Alexander Danson

Management Consultant

How banks can optimise the results of innovation

2019-jan-31 17:43:00

For banks, incumbents and challengers alike, 2019 will be a pivotal year where the foundations for future relevance will be laid. It has never in history been possible for companies to survive through only incrementally improving what exists today, regardless of the ingenuity of the original idea. Something better always comes along, making the old obsolete. By working with first principles design (a mindset whereby solutions for true customer needs are designed from scratch), banks can at worst optimise their innovation efforts, and at best they can be the ones to shape the future of the banking industry.

Current innovation efforts are pegged back

Despite what we are sometimes led to believe, incumbent banks are working hard with innovation, and spending huge amounts of money on developing and digitalising their businesses. This innovation tends to be grouped into two categories:

  1. Attempting to transform themselves to be more like IT companies: Here the innovation focuses on upgrading technology to further automate or digitalise existing services.

  2. Improving customer experience and satisfaction: This type of innovation tends to involve re-packaging and re-modelling existing services, whilst leveraging the bank's role as a trusted adviser.  

Regardless of the focus they choose, they have in common that they, more often than not, build and improve upon existing products and services. They are looking at the future through the lens of the present. This boxes in their innovation efforts from the get-go, limiting the effects to incremental baby-steps. These initiatives not only have a sub-par cost-benefit ratio but they also become quickly obsolete.

First Principles Design a necessity for long-term survival

To combat this, banks should continually work with first principles design thinking, whereby innovation takes place outside the mental boundaries formed by the existing business and market. To begin thinking in this way, it is necessary to seek out the root problem which a potential product or service is attempting to solve, stripping away all prejudices and pre-fabricated solutions. See below for an example scenario:

  1. What is a customer really trying to achieve when taking out a mortgage?

    It is necessary to dig deep into understanding the root here, preferably interviewing and observing real customers, in order to ensure that you truly understand the need a mortgage was originally designed to fulfill. 

  2. Once the root problem is identified and triangulated, you can begin to ask; how would you help them to solve this problem, starting from scratch with the technology available today?

    At this point it is of great importance to consciously block out existing preconceptions, to ensure that your ideas are built upon first principles thinking. What would you design today to fulfill the customer’s needs if nothing already existed?

This is difficult to achieve, since we are inherently biased by the context and solutions we are accustomed to. However, to retain relevance long-term and shape the future of the industry, this is what is required. Comments such as “that’s the way the bank works” and “the system says we should do it that way” are tell-tale signs your innovation is being limited, and it is critical to take on a first principles mindset. 

To learn more about this way of thinking, you can listen to an introduction by Elon Musk in this video, or have a read of Brett King’s Bank 4.0. Contact me directly on  if you'd like to discuss this topic in more depth over a coffee!