Be Open to Innovation — or Fail
Have you ever noticed how college towns always seem to stay fresh, relevant and competitive? Take for example Austin, home to my wife’s alma mater, the University of Texas, as well as a number of fintech events and the annual South by Southwest® (SXSW®) conference. This vibrant city attracts new students and businesses every year with new, creative ways to foster culture, community and professional growth. Civic leaders and school administrators know they’re competing for people and cannot rely on what had worked in the past. They’re well aware that what brings paying customers today is not what will bring them tomorrow.
Likewise, successful businesses are also driven by good people making good decisions with really good technology. Too often, the desire to protect and preserve existing ways of doing business keeps CEOs from embracing innovation. On Wall Street, leaders fear disruption — and fail to accept new technologies that offer profound efficiencies and growth opportunities. This resistance stems from cultures that, following the financial crisis, are risk averse, talent deprived and budget poor. Those who resist innovation not only are passing up a tremendous influx of talent, but they are setting their firms up to fail.
Since 2000, according to Treasure Data, half of the companies that were in the Fortune 500 have been disrupted into extinction. The mistakes of the men and women at the reigns are talked about after the fact. I often ask, “How did they not see that coming? Why did they ignore the obvious?” The answer comes down to these four things:
- Money and Time. Large sums of money and human capital have already been spent on their chosen technology, which is so deeply embedded in their day-to-day work flows that they dare not admit that it might need to be done all over again.
- Goal-Setting and Strategic Planning. They don’t have a five-year plan. Today, not many have the luxury of five years, and unfortunately many leaders are only worried about the next quarter.
- Emotion and Fear. Significant change is hard to overcome when you’ve done it your way for so long. Management struggles with the fact that what is good for the customer and the industry might not be good for the bottom line. Organizations that own their segment often refuse to change for fear of disrupting their entire business model.
- Ignorance. Even worse, companies are blind to changing market conditions. They fail to ask themselves: “Who is my client of tomorrow? What will their needs be? And can my technology support those needs?
Take for example Blockchain which I wrote about in an earlier blog, and its unintended but inherent value: talent. Wall Street needs great people as badly as it needs the technology that Blockchain promises to provide. Just as electronic trading did 20 years ago, Blockchain will open the industry to a group of bright, innovative, tech-savvy and motivated individuals that want to change the landscape and to be part of something bigger.
In the early 1990s, the big banks didn’t want to acknowledge, and in fact tried to block, those of us who wanted to introduce a new way of trading. Why would the banks want to disrupt a business that had a spread wide enough to drive a truck through and charged upward of $5.00 per 100 shares? The electronic way was 1/10th the cost, narrowed the spreads and made the market more efficient.
Adapt the shared economy. Today, the great thing about the cloud is that someone else built it, and Wall Street can simply join it — and adopt the new technology instead of kicking the can down the road for the next leader. The solution for Wall Street is to adapt to the shared economy, and to do so quickly. The industry needs to stop wasting time and money developing and supporting their own technologies, which are in no way differentiating.
Like fine-tuned athletes who are driven to win, Wall Street firms and their leaders must recognize that change is constant, identify how it’s affecting them, and be nimble enough to adapt to it.
And winning is not just about the technology; it’s more about the people, who will bring new skills, ideas and enthusiasm that will help them stay relevant and competitive.
Defense isn’t a good offense. CEOs let the fear of tomorrow get in the way by saying to themselves, “Gee, if I accept this change and make it easier and cheaper for clients to do business with us, this could hurt my bottom line and allow others to compete in my space.” I kid you not, I have been in meetings with senior executives that say all the right things about embracing technology and giving customers what they want but turnaround and say behind closed doors: “Oh shit, I hope this thing never sees the light of day.”
I was taught very early in my career, by a brilliant man Peter Kellogg, that if your business model has a hole, you’d better fill it or someone else will. I am fearful there just isn’t enough putty to plug all of Wall Street’s holes.
Stay out of the graveyard. Business graveyards are filled with tombstones of companies that once stood on top of mountains, but due to their deliberate and conscience decisions to ignore change, today are critically wounded, or worse, just a memory:
- Blockbuster refused to keep up with the times when video rentals changed from brick and mortar to mail, cable and video on-demand. Blockbuster could have bought Netflix for $50 million in 2000; today, Netflix has a market cap of $54 billion.
- Kodak had the original technology not only for digital cameras, but also for cell phones. Yet its executives saw cell phones as a threat and did nothing with the technology. Today, we all could be talking on kPhone7s instead of iPhone7s.
- Xerox had a Palo Alto Research Center that gave us inventions including the mouse, icon-based UI and laser printers. If management had enabled their cutting-edge technologies, we might never have heard of Microsoft, Apple or Hewlett-Packard.
- Borders Books either misread the market or turned a blind eye to the digitally enabled reader of the future.
- Blackberry, aka “CrackBerry,” once the only game in town, knew it had Wall Street addicted. Then Apple released the iPhone in 2007 and soon dominated the consumer market because users loved the touch screen. Apple then reshaped the corporate market with its Bring Your Own Device (BYOD) strategy.
We can learn as much from failures are we can from successes. While the constant change theme recurring in my blogs seems obvious, Wall Street companies and their leaders continue to turn a blind eye or are unable to see the forest though the trees because they are drenched in self-confidence or self-interest. If they choose to ignore change, they are destined to become just one more of these tombstones in the business graveyard.