Staying relevant in a brave new world.

For the first time in nearly two decades, Britain’s financial industry recorded record growth in the final quarter of 2014. It’s a welcome improvement for an industry still reeling from the financial crisis and its subsequent extensive re-regulation. But before breathing a sigh of relief, banks must realize they are not out of the woods yet. The pace of change is faster now than it’s ever been, meaning there are a number of new challenges banks must address in order to remain relevant.

A powerful combination of new regulation, evolving customer needs, and the emergence of new players and technologies represents this new threat to the traditional European banking model. Although established banks are unlikely to be dethroned by a single new market entrant or disruptive business model overnight, the combination of these new market forces across the entirety of the financial services ecosystem could quickly erode their core competitive advantage.

For mature industries like banking, these warning signs shouldn’t be ignored. It’s important to acknowledge that no organization, however well established or dominant, is “divine” and, just like the Kodaks, Blockbusters, and HMVs before them, can become irrelevant in the face of change.

The key to survival lies in being alert to one’s environment, recognizing that no success gained will be permanent, and being sufficiently dynamic and flexible to adapt to change on an ongoing basis. Peter Drucker, one of the founders of modern management, describes this as the practice of innovation: the systematic, organized, and purposeful search for changes within one’s environment and the willingness to perceive these changes as opportunities for innovation rather than threats.

Easier said than done. The majority of the industry already recognizes the shift towards a digital future where customers expect direct, immediate, and seamless engagement with providers. Beyond this, there is a building expectation for services to anticipate people’s needs and react in to them in real-time. Even more challenging, these expectations are agnostic to the nature and form of the interaction, whether it’s booking flights and holidays, buying books and music, or shopping for groceries. Many banks still struggle to ignite the innovation that’s needed to turn these dramatic shifts in customer behaviors, into growth opportunities.

At Fahrenheit 212, we believe this is because they’re often asking the wrong questions.

In our experience, innovation begins by asking transformational questions. While such questions can be tough, they also have the power to elevate the odds of getting new insights and vantage points, beginning by challenging entrenched paradigms in the category. As set out in our book, How to Kill a Unicorn, there are some guiding principles to starting this process:

Assume transformation is necessary.

Change the conversation from “should we transform something?” to “what should we transform?”

Cultivate a healthy disrespect for present reality.

Question how things are done currently. Identify category, customer experience, product, and business paradigms that don’t need to be the way they are.

Temporarily forget what you know.

Ignore your existing knowledge base and the entrenched biases that come with it in order to see opportunities with a fresh set of eyes.

Ask yourself how likely it is that your competitors are working on the same questions you are.

Imagine your competitors working on similar projects to gauge whether you’ve uncovered something truly transformational or not.

Move the camera around the room.

Look at leverageable assets through the eyes of your different customers, partners, suppliers, and employees to find a unique point of view.

Learn to hear the sound of that thing that isn’t being said.

Ask yourself what you haven’t heard, as the unsaid can often be the most telling thing in arriving at transformational questions.

While the specific transformational questions that unlock transformational answers will be specific to each organization and their business, here are some areas that financial institutions should be thinking about:

  • What lessons can banks learn from retailers who have managed to remain competitive by anticipating customers’ needs and responding immediately to them?
  • In the next five years, two-thirds of banking customers are anticipated to become “self-directed.” How could the bank become the digital platform that empowers them?
  • How can banks put customer outcomes and behavioral economics at the center of their business models?
  • How does the purpose of a bank’s brick-and-mortar footprint transform as more customers move online? How can the retail store become a place to build stronger relationships and open new possibilities — addressing pain points, providing specialists, or something completely new?
  • What should a bank do with their extensive customer data? How could it be leveraged to build a deeper, holistic understanding of customer behaviors, habits, and needs?
  • What is the role of community and the sharing economy for banks? Could the power of digital create new forms of value through co-creation with individuals, stakeholders, and enterprises?
  • How could incumbent banks leverage their considerable asset base and global scale to embrace and accelerate emerging business models such as P2P lending or digital marketplaces?
  • Since most B2B transactions already take place online, how can banks extend this digitization at the consumer level?

Finding fundamentally new questions to ask in order to surface insights that competitors can’t yet see isn’t a whimsical exercise of asking “what if we…?” or “wouldn’t it be cool if…?” but instead a discipline of identifying and crafting questions that challenge and candidly assess the situation. It also creates the potential to deliver disproportionate and defensible returns.

While the innovation imperative seems daunting, incumbents are successfully leading the pack by embracing digital disruption — just look at Lego, the 83-year-old family-owned toy maker that embraced the onslaught of digital to be named the “Apple of toys” by Fast Company. Their diversified portfolio of innovation spans physical toys, digital platforms, video games, and even a movie, all contributing to a doubling in revenues over the last four years to US $4.6 billion.

In the UK, 150-year-old retailer John Lewis avoided the fate of other high street names such as Comet, HMV, and Jessops by making continual investments in innovation to better integrate online with offline. With an innovation portfolio spanning market-leading click-and-collect services to piloting the use of in-store 3D printing and RFID technology, John Lewis is better positioned than most retailers to face the rapidly evolving nature of the high street and its customers.

These businesses have remained relevant in the digital age by searching for transformational opportunities within their business environment and pursuing them in an organized, systematic, and rational manner. By practicing the discipline of innovation as an investment in the future of the business, banks can do the same.

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