a bad starting position?