What Happens When Banks Stop Competing and Start Innovating

What comes to mind when you think about competition? For me, it is reliving my youth, going up against friends and peers at virtually everything. It is recalling the sweet taste of victory won by out-hustling, outsmarting or simply refusing to give in.

It’s that perpetual, fundamental human desire to come out on top that creates competition. It has the potential to pervade every part of our life. And the mindset can make us better, stronger – or it can create blind spots. All too often, we focus too hard on managing scarcity – like seeing only the limited number of spots on the team, or having an inclination to see knowledge sharing as giving away competitive advantage.

But the world is changing fast and there’s a virtually limitless potential for innovation. Scarcity is no longer a reason for competition. In his book, Flash Foresight, Daniel Burrus orients strategy in this new economy, and then turns the idea of competition upside down.

“When it comes to the competitive environment, there are two things you can be sure of: (1) competition is more intense today than it was a year ago, and (2) a year from now it will be even more so. How will you survive in an increasingly competitive world? 

By not competing.

 Trying to compete is a scarcity-thinking game; the organizations that are winning in the new century don’t bother competing. Instead, they leapfrog the competition by redefining anything and everything about their business.”

Banking has a long-standing reputation of being a follow-the-leader industry. In the evolving, digital world, this mentality poses significant challenges and opportunities, depending on the degree to which a bank is reactive or preactive. Over the past year, the Harvard Business Review (HBR) and Bain & Company (Bain) have posed a few suggestions for bankers seeking to compete by reinventing their business model.

With more than 85% of retail banking transactions happening digitally, many of the leading banks are “reinventing themselves with innovative mashups of digital technologies and physical facilities.”  Innovative banks are moving brick and mortar services online and then fusing those new channels to the traditional offerings. These multichannel banking experiences meet the demands of rising numbers of affluent, young customers who expect to have access to information and solutions, anytime and anywhere. HBR posits that this approach allows banks to compete by creating “signature” experiences and new sources of value for their customers, and by reconfiguring the branch network for greater efficiencies.[1]

Looking at the outcome of this approach, Bain clarifies that innovation isn’t just moving simple transactions to digital channels for access and efficiency. Competitive advantage comes by creating a “wow” customer experience that features, “useful digital applications and a seamless integration of all channels.” By their logic, redefining the banking experience is a competitive ‘win’ if it increases measurable customer loyalty.

“Loyalty has a powerful influence on a bank’s economics, because customers who become promoters stay longer with their primary bank, buy more products, often cost less to serve and recommend the bank to other people.” [2]

Burris has observed, "Reinventing is not the same thing as adding a feature, a tweak, or a twist. Once something is reinvented, it never goes back to being the way it was before - because reinvention harnesses the power of transformation." 

When our focus is on continually reinventing and redefining everything we do, there is no longer a need to focus on the competition. But as we’re seeing, there is a greater need to focus on the customer. At the current rate of change with technology and user profiles, it is impossible to win by trying to catch up to the competition.

Are you imitating or innovating? Are you creating actionable solutions by taking the time to ask “How can I redefine how we compete on ____” for every area in which you compete?

This is the sixth installment in a series about using foresight to create winning business strategies. To join the conversation and receive email updates of new posts, click here:

 

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[1]Rethinking the Bank Branch in a Digital World, Harvard Business Review, June 2014 

[2] Building the Retail Bank of the Future, Bain & Company, June 2014 

Topics: Innovation, Competition

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