Building Blocks For Success: What Can Banks Learn From Other Industries?

High_Res_Entrance with brick_Aastvej

How did Lego manage to survive the digital revolution and keep captivating digital natives with its basic product, little toy plastic bricks?

In the 1990s it launched Mindstorms, a programmable robotics construction kit. Within 48 hours the system was hacked. The company’s well publicized immediate reaction was, “What legal action can we take? People can not do this to our products.”

The entrance to the Lego HQ: Banks could learn a lot from the Danish toymaker

It was a pivotal moment infor the Danish toy bricks manufacturer’s history. It had two options: get the lawyers involved or set up a framework for consumer participation. Lego opted to allow consumers to further develop its products. The best products were adopted by the company and the outside inventors were rewarded with a percentage of the revenues during the shelf life of the product. The move ended up helping Lego boost its brand and its bottom line.

Embrace Emerging Chaos

The benefit of opening your platform to outsiders is just one of the things that global financial institutions can learn from Lego, which a decade ago was losing market share but today is the largest toy company in the world by revenue and in 2015 — for the first time — became the world’s leading brand ahead of Red Bull, Unilever, Rolex and Nike.

Many of the challenges and opportunities facing banks are similar to those faced by Lego and other companies: incredibly disruptive technology, lots of uncertainty and new competitor threats, says Steve Jennings, a futurist at Better Ventures and a scheduled speaker at Sibos 2015.

The secret is to embrace the emerging chaos and try to create a framework for business advantage, says Shelley Kuipers, CEO of Better Ventures.

Vertical integration is not a necessary component. Banks have to forget about end-to-end control and instead focus on what they do best and outsource the rest, says former Deutsche Bank executive Daniel Marovitz, who is currently Europe CEO at Earthport and a scheduled speaker at Sibos 2015. “Look at Apple; it doesn’t make a single one of the iPhone components. It doesn’t even screw the iPhone together, yet nobody doubts that it is the world’s greatest phone company,” he says.

There are also parallels between pharmaceutical companies and banks, says Marovitz.

“Pharmaceutical companies are also responsible for a public good in some respects; they are very expensive to manage and run and heavily regulated. If you squint, Pfizer and JP Morgan don’t look that different,” says Marovitz. “What we have seen is a total transformation of their business models. All of the pharma used to do their own R&D and now none of the majors do their own research.

Risk Is You End Up Like A Telco

Instead they act as pharma VCs, investing in pharma funds that fund early-stage entrepreneurs doing med tech and molecule discovery.” The set-up helps the drug companies experiment and gives entrepreneurs street cred if they are able to say they had a pilot with a big drug company. They are free to go their separate ways and only enter into a business relationship at a later date if it makes sense.

Banks should do the same. If they insist on clinging to an end-to-end control model they risk ending up like the telcos.

“The telcos have tried to add value up the stack, expanding into new verticals such as healthcare and banking — all failures,” says Sibos 2015 speaker Chris Wasden, an American business school professor and author of a new book entitled, Tension: The Energy of Innovation. The telcos “fundamentally don’t understand customers. They are more interested in creating value for themselves rather than customers. Consumers see right through them and don’t trust them.”

“The important thing is not to go beyond what you are good at,” says Better Ventures’ Jennings.

As reported in business school cases and business magazines Lego starting faltering when it diversified into clothing and theme parks. It reversed its fortunes when it refocused on its core product.

“Lego understands that it needs to listen to its customers,” says Jennings. “Customers want bricks that ignite the imagination of the entire family. That is what make the brand great”.

To Be Successful You Have To Be Part Of This World

It is very easy for banks and financial services industries to get distracted by non-core opportunities that dilute the brand and confuse the consumer, he says. “Banks need to be asking the right people the right questions and align them to be active participants in creating solutions that keep the brand on strategy.”

The emergence of fintech competitors and the buzz around blockchain mean that banks must also work more closely with developers and start-ups. “Suddenly they are having to collaborate with a new breed of financial entrepreneurs and hackers. The first reaction of bankers is, ‘who are these people? They are not one of us.’ Well I have news for banks: these people are going to be part of their future,” says Jennings.

“Part of this comes down to culture and not being afraid of the people behind the disruption. To be successful you have to be part of this world.”

Another key building block for success is democratizing participation,” says Kuipers. “Everyone’s voice counts. You have to not only engage those that are the consumers of the product but give those that are delivering the solution the opportunity to be participants in shaping and bringing those solutions to market.”

“That means you can’t hide behind your role or position at the bank,” says Kuipers. “When these discussions are opened to everyone unknown leaders are being identified as change agents.”

That is a good thing, she says, because if you want change you shouldn’t ask the people in charge now to pick the people who will lead in future.

Middle managers need to be encouraged to innovate. In surveys the top management at banks acknowledge that change is needed as do young executives who are just starting out in their careers.
To succeed banks need to embrace behavioral change, says Kuipers. “It is about the culture of the organization.”

More and more customers care about a company’s values. “The banks have to be really sincere about what their intentions are and their intentions need to be about serving customers,” says Kuipers. “Services need to be priced in a way that is fair and flexible and meet the needs of a rapidly changing society. There are big opportunities to create new models, new ways of thinking. Banks should be asking, ‘what role should cognitive intelligence play, how do we augment what we do with a deeper level of intelligence and how should we draw behavioral insights from the data we are capturing?’

“In sum, banks need to be asking themselves, ‘what is my 21st century narrative?’” says Kuipers. “The fundamental conversation needs to pivot and that comes from looking outside the financial services industry.” Banks are under threat, she says, so they should not be afraid of learning from others, including a Danish toy company that has taught generations of people how to successfully build things.

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