Dare to dream and be unashamed by failure … in banking?

In Boston I was honoured to be invited to deliver the keynote to my law firm sponsors, Goodwin Procter, at their third annual banking symposium.  The audience comprised mainly community banks from the North East of the USA, and the discussions comprised panels debating the key issues we all deal with every day: regulation, innovation and demanding customers who needs are changing continually thanks to technology.

The day finished with an excellent keynote from Whitney Johnson. 

If you have not heard of Whitney, she’s a force for change.  Starting her career as a secretary, she ascended the ranks to become one of the top sell-side research analysts anywhere in the world with Merrill Lynch.  She then co-founded an investment firm focused upon disruptive innovation called Rose Park Advisors with Clayton Christensen, the Harvard professor who set the world alight a few years ago when he released the book: the Innovator’s Dilemma.

That book talked about how industries are being disrupted by innovators who do not attack the market by emulating the incumbents, but they instead create new markets that the incumbents ignore at their peril.  The Japanese cars industry is one such disruption that hit the mainstream American car manufacturers hard after a slow burn of 25 years or so and some would claim that banks are going through the same challenges.  I don’t hold that view, as banking is protected by regulation, but I do see new business models for finance that will seriously hurt bank profits such as P2P lending, crowdfunding and cryptocurrencies that operate for free.

Anyways, Whitney’s keynote talked a lot about disruption and how to deal with it, and point five out of seven was all about daring to dream.  This is the theme of her book: Dare, Dream, Do, and it specifically includes the ability to dream with failure.  Failure is ok.  Failure is a learning experience.  Failure is embarrassing and not enjoyable, but it’s a great way to develop and grow.  Call it experiential management.

I always remember Peter Drucker, the great and first real management guru, saying: “show me a manager who has never made a mistake, and I’ll show you a failure”.  We all learn from our mistakes (or we should).

But then we go into the heartlands of banking and mistakes are costly.  Just look at the RBS IT glitch or JPMorgan’s Whale and you know what I mean.  So how can banks create an environment that can accept failure when the business needs to run with 99.9999999999% fault tolerance?

Well it can be done, and I’m seeing it happen.  Banks are recognising that technology agility allows for fast testing and fast failing.  Fast failure is acceptable, because you can apply fast fixes.  Just look at Apple’s iOS 8 to see how often it’s been fixed.  Look at any app, and you can change it in real-time and upgrade at the customer’s convenience.

Technology is making everything simple, and encouraging fast failure. What used to take us years and millions is now taking minutes and costing cents.  In that environment, we can encourage innovation and testing and trying and failing.  If at first you don’t succeed, try, try, try again.

This can even be true for the toughest challenge: how to change the core systems engines on the bank’s air carrier when it’s flying at 39,000 feet (or 13,000 metres if you prefer).  The answer to that one is to separate the engines from the aircraft, and switch them when they’ve landed.

Banks need to separate their engines – their content and data – from their aircraft – their processors and systems.

You can do this by dumping the data into a massively secure cloud that becomes the digital core of the bank.  A single content store of bank data that is accessed via internal and external engines as needed.

By doing this, the bank creates an independence of their content from their processing, and can then switch engines on landing.  In other words, you can try out new ideas and systems with new processors using the digital data store core, without exposing the bank or the customers to any risk. When it’s all ready to roll, you can then switch the engines during a soft landing – a bank holiday weekend, Christmas, or whatever – when you know traffic is at its lowest.

I know that I am dumbing down a complex process of change, but I do know banks that are making the change this way and it works.

This is the time to innovate, to encourage fast failure, to trial and differentiate and to rollout massively fast and in real-time.  The banks that cannot do this will be the ones who will be disrupted, or so Chris Skinner, Whitney Johnson and Clayton Christensen might maintain (did I really just place myself in the same sentence as those guys?).