By Andy Mather, European Financial Services Industry Specialist, Telstra

There’s no question that financial services players understand the need to innovate, with recent research showing that innovation ranks among their senior executives’ top priorities.[1]The problem, however, is that most remain cautious about what to do – for example, in not introducing new ways of working despite having assigned executive responsibility and allocated budget for fostering innovation.

It turns out that “ways of working” is precisely where the focus needs to be, based on the particular nature of banking technology. To understand why, we need to start by looking at the challenges that financial services providers face when it comes to moving their business forward.

Put simply, banks have a huge amount of legacy issues to deal with. Some of this may be due to organic growth. Or it could be the result of various acquisitions over the years, each one adding new technological complications (which ultimately become yet more legacy). Or it could stem from a general reluctance to decommission old technology in a timely way, a reluctance borne out of fear of unexpected consequences.

All of that can lead firms to feel that if they are going to make a change, it has to be big. Yet large-scale overhauls – big bang projects – are not what innovation is about. Innovation is about constant improvement.

Taking a new approach

In such an environment, how can firms successfully innovate? The first thing they need to do is think small.

Firms need to base their innovation strategies on lots of small, incremental changes. They need to think in terms of multiple events, not single large ones. Together, all of those small steps can end up having big effects.

In a legacy-dominated environment, this may be easier said than done. But that doesn’t mean it’s not possible.

In one case, my firm was working with a company that wanted to enhance its price data with additional algorithms to create new content for its customers. Looking at the technology stack it had, the client realised it would need to move databases and use batch processing to make the new content available. The problem was, these new processes would take hours and would need to take place at the end of the day, making the added content far less valuable.

The answer to this particular problem was not to add technology layers, or even to change any of the technology. It was to run the algorithms on the source data and then effectively virtualise the data so that as the source data moved, the new analytics were created and distributed instantly.

Thinking small is about not necessarily changing what a firm has, but changing the way it thinks about what it has. In this way, small steps can end up being radical. The journey in this case was more of a mental one than a technological one.

Fostering this kind of change requires a cultural shift for many firms. The good news is that the financial services industry, despite its naturally cautious tendencies, has a good track record in terms of recognising the need to change.

When algorithmic trading started to take off more than a decade ago, trading firms knew they needed to bring in a whole new type of talent. Suddenly trading floors began to be populated by people who had had little contact with the financial world before, people with doctorates in physics, aerospace, engineering and other scientific fields. These were individuals who took a fundamentally different view of what a trading firm was trying to achieve and who introduced radically different ways of doing business.

The right people, the right questions

If further evidence of the need to prioritise innovation, PriceWaterhouseCoopers have suggested a litany of examples of how financial disruption has now become the norm. From the sharing model to blockchain to artificial intelligence, emerging technologies are changing huge swathes of the way financial services are provided.[2] Unsurprisingly, PwC suggests acquiring the right talent as one of its top strategic priorities for firms seeking to navigate the new terrain.

The new breed will be people who can think about the end-result for customers but who aren’t constrained by old ways of working. “Financial institutions in general simply do not have the internal knowledge and expertise they will need to implement a ‘what do our customers want?’ approach,” the PwC report says.

One of the best ways, then, to start to innovate is to collaborate. Bringing in multiple third-party firms to work on a project, each with its own specialist skills, might sound daunting to some firms. But it can end up saving large amounts of time and resource, because each supplier can contribute the expertise needed, rather than one firm trying to do it all over a longer period of time.

One of the fringe benefits of this approach is that the people trying to solve problems are focused on outputs, and what those outputs they will look like, rather than on the existing technology and all the constraints that come with it. It’s all about asking different questions than firms have in the past.

Thinking small, taking a collaborative approach, focusing on outputs and asking different questions — these are some of the key ingredients for innovation. This is what “new ways of working” looks like. And this, in the end, is what will mark the difference between firms that are stuck in the past and those that are constantly leaping into the future.