In a post over at BankWatch, Colin writes that banks should expect a round of disruptive innovation after present market turbulence settles. As he says, “there is always someone able to do it better and cheaper”.
Clayton Christensen would now argue, were he here on this blog, that as incumbent companies are unable to disrupt themselves, all this innovation will come from outside the walls of traditional banks.
His arguments on that point are obviously cogent and well based in historical fact. And indeed, there are very few banking organisations that I know of that have done it. Maybe some marginal examples only.
However, I am beginning to wonder if the day when disruption can only come from outside are almost over.
I am seeing so many senior people in banks start to take the discipline of innovation seriously. They are hiring innovators and tasking them with doing things differently. And these innovators know all about the social systems that make disruption from the inside hard to do, and are taking steps to fix it.
I think markets are starting to notice.
Does your institution have an innovation function? If you don’t know or aren’t sure, there is almost certainly one, even if it isn’t all that visible. And they will be trying their hardest to break things.
That’s what disruptive innovation really is of course. Its where an existing, strategic, and successful business line goes into decline as something new permeates a particular market. The new thing breaks the old. Now, naturally, those running the successful business don’t want the new thing to succeed. It is a threat. That’s why large companies can’t easily disrupt themselves.
But, as Colin pointed out, there is always someone able to do it better and cheaper. Who was it that said that “in banking, getting growth is getting harder?”
With all this attention innovation is getting, it might be that the iron rule of the existing P & L is coming to an end. What is the corporate dynamic that starts when the market begins to reward banks that are systematically disrupting themselves?
What behaviour will the CEO expect from P & L owners when getting the traditional level of growth in the short term is not enough and the market begins to look at longer term planning horizons?
And what will bank boards start approving when their share price is comparatively weak compared to their more innovative peers?
Here’s the answer: anything which has the potential long term to disrupt what is being done right now.
I predict a renewed focus on long term strategic planning, a willingness to wait for investments marginal in the scheme of today to mature, and a drought of professional innovators as those behind the curve scramble to do so something – anything – to catch up.