Ford recently fired its CEO Mark Fields, seemingly out of the blue. Based on the staid, risk-averse mindset that dominates much of the U.S. auto manufacturing sector, such a move seems counter-intuitive—especially given Fields’ performance. As recently as 2015, Fields produced record profits for Ford and if that is not enough to raise eyebrows, his replacement Jim Hackett has little industry experience. Hackett came to Ford in 2016 to oversee the company's self-driving car initiative, which provides a major clue as to why Fields was let go.
This quote by Ford Chairman Bill Ford, great grandson of Henry Ford, provides the backstory: "This is a time of unprecedented change. If you look at the technology coming into our industry and the competitors coming into our industry ... we really need transformational leadership."
What does this concept of transformational leadership mean, both to Bill Ford and the outside circle of financial services? Ford references the real, tangible threat outsiders present to traditional car manufactures. Non-traditional competitors have permeated the space by applying new technology to deliver an optimized driver experience. So far, the traditional players have failed to respond in a meaningful way.
And so it is in the banking sector. The leadership of our financial institutions should have felt a “disturbance in the Force” (or Ford Force, if you will) when Fields was shown the door and Hackett was ushered in to take his place. Just like mainstream automobile companies, financial institutions have yet to figure out the best way to address their competition, the FinTechs.
There’s no doubt that innovation ranks as important; FinTechs and the amount of money being poured into them have made that clear. However, innovation is only half the story. These non-traditional competitors also bring a progressive mindset that stretches from their products to the way their companies are organized. As with the Fords of the world, making the kind of systemic changes necessary to alter the worldview of financial institutions is very difficult.
That is why simply replacing a veteran of the industry with an outsider that has a track record of innovation and success in another vertical is not going to transform Ford. Hackett will be battling a team of executives and senior managers that are from the very industry that he has been hired to change. He will need skills in leadership and organizational change to succeed and, even then, it might not be enough. Some financial institutions have attempted to drive innovation and competitive differentiation in this same way, and the results are not necessarily encouraging. Yet, creating new job titles, setting up technology innovation labs and buying FinTechs that have become irritants haven’t been a winning strategy either. Tactical acts will not materially change the landscape or entrenched way banks think.
To successfully embrace innovation and drive digital transformation, organizations must address it at an enterprise level. If employees throughout the institution – from branch employees all the way to the C-suite – operate in an environment that is structured to focus on the consumers or businesses they serve, the institution will be much better equipped to successfully compete in a landscape where “bank” is now more verb than noun. This top to bottom transformation must foster a culture of innovation, and incorporate changes in how all employees are motivated – including how bonuses and salaries are structured.
This level of change, combined with innovation, will not morph a bank into a FinTech, but it will allow bankers to more successfully leverage the characteristics that give them an advantage over non-traditional competitors.
Bank executives should heed the warning embedded in Ford’s leadership change –The organizations that fail to embrace change and shift their focus from front bumper to back will become irrelevant.
What’s more, consumers and investors are drawn to these non-traditional competitors. Compare Ford’s 2016 performance with Tesla’s. Ford closed 2016 with an adjusted pre-tax profit of more than $10.4 billion, while Tesla continued to lose money. In fact Tesla has barely produced a profitable quarter since the stock went public in 2012. Still, its stock from then until now is up an astounding 1,083 percent—a phenomenon largely attributable to Chairman Elon Musk addressing a consumer need in a non-tradition, FinTech type of way.
Today, Tesla’s market cap surpasses Ford’s by $7 billion dollars. The waiting list for the Tesla Model 3 announced last year reached 200,000 in a matter of hours with some customers facing months (even years) of waiting, a “problem” that Ford and its peers have not encountered. This comes despite the fact that industry observers saw the Model 3 as a knee-jerk reaction to Chevrolet’s Bolt, which is expected to beat the Model 3 to the finish line by a year.
Still, that hasn’t changed Tesla’s fortunes one iota, and observers should wonder whether Tesla, if nothing else, outshines Chevy and the auto industry’s old guard with its nimbleness. With the rate of change in technology accelerating exponentially faster than the rate of change in organizations, the gap between new competitors and incumbent companies is unlikely to close without a significant shift in approach.
Ford, in a sense, is starting over. Financial services organizations likewise need to rethink their stance to innovation and make it more customer centered. Indeed, today’s consumer is comfortably perched in the driver’s seat. And when it comes to even the most mainstream products and services, such as banking, and this trend will only speed up. with the outcome at the finish line far from a certain victory.
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Michael Carter is the chief market analyst for D3 Banking. He joined D3 Banking as one of the earliest employees, and has watched it grow into a leading digital banking provider. Carter has more than 20 years of executive technology leadership experience ranging from early-stage start-ups to international organizations.