Osaka | FutureofBiz.org

Credit: bsterling

The world’s global financial community’s annual bankers’ “Davos” should be a time for urgent reflection and remediation for our financial institutions.

It’s time for high-level integration for innovation – and that begins with the Board and the C-Suite of this very traditional set of institutions at a time of explosive disruption. They have a long way to go.

“The past,” as novelist L.P Hartley famously wrote, “is a foreign country: they do things differently there.” When it comes to the future, we ain’t seen nothing yet. The pace of change is picking up very fast, and institutions – and whole industries – unable to keep up are finding themselves on the wrong side of history.

Let’s be candid. Banking has never been everyone’s favorite industry. Hardly a customer has had a consistently happy experience on the retail end. And the events of 2008 have left a sour taste that may last a generation – like the losses that millions of citizens have accrued as a result. “Too big to fail” sticks in the craw of Americans of left and right – and makes capitalism, markets, risk, look ridiculous. It takes a lot to make Big Oil look good. And one way or another, the business-as-usual revolving door relationship between Wall Street and the Treasury/supervisory agencies and the Hill and the While House (donors . . .) is tottering. It may survive an election cycle or two. Not more.

So what’s ahead for the bankers? They are sailing into a perfect storm.

First, three potent waves they need to ride. If they don’t, can’t, won’t, then all the clever innovation ideas on the planet will not help them.

1. Service. Banking has to rebuild its brand from the ground up as a “service” industry that is actually seen and experienced as a service. Example: GEICO. Insurance is boring and costly. GEICO customers love their company. I called them the other day to sort out a problem, looked forward to it, enjoyed the experience, and am smiling as I recall it. Banking must be seen to be re-inventing itself as a service.

2. Shared. While “corporate social responsibility” (CSR) has now been almost universally adopted as an element in corporate strategy, by banks like everyone else, it continues to be handled by most players as an adjunct exercise. Michael Porter‘s notorious prognosis that “shared value” is properly the only source of value, incorporating the traditional bottom line and the “CSR” extra, has been treated with derision in private and sometimes in public. Banking must be seen as a leader in building shared value.

3. Social. “Social media” remains an outlier in most mainstream businesses, and barely registers in banking. Not only is social vital to customer service and marketing; more fundamentally it is emerging as the driver of innovation and the continuing renewal of corporate culture – which, as we know, is the cause of all competitive advantage and value creation. Banking must be seen to take the lead in social engagement.

Second, two (of many) special challenges coming their way.

4. Retail. Retail banking is ripe for dramatic innovation. It is almost entirely mechanical, and the perfect subject for machine intelligence. While we debate separating retail from banks’ investment operations, the former is peeling off in its own. The launch in the past few weeks of the Wal-Mart/American Express Bluebird debit-card based banking system is the first major shock. Look at the fee structure (to the consumer, there are none at all), the utter convenience (I opened an account online in literally 3 minutes), the services (huge range and they will be added). Traditional retail banking is ripe for collapse.

5. New currencies. This is more esoteric, and for another post, but from barter to Bitcoin the consumer need for standard money-based transactions has begun to shift. Just begun.

Third: What banking needs in the midst of all this and more is the skill-set it has so far shown it lacks above all else: flexibility, imagination, the capacity to turn on a dime, all those smarts that are distinguishing both New Economy successes and traditional organizations demonstrating themselves capable of re-invention. The core enabling capacity lies in a combination of board governance and executive leadership, and, specifically:

6. Diversity across generations, genders, perspectives, and disciplines. I discussed this in respect of gender diversity and engagement in social media in an earlier post – https://futureofbiz.org/2012/07/07/the-two-most-stunning-facts-about-american-business/

We know the problem, but to give an example: in a recent study American Banker found that of 9 large financial institutions operating in California 8 had boards that were at leas 80% white and 80% male. http://www.americanbanker.com/bankthink/board-diversity-greenlining-1039171-1.html

It’s unfortunate, to my mind, that gender diversity issue has been widely perceived as an issue of equity. It’s about value. And whereas in times of stasis a non-diverse board may have worked very well, in times of revolutionary change is represents the voluntary addition of a huge and indefensible element of risk to every decision. Boards and C-Suites need to represent diverse perspectives of all kinds. Only thus will these institutions designed to thrive in an entirely different environment have an opportunity to flourish a second time around in a dramatically different and ever-changing marketplace.

Otherwise, as Kodak and other failed and failing once-great companies like RIM are constantly reminding us, the market is unforgiving. Technology and other emergent forces are toppling the very assumptions that made old-style organizations successful. The logic of service, shared value, social media, and radical diversity at the top level, is finally the logic of the market.

My take? The next decade will see the disruption of financial services on a scale comparable with what has happened to print publishing in the last one. There is everything to play for. But thanks to Moore’s Law and globalization and other forces on the loose in C21, the clock is speeding uo all the time.

Sibos – Sibos – Osaka, 29 Oct – 1 Nov 2012.