Can Banking Culture Genuinely Adapt To Today’s Business Transformation?
“What business are you really in? Are you in the railroad business or transportation business?”
Harvard Business School professor Theodore Levitt’s classic line from “Marketing Myopia” is as profound today as it was in the late 1950’s when he first published it. His question elegantly forces business leaders to think more broadly about exactly who are the customers they serve, what are the services needed to earn and retain those customers and what type of organizational competency is required to succeed. All three responses would obviously be manifestly different if you answered “railroads” or “transportation”
Levitt’s missive takes on a new dimension when asked against the backdrop of today’s hyper-competitive business environment. Technology has created the perception (or illusion) that the critical choice today is not “railroad or transportation” but rather “analog or digital”
And while the “analog or digital” question may be somewhat rhetorical in 2017, the implications for large mature categories could not be more profound.
What happens to Insurance when we “share” rather than “own” goods?
What happens to Automotive when humans no longer drive?
What happens to Banking when the very definition of “money” is evolving with bitcoin and blockchain?
These are meaty and critical questions to tackle.
And, of course, leaders in all these mature categories are furiously constructing new big, bold strategies to ensure they remain relevant in this new world.
New strategies that are fluid, agile, lean, responsive, frictionless, customer-centric, service-design constructed and digitally-centered.
New strategies that inevitably run headlong into established Cultures that are seldom any of those things.
In fact, if you subscribe to Drucker’s often quoted opinion that “Culture Eats Strategy For Breakfast”, then you could argue that Culture is potentially the largest Achilles Heel in any transformation exercise.
Celebrated culture academic Edgar Schein eloquently argues that Culture is more than just “how we do things around here” but rather a set of shared values and behaviours that become codified and reinforced by an organization’s success. Stands to reason. Conversely if your organization acts and behaves in a way that loses business, you adapt it or you die. If your organization acts and behaves in a way that causes that business to thrive, then you reinforce and reward the behaviours that drove the success. Over time, those shared and reinforced behaviours become your Culture.
Few could argue that banks here in Canada (my homeland) haven’t a proud history of success. By almost any yardstick, they have been incredibly successful.
Canadian banks are a significant contributor to our economy, they are also one of the largest employers across the country too (employing over 350,000 Canadians in 2015) and, internationally, our rather conservative regulatory banking environment is routinely lauded as one of the soundest globally. In fact, despite being so tied to the US economy, the impact of the 2008 crash was less significant on most Canadians because of our sound banking regulations.
And it is these historical successes that have built and nurtured Canadian banking culture today. And the associated values that underpin them.
Values like trust, teamwork and collaboration, accountability, customer relationships, integrity are all listed on the various Canadian banking websites. But you might argue these are category values — I would hardly trust my money and my mortgage to a bank that didn’t exhibit these. TD Bank is the one organization whose values seem to be more dynamic, more purposeful and, importantly, articulated in a way that could directly drive employee behaviour. (Disclosure — I am a client of both TD and CIBC)
So how will business transformation impact these cultures? How might these values need to be refined?
And where are the inevitable pressure points between Strategy and Culture?
Open versus Proprietary
Bank structures and systems are still (largely?) proprietary in nature. An imposing artifact of safety, security and strength as thick and foreboding as a vault door. And entirely appropriate when you wanted to build and project a system where you built, owned and managed everything for your clients. It was your systems, your know-how, your way. That’s not how customers and clients operate today. They want to seamlessly switch and move between their portfolio of financial services and providers — not your portfolio exclusively. They aren’t looking to be shoehorned into one provider, rather they want to use a variety of best-in-class solutions. When your clients expect open API’s and the ability to move seamlessly, your people can’t be operating with a rigid adherence to your process. Nor can your people continue to be rewarded for upselling and cross-selling inferior services just because you want to own the “whole” customer. Look at the hot water Wells Fargo got into when cross-selling was embedded in their culture.
Uncertain versus Certain
Perhaps a generational observation but a long and lucrative career in Banking was historically something coveted and something that Banks actively promoted or dangled in their recruitment efforts. Many banking cultures grew out of the certainty of a long and fruitful career. Being considered a “lifer” was an accolade. That certainty no longer exists. Since 2008 Banks have been reducing headcount at an increasing rate and if you read this sobering tale about life after Wall Street those reductions in headcount have gone deeper and deeper.
People versus Pixels
Banks used to be people-first, now they’re pixel-first. Well-staffed branches with rows of smiling and attentive staff have been systematically replaced by apps, robo-calls and online banking. And why wouldn’t they be? What exactly is a branch these days and why do we need them? What purpose does it serve and to which customers (remember my earlier Levitt?). If the services of my bank branch are conveniently located on the device in my pocket, why do I ever need to go into a physical location? And, as CEO of a publicly traded company with hungry shareholders, why do I need expensive physical real estate and warm human beings to staff them?
What about beyond the branch? What impact will automation, AI and machine learning have on a slew of other banking roles currently delivered by well-paid employees? Do I need brokers, financial advisors and wealth managers when risk tolerances and investment recommendations can be crunched via big data and delivered with an algorithm? If these transformation changes are inevitable (and profitable) how does your culture continue to motivate and reward the employees currently in those roles? Roles that actively being seized up for redundancies and obsolescence.
In my eyes the most significant cultural impact may be in the internal perception of Power.
Banking institutions have centuries of power bred into their cultures. Powerful organizations breed poise, surety and confidence in their people. And that naturally becomes embedded in their cultures. Of course, in the extreme, that can lead to arrogance and impunity too. But power and confidence are typically a self-perpetuating reality.
On the other hand, organizations in transition or in moments of great change can quickly lose any sense of confidence. The three horseman of an organizational apocalypse — Fear, Uncertainty and Doubt — can quickly gallop through an organization and decimate a once-powerful company. If confidence underpins their culture, what happens when that confidence is shaken?
The leadership task for a bank’s C-suite then is increasingly how to model and project a confidence to their employees — not just their customers, clients, regulators and shareholders — that their culture is as responsive as their strategy.
That is no small feat.
This employee quote from 2015 makes my point more eloquently:
“It feels like a different culture,” said one of them. “The bank has described the culture in the past as a caring performance culture and people are a little worried on the caring part because it seems to be a little more businesslike.”
We all know that public trust in institutions is diminishing. Could there be anything more dangerous for your culture than when trust in your institution diminishes amongst your employees?
What say you Dear Reader?
Am I overstating the cultural impact on Banking transformation? Are Banks already addressing these cultural changes head-on? Which ones and how?
While there is certainly no shortage of incubators and start-up style initiatives by Canadian banks, as an observer, these feel like skunkworks outside the larger organization. I’m intrigued because I genuinely believe this will be one of the most intriguing challenges business leaders will face in the years ahead.
Please leave your own comments, opinions and observations below.