7 Rules for Commercial Banking Innovators

February 22, 2018 George Neal

No. 7 subway train in Queens (iStock/John Kirk)

Every day at PrecisionLender we work with growing numbers of bankers who are tasked with bringing innovation to their institutions. It’s a wonderful trend, but their job is far from easy.

Fortunately, the process of implementing pricing solutions at more than 200 banks worldwide over the past decade has taught us some valuable lessons about how to approach innovation in banking. Here are seven insights we’ve gained along the way.

Expect Skeptics

One of our new favorite writers, Leda Glyptis, (whom you will see referenced repeatedly here) recently wrote a great piece about the challenges that custodians of bank change face. She points out that bankers have good reasons for avoiding change.

Banks are built on established practices developed and adopted by accountants to track everything and have achieved successful through strong risk aversion and stability. Because of that success, innovation initiatives are often met with a “weather-the-storm” mentality.

Innovators need to go into their project expecting an initial cold shoulder, instead of a red carpet. Then they need set out to better understand the internal landscape.

Meet Them Where They Are

To drive change, you need to understand the starting point, and begin from a position that embraces that point, instead of deriding it. This was a lesson Dallas Wells, PrecisionLender’s EVP of International Operations, recently wrote about on LinkedIn. In the piece, Dallas detailed his failed attempt to change a process at a client bank. His mistake a common one among innovators - driving a group to change too fast, too soon. 

Meeting people where they are also requires some understanding of what it took to get there. One of our clients recently gave a great explanation for why they were not going to follow our recommendation to change their current approach.

“We had a thousand meetings, got everyone in rooms, agreed upon this approach, taught the language of this approach, and built a common understanding around it. It is simply too costly to go and do all that again.”

That might be frustrating to hear, but you can’t simply ignore the investment that’s gone into the status quo, and the rewards that the current condition offers.  In this case, multiple factors -  common cause, language, time spent doing the actual job – forged a reality that scoped how much change was going to be successful. We had to reframe our approach and abandon this particular recommendation to meet them where they were and continue driving a larger change effort.

Find the Best Leaders

As an agent of change, there will be times when you may be asking people to put their reputations, or even careers, on the line. Often in banks, careers are made by simply not being the person who got it wrong. Why should your potential partner take this risk?   

Understand their position and build their confidence systemically. Again, Leda has some great advice on how to “cheat, beg, borrow, and steal” to get project champions on board.

The best leaders tie innovation and change in with the personal brand of the teams and individuals being impacted. In the pricing space, relationship managers are very aware of their personal brand and are often more concerned for their own reputations than they are for the bank in general. Showing that the change being proposed helps them build a better personal brand is a part of meeting them where they are, understanding their primary motivation.

Change the Behavior

The reflexive improvement tactic at banks is often to focus on reports, financial metrics, etc. But that’s about optimization, not innovation. To truly drive the latter, you have to change what people do and how they do it. 

Optimizing a report generation process to make a report faster doesn’t provide real value if that report doesn’t change behaviors in the bank. Yet most banks are full of these reports - one that require finance to tick and tie all the elements, or that people make projections are in line between departments. Hundreds of hours are spent in making sure the reports all say the same thing, but at the end of the day the sum impact of these reports is “no change.” 

Focus on behavior, and the data that will drive changes to behavior.

When someone says “report,” be immediately skeptical and ask: “What will we do different as a result of that report?” Their answer can invariably be met with this response:

“How about we automate straight to that result, and skip the report?”

*Writer’s note: You could substitute “report” with, “Macro-enabled, color-labeled indecipherable spreadsheet,” and the advice would be equally, if not more, appropriate.

Leave “The House of No”

Successful change implementers must have a strategy for exiting “The House of No.” Long-time bankers all have stories of sitting in meetings in which over half the attendees aren’t impowered to approve or contribute to an effort, yet still have the authority to say “no,” or impose additional constraints. We call this “The House of No,” and it is a place of misery where good innovation goes to die. 

Within The House of No, the best and only successful outcome is to escape with your effort still intact. Successful change agents all have strategies for dealing with this. Some use executive force, an approach that will work, but at a cost. Very few people enjoy being dictated to and driving change through an organization that’s using passive-aggressive resistance is far from ideal. 

What’s a better exit strategy? Again, the best answers point to empathy. Most people don’t want to be stuck in a position where their only power is to say “No.” The simple answer is to empower them in another way, to substitute their power of no with a power of yes. However, there is a catch.

In many organizations, if a person’s only power is to say no, that power comes with little to no personal risk. If you’re going to substitute that power with something more constructive, you need to either:

  1. Build up enough confidence and trust that they’ll be willing to take a risk by saying yes;
  2. Absolve them of any risk in saying yes, or;
  3. Make it risky for them to say no.

If you have time, option No. 1 is preferred. If you don’t have the time but you have the authority, then No. 2 is your choice. If you don’t have any other options, No. 3 will have to do.

Move Quickly

Finally, if you’ve handled the skeptics, understood where your bank and stakeholders are coming from, and have devised a plan to get out of The House of No, you still need an execution strategy that works within the bank. Depending on your bank, smaller incremental changes driven internally may be more difficult than larger efforts tied to outside partners. 

Regardless of which method your bank prefers, our champions of change show at least one consistent trait: They focus on speed. 

Maintaining momentum, morale, and focus for a prolonged period of time in a bank is difficult and filled with peril. Find a method or a partner that can get your changes implemented quickly and start influencing behavior as soon as possible.

Don’t Go It Alone

Finally, an acknowledgement. None of this is easy. There’s a reason why Leda described banks’ internal innovators as “Gluttons for punishment.”

That’s all the more reason why you shouldn’t try to carry this burden alone. We touched on the internal part of this earlier in the “Find the Best Leaders” section, but there’s also an external aspect to bank innovation.

This will sound a bit cliché and yes, a bit self-serving, but a vendor who acts like a true partner can be invaluable. They’ve seen all the potential innovation pitfalls dozens of times before, and they’ve seen how the best bankers get around them. And, if you’ve set up the relationship correctly, they should be very invested in making sure that your innovations lead to substantive change at your bank. Their success should be inextricably tied to yours.

Interested in learning more about our approach to  making change a reality at commercial banks? Check out our white paper: “Innovate or Die.”

 

Interested in learning more?

Visit PrecisionLender.com

 

About the Author

George Neal

George is the rare combination of banker, data scientist, and educator. He has held executive roles in both retail and investment banking focused on risk management, predictive analytics, and profitability. George’s love of data and all the ways it can be used to make better financial decisions brought him to PrecisionLender, where he heads our Data Insights Team.

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