Change the bank or change the leadership

I’m likely to be blogging about leadership all this week, as that was the theme du jour of our Nordic Finance Innovation meetings in Copenhagen and Oslo last week. Saxo Bank, DNB, Danske Bank, Nordea and more were discussing the challenges of digital transformation and the leadership challenge, and I’ve already started this series of blogs with my 10 Chairs discussion on Friday.

I guess my take on the topic is that banks are being fundamentally challenged by the digital transformation process. A lot of bank leaders think they are keeping on top of the case because they’ve rolled out a mobile app and completed a blockchain proof of concept. Their IT guys says there’s no need to change core systems – they work and aren’t broken, so why change them? – and there’s lots of tests of using artificial intelligence. Open banking is under way and they’ve got a FinTech incubator program. So, what’s the issue, Chris?

Well, I have an issue, in that all of the above is fine and dandy, but it’s got nothing to do with digital transformation. The above are all activities and projects, not a change to the core of the bank’s culture, systems, organisation and processes. And I believe digital transformation demands a change to the bank’s core everything.

This is because banks were built in the industrial era for the physical distribution of paper money through buildings with humans; the digital era needs banks built for the digital distribution of data money through software and servers. It is a completely different business model, and has no relation to the existing and historical bank structures. As a new business model, it requires a new organisation and thinking, a new culture and a new design. You don’t get that from doing projects.

In fact, the project-focused structure of digital – rolling out apps, doing proofs of concept and testing AI – is just doing what we always did cheaper and faster with technology. The new digital bank structure is completely rethinking what we always did … with technology.

This is why it is a leadership challenge and not a technology challenge. It demands bank leaders who understand digital in their DNA and who can change the bank whilst running the bank. These leaders have to bring their people with them – people don’t follow leaders because they’re told to but because they believe in them – and do this through their passion and belief ion the digital transformation journey. They have to change the organisational structure, which means displacing several people including some of their direct reports, and bring in new blood who are digital people, not bankers. After all, how can you become a ‘digital bank’ if you only have bankers leading the bank? You need digital people in the leadership team and diversity.

These are themes I explore regularly here on this blog, so you’ll be familiar with them, but leadership is needed to execute cultural change and change is most resisted by the ‘frozen middle’. The middle management fear change the most, particularly digital change, as they believe it will mean losing jobs and losing status. The last thing they want to do is move their cheese. Just keep things as they are, thank you very much.

Bottom-line: who are the bank leaders out there? There are plenty of bank managers, but who are the leaders? Which bank leaders are driving radical change to deal with the digital revolution, rather than making incremental changes because they believe it is just an evolution. If digital really is an evolution, then how come I can see more changes happening faster and more dramatically with technology than we’ve ever seen since the last revolution: The Industrial Revolution. The Industrial Revolution took place over decades and radically altered work, trade, finance and life; the Digital Revolution is taking place in dog years on speed – for every seven years of the Industrial Revolution’s developments, think seven months in today’s world – and it’s getting faster.

My worry therefore is that those bank managers who are doing digital projects to evolve their industrial era bank structure are sleepwalking their banks into oblivion.

WAKE UP!