Is the ambidextrous CEO the saviour of big banks?
My colleague Wayne Fialo recently wrote a blog introducing our Banking Look Out 2020+ report. He asked banks to decide what type of business they wanted to be in the future – the ones that were proactive and led the market or the ones that waited to see what happened.
[Spoiler alert: The latter will die out.]
So if the only real option is to do something and be proactive – as Wayne points out – then what is it that they should do? More to the point, what is it that Banking leaders should do to keep their own businesses ahead?
Get the foundations right
I won’t beat around the bush here. There are four things every bank will need in the future to stay productive, reduce costs and move with the market:
1) Flexible infrastructure – any area that involves capital costs should be responsive to changing needs. That’s not just IT. That’s also things like office spaces and branches.
2) Usable business applications – this means giving the people business-focused apps that allow them to deliver services that customers actually want.
3) A data analytics platform – one that can tell you what your customers want and when they want it. Ahead of time.
4) Regulatory compliance and security – this is an absolute must for big banks that still hold an advantage over P2P sites that can’t offer customers the same level of protection or trust.
But let’s assume all that is a given. What else do banking leaders need?
Looking ahead doesn’t mean you need to give up what you do well today. In fact, those services that you are good at can fund the ones you will need to be good at further down the line. Since money for innovation is tight in big banks with high cost-income ratios, using profits from, say, a white label current account platform, could provide an injection of capital.
So execs need to be ambidextrous.
On the one hand, they should push the bank’s current strengths and find new ways of ‘exploiting’ them. On the other hand, they should follow a path of ‘iterative exploration’ (otherwise known as innovation). This could be developing new products and services in-house. Or growing in key areas via M&A activity or an ecosystem of partners – such as offering non-collateralized loans through retailers or home improvement companies.
Crucial to this twin process is ambidexterity. A single business unit cannot take responsibility for both short-term service ‘exploitation’ and longer-term service ‘exploration’. CEOs must provide the kind of leadership that empowers two different business units to make the most of their mission.
But you may still be asking yourself why? Why do all of this? Well, just as Wayne pointed out in his blog, to survive and thrive, banks must position themselves “at the heart of a customer’s every financial interaction.” There’s only one way to do this.
Focus on business outcomes
Once upon a time, it was the retailers and supermarkets that took profitable customers from banks. Today, that role goes to the FinTechs.
So the question any banking exec should ask themselves is this: Are we doing what we’ve always done and making investments in new services because we think we ought to or because we have identified a business outcome and we’re going after it?
For instance, being a ‘cloud-first’ bank is not a business outcome. Aiming in the short-term for 70% of all payments (including Apple Pay and Google Pay) passing through your platform is. So is the longer-term ambition of having a 65% share of a customer’s every financial transaction (banking and non-banking related).
To achieve this, big banks can learn valuable lessons from recent history and make changes right now:
- Build the right foundations.
- Be ambidextrous and use profitable specialisms to fuel future service lines.
- Begin everything with the question: “What’s the business outcome?”