Businesses that fail to innovate will get swallowed by the ones that do and banks that ignore customer demand for online offerings do so at their own peril. 

Speaking at a banking conference recently, one of the presenters said he employed 20 people whose sole duty was to find a way to destroy the business. I like the idea of that. It is a strong and emotive thing to say, but exactly what did he mean?

“I employ 20 people in my innovation department who purely look at ways to destroy the current business.”

Now that’s all well and good, but it raises other questions. Should you act on the advice of those people and when? I’ve been in plenty of companies where you can easily show ways to disrupt the business, but when should you take action?

Kodak's moment

A classic case study of management failure to act in the face of threats to the business is that of Eastman Kodak.

Eastman Kodak, or Kodak, is the company that invented the digital camera back in the 1970s. Kodak even conducted an extensive market study to work out the impact of digital cameras when Sony introduced its first commercial digital camera back in 1981.

The results of the study found that digital photography had the potential to replace Kodak’s film business but it would be about 10 years before it would have any major impact. So, what did Kodak’s management team do in that time? Nothing. They thought that film was still the future, even though every sign told them it was not.

By the 2000s, Kodak was in challenging business conditions and in January 2012 it filed for Chapter 11 bankruptcy protection. The world’s biggest camera, film and photography business had been brought low by a lack of vision.

In the UK, we saw similar problems in January as digital camera stores, electrical retailers, music and video retail chains got into difficulties. The fact is that Kodak and retail businesses in the UK all made similar mistakes: management was so tied to traditional models of profitability that they would not destroy or undermine them in the fear that it would destabilise their profit lines.

This is the core of any management learning about innovation and it goes to the heart of business professor Clayton Christensen’s discussions of the innovator’s dilemma. Often a management team will see a new market developing that could impact on their core business, for example, a digital camera, online music or the rise of Amazon. The management team may well have people who make it clear that such things could destroy their business, but they just don’t listen, react, invest or do anything about it, because it would destroy their own bonus, shareholding, investment and reputation. Simplistic maybe, but what other reason can you give for destroying a successful business?

Changing tactics

So, what has this got to do with banking? All the evidence points to a need to rethink the business model of retail banking, as customers move online and away from branches. We should be destroying the branch-based business model.

Some banks have started, while others are expanding their branch base. Why would anyone expand their branch structures today when, like music, bookshops, electrical stores and camera shops, all non-digitised retail businesses are going out of business?

Banks need to change their tactics. They need vision to see what’s coming next, the agility to see when a new market takes off, the flexibility to change strategies if needed and the ability to transition the company from old markets to new. These are the qualities banks need to be successful.

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