The past few years have seen banks shift their focus towards looking for ways to improve their operations effectivity through technology, update their legacy systems and improve their customer experience. There seems to be a sense of urgency driving traditional banks to become more innovative.

As digital innovation and disruption has caused customers to lean towards digital services and tools for their financial management requirements, traditional banks are becoming increasingly vulnerable.

Recent research on trends that will have the biggest impact on banking in the next few years suggests that there will be significant change in customer behaviour and demands, a change brought about by the introduction of new technologies and a more competitive environment.

Put simply, to survive it has now become critical for banks to be more innovative and prepare themselves for a future that is already shaping itself today. That said, aside from new and emerging technologies, what should banks be doing to become innovative?           

In order to truly succeed in this new and disruptive environment, banks must equip themselves to overcome three main barriers to innovation: organisational structure, organisational culture and organisational talent.

Organisational structure

A hierarchical management structure hinders creativity, agility and flexibility – all drivers of innovation. The rigidity of hierarchical organisations is one of the largest barriers to innovation. Traditional banks are built with a strict management hierarchy in place; they possess an efficient chain of command, with managers running their departments and reporting upward to more senior decision makers.

However, in terms of innovation, this structure only caters for the utilisation of creative ideas that come from the top and are shared downwards. Creative ideas coming from the middle or lower levels of a hierarchy have to work their way up through a series of managers, each with the power to approve or reject but each lacking the power to implement. With this structure ideas are easily lost or forgotten.

Banks are now operating in a dynamic and ever-changing environment where it is a necessity to quickly pursue new strategies and implement change. They must implement strategies that allow employees the opportunity to share ideas and be creative, regardless of rank or position within the organisation.

72 per cent of bankers believe traditional corporate structures and chains of command are inhibiting innovation

Organisations should strive to be open to collaborative brainstorming, where flat organisational structures allow for faster, actionable and two-way communication between junior members and senior members of the bank.

Achieving the right organisational structure starts with leadership reflecting on a critical question: “Does our organisational chart stifle innovation?” A recent research study highlights that 72 per cent of bankers believe traditional corporate structures and chains of command are inhibiting innovation. Boardroom and strategy discussions must shift their focus to understanding industry trends, forecasting future customer needs, preparing for talent challenges and ensuring that their organisational structure allows for innovation to thrive within the company.

Organisational culture

A culture that sustains and supports innovation is one that encourages its employees to envision without fear. Corporate culture is the most powerful and most intangible barrier to innovation. Recent research claims that nine out of 10 banks believe that their organisation must innovate at an increasingly rapid rate to stay competitive. As a result, a refined and flat organisational structure means little if the culture of the organisation does not support innovation.

True innovation requires a culture of ‘short-cycle attempts to turn an envisioning process into operational realities’. This philosophy goes against the typical culture of long-term planning found in a traditional bank. In order to support innovation banks must create and drive a culture that is based on experimentation and discovery.

Developing a culture that supports innovation starts at the top. Leaders within an organisation must understand and believe that generating and developing new ideas is an ongoing discovery process which does not always immediately create the product or service that customers want. They must also understand that when a project does not reach its macro objectives, it is essential to extract learning and new insights so that the ‘failure’ eventually leads to a new success.

Once leaders believe this, they must work on encouraging talent within the organisation to work on their ideas and to stay involved and engaged. The best way to accomplish this is to translate the organisation’s cultural foundations into tangible values and these values into behaviours and competencies. These competencies and behaviours will then feed into a series of initiatives, such as performance management initiatives that seek to guide the behaviour of employees.

Innovation should become one of the organisation’s core values. In this manner, banks will make innovation part of the agenda for all, ensuring that innovation becomes an operational norm rather than an occasional, sporadic process.

Organisational talent

Banks must ensure that they have the right people, with the right skills, in the right place, at the right time. Talent is the epicentre of innovation. All of the above means little if an organisation does not possess talent that is capable of driving innovation.

Banks must look at organisational talent from two perspectives; leadership talent and employee talent. On one hand organisations must invest in ensuring they possess leaders who are capable of driving and encouraging innovation, and on the other hand they must ensure that employees are receptive to change and capable of being innovative.

The importance of banks giving talent its due attention is made stronger by the strong competition for talent. Due to the growing skills shortage, advancing technologies, generational shifts and evolving dynamics around the nature of work, today’s pursuit for talent is as competitive as ever. This reality demands that organisations take charge of how they attract, develop and retain their organisation’s talent.

Banks must remember that they are not just competing among themselves for employees who have the drive and skills essential for innovation; they are also competing against flashy tech start-ups and fintech firms, which offer flatter structures, a lot of room for career growth, an innovative culture and the space to work in an autonomous manner. Including innovation as a core value will ensure this permeates into the employer brand, thus working to also attract the younger talent of today, the digital natives and millennials.

Measure. Define. Action

Banks must work towards creating customised, contextual and strategic talent management initiatives that are aligned with the organisation’s business strategy and focused upon driving innovation and maximising organisational performance through its talent.

The strategies that drive innovation cannot be introduced overnight. Rather, banks must commit their time and financial resources to taking stock of their current realities, both internally (in terms of talent) and externally (in terms of their customers and industry trends), defining their future state and implementing a strong talent management plan to get them there.

Without this, banks will not be ableto survive within the industry in the future, a future that has already begun to take shape.

Malcolm Pace Debono and Petra Sant are director and senior manager, People & Change Advisory Services, KPMG in Malta, respectively.