While the Covid-19 pandemic continues to exercise a tight grip on the global economy, a positive learning is that incumbents have proven to be indeed able to pivot and rapidly switch to new digital operating and business models. Many financial institutions switched to remote customer service and advisory, set up digital training camps for elderly customers, launched new digital banking services and channels and began to re-think their tech stacks for improved resilience. Ongoing digitalisation and new technologies, increasing regulatory pressure, evolving consumer expectations and behaviours and strong competition from all angles have been impacting the financial industry before, but now there’s a critical turning point that will result in long-term value creators and losers emerging early in the economic recovery cycle. Firms in all sectors are therefore re-thinking how to sustain their old business models and build new ones post-Covid.
At Ross Republic, we have been right at the convergence of these trends, working for an ever evolving roster of amazing clients, which range from innovative start-ups, national hidden champions to Fortune 500 firms. You can find an updated list of some of our public case studies here. While we have been dividing our industry focus in financial services and engineering, industry boundaries continue to become blurry and financial services increasingly branch out into adjacent industries. For instance, does offering a business loan marketplace make an accounting software firm a fintech company? Does a fintech start-up that is building a lot of data analytics features become a SaaS player? Does a retailer that launches its own digital payment tools and wallets turn into a payment company? In fact, banking is experiencing a seminal shift as once isolated products turn into deeply embedded features that better meet contextual customer needs and keep them engaged. While the underlying financial product elements (primitives) are still there, such as a current account or a business loan, they become the enabling force in the background as part of a more seamless and holistic proposition. In essence, it’s the products and technologies that move into the background, while the customer is finally put into the main focus.
Embedded finance represents a structural shift that will very likely impact the future business models of financial services, yet there are many more developments to explore. That’s why we gathered the opinions of some of our advisors and partners to share their observations on the elements influencing banking and beyond banking industries. Here’s Tintti Sarola, co-founder and strategy lead, kicking it off by addressing the importance of cultural evolution in finance.
An increased focus on culture to ensure future business relevancy
My take is that CEOs and top management teams at banks will embrace culture even more in order to ensure future business relevancy. The financial industry is evolving, both from a technological and business model perspective, hence culture has to adapt to the ongoing developments. Similarly to technology debt, i.e. the cost of maintaining old technological infrastructure, organisational and cultural debt can become equally burdensome. That’s why proactively steered cultural evolution, the change in values and resulting behaviours that exemplify how things get done inside the organisation, is paramount to support transformation processes and enabling a bank’s strategic goals: Winning incumbents now embrace societal and digital change to build strong relationships and a sustainable business foundation.
Based on our experience working with banks on their relevance and growth challenges in various markets, ranging from the UK to the Nordics and Southern Europe, we know that societies in all European countries are changing fast:
- New customer segments with new values are emerging in all industries, including the banking sector
- New customer expectations of banks are emerging. Traditional roles and relationships are not enough for future customers
- People look for “shift partners” that enable them to transition from old to new; to better lifestyles
- Incumbent banks have been slow at following the shifts of the society due to their main focus on digital transformation and agility
- Business-critical gaps are widening between customers’ new expectations and banks’ traditional culture and product-driven omni-channel delivery
I believe there is a significant growth opportunity for an incumbent bank that masters its culture evolution, specifically due to improvements in the area of talent management, customer experience and internal empowerment.
Culture is key to succeed in talent management. Contrasting former generations and banking talent pools, who were all about sticking to a narrow career path and focusing on banking fundamentals, upcoming generations expect more than a stable career and a good salary. They seek meaningful challenges and an environment that offers professional growth and empowerment, but above all an alignment with an underlying mission they can identify themselves with. It’s a big challenge to win and integrate skilled future leaders whose motivations are increasingly diverging from the established norms. Hence, upgrading the internal culture enables banks to be able to attract and retain top talent beyond the narrow banking industry focus.
Next to talent management, delivering great customer experiences is highly dependent on internal culture. While banks excel in risk management and compliance, the truth is that they are nowadays competing against tech companies who constantly deliver world-class customer experiences. That’s why next to following compliance rules, winning banks create structures that support their teams designing experiences around actual customers needs, instead of bank-centric product requirements. Only happy, empowered, focussed and motivated employees deliver differentiating customer experiences. Legacy thinking holds banks back in delivering top customer experiences, therefore culture is an integral part of enabling employees to become truly customer centric.
Based on our culture work with leading banks we have designed a few guidelines that help banks to successfully master cultural evolution:
- Ensure that the purpose is credible, relevant and shared. Having purpose as a strategic foundation and as the core value, building ancillary values around it, and connecting values to the business agenda to promote individual accountability
- Have a clear understanding of the problems of the current culture and the target culture you believe will help the business thrive, and build a narrative around to justify the change
- Understand what values and behaviours to preserve, change or introduce:
- What is the “emotional soul” of the bank that has to be preserved at all times?
- What makes the bank a great place to work?
- What hinders people from performing at their best?
- What hinders the bank from being the best bank it can be?
- What makes the Bank a great partner for its customers?
- What hinders the Bank from delivering excellent/competitive customer experiences to its customers?
The challenge that many banks face during their cultural evolution and the introduction of new values and behaviours are the inherent tensions as the “new” is often somewhat contradictory, sometimes even seemingly paradoxical to “old”. Cultural evolution is frequently accompanied by new behaviours that might clash with ingrained norms, power and decision-making structures. Banks that succeeded in their cultural evolution have learned to master the management of tensions that inevitably rise from embracing new values and behaviours.
Some of these tensions can be anticipated while defining the new target culture and considered while planning culture change programs. However, many of them will arise on the go. Building a target culture requires identifying, pulling and nudging a variety of levers. Ultimately, supporting the culture evolution depends heavily on
- management’s ability to use purpose and value as tools to liberate people to perform within the frameworks, boundaries and guidance defined by these tools
- the organisation’s commitment to train and support, and provide people with tools
- management’s ability to trust people
Changing a performance scorecard is easy. Motivating, guiding and trusting people to be the best professional possible is the hard part.