If you're a bank, what is the first position of your management when you suggest you should license your patents, share your underutilised trade secrets, and investigate the possibilities of collaboration with your competitors?
You'll probably find you run up against a big, fat, wall. It is likely the same wall you ran into when you tried to deploy social media. The same wall, in fact, that exists between each business unit of your institution, and between the work-groups inside each business unit.
I am put in mind of this as I write a piece on Open Innovation for Future-proofing. Now, in case you've not heard of this, it's the idea that if you have unused intellectual property or uniqueness, you are best served by licensing that to competitors who might make use of it, rather than let it sit idle. And, in reverse, if competitors have something of value you need, that some arrangement is executed that enables you to get it.
The underlying principal is that everyone knows practically everything about everyone. In such an environment, key uniqueness is protected either legally or because the capabilities are hard to replicate. Everything else is transferable and up for grabs.
Building hard to replicate capabilities is, of course, the central thing that defines competitive advantage anyway. If they can't be easily copied, you don't really care who knows about them.
Open Innovation is the current de-rigor fashionable business model amongst innovator in lots of industries. That's especially true in industries where the products aren't very differentiated like FMCG. And, of course, in industries where the products are very differentiated, like aerospace.
We could never do this in banking, of course. Our protections are still medieval in nature: we rely on trade secrets. Everything is one, even the unique capabilities that would be hard for anyone to replicate.
What are the signs of over reliance on trade secrets in banking?
Constant vetting of external communications, no matter how insignificant, by teams set up specifically for this purpose.
Nervousness when it comes to employees participating in conference pro grammes.
Elimination of collaboration technologies, or a failure to provision them in the first place.
And, of course, outright panic at the idea of staff using social media externally.
Now all this is a cultural thing, and there are signs of change in many banks I talk to. Let's face it, my own institution allows me to have this blog. You'll note we are careful of branding, and also to make sure that any statements I make here are my own, and not reflective of the views of my institution as a whole. But I doubt even a few years ago such a blog would be possible from a bank employee.
So, the pace of change is slow, but it is coming.
My point, though, is that whilst other industries are achieving synergies that can create “man on the moon” type projects, bankers are stuck with the glacial progress that results when you have to do everything yourself.
Institutions have a lot of man-on-the-moon opportunities. One is addressing customer-bank hate. Another is coming to terms with all these non-bank competitors. Dealing with global financial stability. Fixing markets in the absence of decent global regulation. Or how about using banking to alleviate poverty?
We could do these things, but no one bank can do it alone.
Reliance on trade-secrets makes each bank an island. It means that the really big, really significant innovations can come only from the largest players on Earth, who can afford to fund the work required. With the activity going on in the financial services sector at present, it is swiftly coming down to a handful of institutions with such resources.
Here is one thing I've noticed, though. Many institutions have a groundswell which is breaking down such silos anyway. There is this new generation of employees who are simply not prepared to put up with artificial barriers that prevent them from being the best they can be. They'll talk to each other – even about trade secrets – no matter what you do.
They're the ones who want openness as a first principal. They'll have it, no matter what management thinks. And with it will come the end of the trade secret as a source of competitive advantage for banks, if it ever was in the first place.
What then? Nothing all that innovative, in fact. Institutions will simply have to focus on building hard to replicate uniqueness that lasts in the market. But because that very, very hard for banks – who have undifferentiated products in the first place – it will require serious innovation to pull off.
The lucky institutions will be those that have made appropriate investments to build out their innovation capabilities in time.