The Innovation Imperative: How to Drive a Culture of Innovation in Financial Services

In the face of unprecedented technological growth, the need to embed innovation into company cultures has never been greater. 

The scale and growth of technology in financial services is unprecedented. Innovation in every industry is creating new winners. The set of the five largest companies by market cap globally has changed dramatically over the years. Companies that have failed to innovate have lost relevance; in the last 15 years, 52 percent of S&P 500 companies have left the index.

Our industry research reveals that while building and acquiring technology is relatively easy to replicate over time, building innovation into the culture is more challenging. Getting the technology part of the equation right is important but, fundamentally, competing in the technology ‘arms race’ is fairly straightforward. Creating a culture of innovation, however, is much more difficult to achieve, but is ultimately what creates sustainable competitive advantage.

Many of our clients are asking us how to create a culture of innovation. To answer this, Russell Reynolds Associates conducted a global survey* and carried out extensive statistical analyses on the results to determine how to drive innovation and create a culture of innovation in financial services. This whitepaper presents an overview of the results of this study.

Summary of Findings 

Our research resulted in five key learnings.

1. CEO and board sponsorship is a very significant driver of the innovation and technology agenda.

2. Innovation is not an abstract concept but can be defined at a granular level based on the following activity clusters: (1) agility, (2) data management, (3) data analytics, (4) employee feedback/engagement, and (5) learning organization.

3. Developing agile operating procedures and building advanced data management and analytics capabilities are the two biggest drivers of innovation. That said, the analysis suggests that building a world-class data platform that integrates data sets across the enterprise to create a single view of the customer, leverages third-party unstructured data, and creates real-time data flows is more difficult to achieve and a bigger differentiator in driving innovation than (simply) building great data analytics and data science capabilities (which can be acquired).

4. Overall, Consumer & Commercial Banking (CCB) outperforms other financial services verticals on agile and, in particular, data management/analytics. Some financial services verticals excel on data management (e.g., Global Banking & Markets (GBM) – as this sector traditionally has done) but not on data analytics. Asset & Wealth Management (AWM) outperforms other financial services verticals on the employee feedback and engagement and learning organization activity clusters.

5. Top Innovation leaders tend to be both “left brain” and “right brain” thinkers and operators. Innovation leaders tend to have hybrid backgrounds –a diverse portfolio of functional experiences (e.g., strategy, technology, operations, product management, transformation) –where they’ve built both strong technical and strategic skills as well as exceptional skills as high-EQ change agents and influencers.

*RRA Digital Pulse Study, 2019; n=273; all respondents (approximately equal division across Financial Services sectors and verticals, with broad coverage across geographies and market capitalization bandings) were Financial Services executives who were digitally informed about their own organization and the market generally.

Framework overview

Effective executive sponsorship and five activity clusters form the building blocks of effective delivery against innovation objectives.

Deep dive: executive sponsorship 

Innovative* FS companies are much more likely to have their CEO "own" the digital strategy.

Executive Sponsorship is a key driver of innovation –our research identified how the most effective innovators lead innovation within their organization.

Digitally embedded* FS companies are much more likely to have tech-knowledgeable CEOs, C-suites,
and board leaders

 

 * Innovativeness, digital embeddedness, and effectiveness are based on self-reported data.

Source: Russell Reynolds Associates Digital Pulse Survey, 2019

Deep dive: activity clusters 

Our analysis also identified the relative importance of each activity cluster and its constituent parts in driving effective innovation. 

Activity clusters – agility 

When looking at agility across four financial services verticals, CCB consistently outperforms, and AWM underperforms.

Financial Services Innovation Performance Scoreboard – Agility by Vertical

 

 

Consumer & Commercial Banks tend to excel at making decisions quickly and allocating resources to adapt to changing conditions—activities that are most critical to agility.

Asset & Wealth Management is not highly adaptive overall, i.e., it underperforms on rapidly allocating resources and creating new business processes in response to changing conditions.

Activity clusters – data capture and advanced analytics 

CCB outperforms on most data capture and advanced analytics capabilities; GBM excels on data capture but not analytics.

Financial Services Innovation Performance Scoreboard – Data Capture and Advanced Analytics
by Vertical

Source: Russell Reynolds Associates Digital Pulse Survey, 2019

• Consumer & Commercial Banking outperforms other financial services verticals on data capture and advanced analytics. Key strengths include -

1. Regular data capture on:

− Customer behavior

− The business/market environment

− The company’s internal operating environment

2. Data analytics used to:

− Make the right business decisions

− Provide real-time intelligence to support decisions

Interestingly, Global Banking & Markets excels on aspects of data capture (which has traditionally been the case) but does not perform strongly on data analytics.

Asset & Wealth Management and Insurance underperform on both data capture and advanced analytics.

Activity Clusters - Engagement And Learning Organization 

AWM performs strongly in both employee engagement and learning organization activities.

Financial Services Innovation Performance Scoreboard – Engagement and Learning
Organization by Vertical

Source: Russell Reynolds Associates Digital Pulse Survey, 2019

Asset & Wealth Management excels at employee engagement, as well as most learning organization activities.

• Asset & Wealth Management excels at employee engagement, as well as most learning organization activities.

• Global Banking & Markets and Consumer & Commercial Banking underperform on employee engagement.

• Insurance also underperforms on most learning organization activities.

Psychometric Profiles

At the individual executive level, top innovative leaders are “productive disruptors”—dynamic left and right brain operators.

Psychometric profile of innovation-focused productive disruptors versus the executive norm (by attribute)

Top innovation leaders spike on a few key psychometric attributes (at a 95% confidence level of statistical significance) 

• They are more out-of-the-box, ideas-driven, and skilled at challenging convention.
• They are more entrepreneurial by nature, able to cut through bureaucracy, and are not afraid to go against the grain.
• They are emotionally intelligent and socially adept –empathetic, adaptive to different audiences, and socially confident.

Asking The Tough Questions

In light of these findings, there are several key questions companies can ask themselves as a starting point to building a culture of innovation.

Burning platform for innovation

• How important is innovation at your company vis-à-vis other strategic priorities?

• How organizationally aware is your company of the threat of disruption? Is there an opportunity to raise your organization’s awareness level to build a hunger for innovation?

• Does your organization have sufficient executive sponsorship (i.e., leadership from CEO/C-suite, board) to drive innovation?

Opportunities for driving innovation

• How does your company perform on the key drivers of innovation, in particular, agility, data management/analytics, and experimentation? What are the gaps?

• What are the opportunities to address these cluster gaps? Is your organization investing in the right areas to move the needle on innovation?

• Has your company struck the right balance between risk management, on the one hand, and creating a culture of risk taking, experimentation and innovation, on the other?

Leadership and talent actions

• What is your organization doing from a talent/leadership standpoint to drive innovation? What leadership DNA gaps exist?

• How open is your organization to acquiring new types of talent, e.g., from other sectors (including outside financial services)? How do you absorb new types of talent into your organization and avoid “tissue rejection”?

• How do you test for strong left and right brain leaders with strong technical skills as well as exceptional influencing skills and emotional intelligence?

  
  

  Author

  Beijing Zhu is a member of Russell Reynolds Associates’ Financial Services sector Knowledge team. She is based in New York.