When Is It Okay to Make a Mistake at Your Bank?

September 22, 2016 Dallas Wells

 

Banks get a bad rap when it comes to change. Almost every piece I read on bank innovation mentions that amazing new technology is available, it’s just that the darn banks are no good at implementing new things. If I’m honest, I’ve said similar things on this blog and on our podcast.

But, to be fair, banks actually have done a pretty good job with innovating over the last decade or so, particularly given all the other pressing issues they’ve had to handle. How many of those smug fintech competitors have had to rebuild nearly every process in their shop to comply with thousands of pages worth of new regulations?

Struggling with change is not unique to banking, as all organizations in all lines of business face similar issues. The simple fact is that humans are creatures of habit. We see this firsthand when we roll out our pricing tool in new banks. The technology part of it is incredibly easy. Since we are a cloud-based solution, it is simply a matter of turning on their account and then showing them how to configure it. The real pain comes when we take away the tools the bank had previously been using and try to build new processes around our solution. The habits are WAY harder to change than the tools.

To understand this, I’ll share a popular story that just happens to be based on some bad science. Stay with me and I’ll explain the bad science part.

The Five Chimps Experiment

Years ago, scientists did a study with chimpanzees. They put five chimps in a small room that had a ladder at the center with bananas at the top. Then, whenever one of the chimps would climb the ladder to get the bananas, the scientists would spray the other four chimps with a hose. Chimps are smart, so it didn’t take long for them to figure this out. Pretty soon, whenever a chimp would get hungry and decide to try for the bananas, the others would pull him away. If he was persistent, he would get a beating from his fellow chimps. No one likes to get sprayed with a hose.

Then came the really interesting part of the study. The scientists removed one of the five chimps, and replaced it with a new one. Of course, the new chimp  immediately tried to climb the ladder, and caught a beating for it. He eventually caught on, and gave up on the bananas.

The scientists then removed another of the original chimps, and replaced him with another newbie. Just as expected, he started to climb the ladder, and received a beating from all the others. Then came the surprising part: The first newbie joined in on the beating of the second one, even though Newbie No. 1 had never been sprayed with a hose. He didn’t know why it was a bad thing that Newbie No. 2 was trying to climb the ladder, but he helped pound on Newbie No. 2 nonetheless.

The scientists kept replacing chimps one by one, and pretty soon they had five chimps in the room that had never been sprayed with a hose. And yet, any time one of the chimps would start to climb the ladder, the other four would administer a beating. They had no idea why they were doing this, just that it had always been this way.

Sound familiar?

Now the bad science part: It turns out there’s no evidence this experiment ever happened. Instead, it seems that people have blended stories about a couple of studies, and the chimps with the ladder exhibit behaviors that are really only shown in studies of humans.

But the mythical 5 chimps experiment gained widespread popularity nonetheless, because it strikes a chord with nearly everyone. We have all been in situations where a behavior or practice is deeply embedded in the organization, and getting rid of it is nearly impossible. No one knows why they are doing it, just that it has always been that way.

Where Can You Make Mistakes?

Being aware of this phenomenon, though, doesn’t solve the problem. After years of implementing new systems and processes in hundreds of banks for thousands of employees, we have learned a few key principles.

We’ll start with the foundation of change, which is all about culture. Of course, the overall culture won’t change overnight. Instead we will touch on one small, but important aspect, which is all about the answer to the question: Is it okay to make mistakes in your bank?

In a lot of banks, mistakes of any kind are simply not tolerated. It’s understandable. As my first boss told me when I got into banking, “If the owner of a retail store is right 95% of the time, he becomes Sam Walton. If a banker is right 95% of the time, he is out of a job.” When it comes to credit, regulatory compliance, or fraud, that is absolutely correct. The problems occur when we allow that mentality to pervade across the organization, and creep into all of our decision making.

If you think about this from the perspective of your staff, you will understand why your new initiatives meet so much resistance. The status quo is proven and safe. If we stick to that, no disaster can befall us, and if so, it’s not our fault. We were just following the established procedures and the entrenched tools. Trying something new, though, is different. What if we change a process and it fails? Now we can be blamed for rocking the boat when we should have just stuck with what was working.

To overcome this, the leadership of the bank needs to differentiate the areas where perfection is the standard (credit, etc.) from the areas where it is okay try new things and fail. For example, what if we tried having the relationship managers use the pricing tool instead of having the analysts do it for them? Granted, they might enter it wrong.  But it might also speed up the process AND allow that relationship manager to come up with a better, more profitable structure that the borrower prefers. But unless everyone knows that it’s okay to try something like this, you will get big pushback on every small change and you’ll miss out on a lot of potential benefits

The key is essentially matching up the risk and reward for your employees. In the right areas, make sure they know it’s okay to try to climb the ladder. Make sure they know there is the potential for a reward, but more importantly that there is no hose for them and their teammates if they fail.

Embracing this mindset will help build a foundation that gets your organization ready for change. We’ll follow this up with another post that outlines the next step in the process.

 

 

 

The post When Is It Okay to Make a Mistake at Your Bank? appeared first on PrecisionLender.

 

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