TECHNOLOGY ALONE WON’T ACHIEVE DIGITAL TRANSFORMATION. WHY BANKS ALSO NEED TO EMPLOY THE RIGHT TALENT

Nick Cheetham, Managing Director at FINkit 

The City of London has long been established as a leading presence at the top table of global technology hubs. In the first half of 2017, venture capital investment in the capital’s tech sector totalled £1.1 billion according to data published by London & Partners. That’s more than any other European city (including Dublin, Paris and Amsterdam) since the Brexit vote. London’s pre-eminence has been especially pronounced in the burgeoning fintech sector, at least in part because of the fertile conditions provided by the high concentration of financial institutions in the City.

But as digital-first challenger banks and other disruptive startups begin to influence the financial  services industry more profoundly than ever before, those institutions – in particular, traditional retail banks – are scrambling to review their offerings and having to fight harder to recruit leading talent in the face of new competition. Plenty of emphasis has been placed in recent years on efforts to preserve London’s status as a tech hub by addressing apparent STEM (science, technology, engineering, and mathematics) skill deficits, particularly among young people – exemplified by London’s new Mayor Sadiq Khan’s recent announcement of a new “digital talent pipeline” initiative. However, the talent challenge facing banks is not, in fact, a shortage of qualified candidates. Rather, it is convincing potential hires that they can provide an environment in which they can flourish.

We recently carried out a study with the independent research firm LM Research, looking into senior banking executives’ priorities, challenges, and plans. We asked senior figures at 15 major UK banks and other financial institutions about the issues that keep them up at night, their perspective on upcoming regulatory changes, competition in the retail banking sector, and their attitudes towards investment in innovation and talent.

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Our research found that 80 per cent of respondents are investing more than £25 million in innovation every year, with more than a quarter (27 per cent) spending in excess of £100 million annually. While the majority (73 per cent) of respondents agreed that digital transformation is critical to the future of the bank, only seven per cent admitted to being worried about hiring the right talent to support that transformation.

For many years, the big banks were often seen almost as a default first-choice destination for many STEM graduates. But those university leavers now increasingly favour roles either within booming global Internet companies such as Facebook, Google or Amazon, or opportunities within dynamic and disruptive technology startups. It would be easy to dismiss this as simply an unavoidable consequence of wider social change – as Millennials naturally gravitate towards companies that appeal to their values and reflect their everyday experiences (as traditional banks and other institutions once did for previous generations). But it would also be a damagingly over-simplistic diagnosis: the trend towards prioritising “cool factor” in an employer over solidity and heritage is not limited to only young recent graduates.

A big part of the attraction of Internet giants and tech startups for STEM talent of all ages is their attitude and approach towards innovation and risk. Traditional banks – in part due to the various regulatory requirements they have to comply with – can tend to be fairly risk-averse and prone to bottling up innovation in labs, accelerators, incubators, or skunkworks, away from the main business. Conversely, the new generation of technology companies competing for the same talent typically offer an environment that is more supportive and inclusive of risk and innovation. Facebook, for instance, may have moved on from Mark Zuckerberg’s famous “Move fast and break things” philosophy as it has matured, but it remains proudly agile and experimental, and many startups have followed its lead.

Many banks have begun to realise the need to innovate in the face of competitive threats from disruptive startups, but several are still only paying lip service to innovation rather than genuinely encouraging constructive risk-taking and making agile part of their everyday culture and long-term business strategies. For the most part, innovation labs and the like represent little more than face-saving “innovation theatre”. There is little prospect of any meaningful output seeing the light of day as long as banks fail to truly adopt the mindset needed to empower innovators.

The top technology talent doesn’t want to work subject to artificial and unproductive restrictions, their ideas consigned to theory or boxed off separately from the rest of the business. They want to be able to create new products and services with the confidence that they will make it into the “wild” and be supported and developed further over time.

But technology alone won’t achieve digital transformation for banks. As well as putting the right systems in place, banks also need to employ the right talent. This will drive revenues and also result in significant cost savings if they are able to recognise the right skills needed to deliver a more ‘current’ change management programme. Employees who were tasked with delivering change 10 to 15 years ago will unlikely have the right skillset to successfully deliver change in the present day. As new technology and regulatory rules have rapidly emerged, banks will not be able to solely rely on a single momentous shift to digital, they’ll need constant iteration and experimentation to successfully deliver change.

With so much investment coming into London, the UK should remain a vibrant and attractive place to work for the global talent vital to the technology sector. Banks should not only take advantage of this, but also change their attitudes and approaches to fully embrace innovation in the new world of agile product development, or risk continuing to fall behind when it comes to attracting the best talent and locking themselves in a vicious cycle of creative stagnation.

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