A Leader’s Guide to Future-Proofing in a Digital Age – Navigating the Paradoxes of Digital Transformation whilst Balancing Tradition and Transformation.
A CEO once told us that his insurance company had survived one hundred years by not innovating. He was convinced that innovation was irrelevant to his industry.
We have worked with many finance companies over the years, and during this time we have often had to debate the relevance of innovation for the sector. A significant number of leaders in the finance sector tell us that, unlike tech companies, finance is all about being safe and conservative. To add to this, they say, the sector is also shackled by compliance, heavy government regulations and related bureaucracy.
We are often told not to use the open risk-taking approach of relatively new companies and gurus as examples when working with finance companies. Although notable risk takers (and headline grabbers) like Steve Jobs and Elon Musk have been widely venerated for their innovation accomplishments, along with cutting-edge companies like Google, the finance sector seems to be wary of trying to make any comparisons with these sorts of innovators.
Yet our research findings from interviews with more than 70 global innovation leaders and surveys with more than 1,000 responses – along with our international consulting work with leading innovative companies over 30 years – has revealed that most leaders and organizations today have only half the story right. Few are set up for long-term survival because they fail to identify a core paradoxical balance is needed, and few get it right.
Innovation vs. Conservatism: The core paradox of the financial services industry
Our studies have revealed that future-proofing companies requires a dynamic balancing act the need for maintenance of sustainable value (acknowledging external challenges such as compliance) with a focus on seeking breakthrough future-focused solutions. Rapid globalization and technological development has meant leaders need to continue to push the boundaries to avoid irrelevance or obsolescence due to disruptive innovation, yet they also need to be able to continue to ensure the organization can perform reliably and sustainably. Striking this dynamic balance effectively is crucial for long-term success.
Placing too much emphasis on either side can be detrimental. Consider how an overemphasis on maintaining legacy systems through incremental change can lead to irrelevance, while an excessive focus on cutting-edge innovation can risk stability.
The idolatry of innovation technology and the Innovation Hype Cycle
It is often assumed innovation is about taking risks. As Gartner has identified, there will often be an ‘innovation trigger’ that will lead to over-inflated expectations and what they label as an Innovation Hype Cycle.
Musk biographer Walter Isaacson has said, “If you ask Musk what the biggest problem facing America these days is, [he’ll say] that we’re too risk-averse, we have too many referees and not enough doers, and that’s why we don’t build high-speed trains or rockets that can get to orbit.“
This is true, we definitely do need the dreamers and big thinkers to help us think beyond apparent constraints. But Musk is not acting alone, and when his ideas come to market they are no longer purely conceptual notions. Like all clever innovators, there are usually teams of people testing and grounding these ideas to implement them and make them work.
Although celebrity innovators often capture the public’s imagination because they represent the potential for success and the ability to change the world, in reality, after the initial hype innovation is often more of a gradual, incremental, and collective process. Contrary to what most people might think, the invention of the light bulb was one such incrementally developed invention. It emerged inexorably from the combined technologies of the day rather from a single inventor. It was bound to appear when it did, given the progress of a range of inventors experimenting with technologies at the time.
Where it is not possible to break new boundaries and take excessive risks due to specific regulations and constraints, it may be helpful to think about the value of ‘inside the box’ innovation. This can free up thinking to start thinking about the range of possibilities for more incremental change.
Yes, innovation is about risk takers being willing to take risks – AND it is also about ensuring new ideas can be effectively tested and grounded for application within required boundaries as needed.
The power of ambidexterity
The most agile and future-ready leaders are typically ‘ambidextrous’. That is, they can readily adapt to address these apparently contradictory needs.
While it’s important to maintain current systems and structures through incremental development, ambidextrous leaders recognize it’s equally important to come up with breakthrough new innovations to address current and potential future challenges. This ambidextrous approach ensures sustainable long-term development.
Being an innovation leader is not necessarily about being an ‘Innovator’, it’s more importantly about identifying and motivating the diverse perspectives and capabilities in the organisation to enable ambidexterity at all levels.
Future-proofing the financial services industry necessitates striking this delicate balance between innovation and stability. By achieving this equilibrium, companies can ensure their long-term success and relevance in an ever-changing market.
8 Paradoxical Challenge Questions:
The following are examples of general paradoxical challenges faced in contemporary rapid change contexts identified from our extensive work in the Finance sector. Tirian can work with your organization to identify and address the unique innovation paradoxes that need resolving. See how…
Internal V Internal:
- Algorithmic Trading Strategies: How should we balance the push for sophisticated, AI-driven algorithmic trading strategies to gain a competitive edge with the need for proven, established models to mitigate potential risks in volatile market conditions?
- Blockchain and Distributed Ledger Technology (DLT): What is the optimal approach for us to navigate the adoption of blockchain and DLT, considering the potential benefits of innovation against the uncertainties surrounding regulatory frameworks and operational challenges?
- Ethical Considerations in Investments: How do we strike a balance between investing in socially responsible and sustainable projects, which may not always yield immediate financial gains, and pursuing profit-driven strategies that may not align with broader ethical or environmental goals?
- Internal Communication and Collaboration Tools: What approach should we take in adopting advanced communication and collaboration tools, weighing the potential benefits of enhanced efficiency and connectivity against concerns about potential disruption to established workflows and processes?
Internal V External
- Blockchain and Cryptocurrency Adoption: What is the optimal approach for us to navigate the adoption of blockchain and DLT, considering the potential benefits of innovation against the uncertainties surrounding regulatory frameworks and operational challenge?
- Automated Trading and AI-driven Strategies: How should we balance the push for sophisticated, AI-driven algorithmic trading strategies to gain a competitive edge with the need for proven, established models to mitigate potential risks in volatile market conditions?
- Regulatory Compliance and Risk Management: How do we seek innovative solutions for efficient compliance processes, and balance this with the need for rigorous time-tested procedures?
- Ecosystem Partnerships and Collaborations: How do we seek strategic partnerships with external innovators for quick access to new technologies and ideas, while managing potential risks associated with such collaborations?
by Andrew Grant with Gaia Grant (PhD)
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