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Bank leaders are the make-or-break for innovation

Nov 1, 2022 / Technology
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Between tech advances and new competition, banking institutions need to be innovators to keep pace with the trendsetters.

Paul Steenkamp, a former banker and author of a new book on leadership and innovation, joins us to offer insights on how banks can better embrace change.

A few takeaways from the conversation:

    • The industry needs more commitment at the top to seeing complex changes through over time – short-termism is the biggest killer of innovation.
    • Buy-in from the C-suite is indispensable for any attempt at innovation to succeed, and banking leaders need to be marathoners, not sprinters.
    • Not every innovation needs to be a game-changer. Smaller innovations are lower risk and can be used to create momentum for bigger changes.

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Paul Steenkamp, founder and CEO at Jack Frost, welcome to the BAI Banking Strategies podcast.

Hey, Terry, thanks so much for the invite. It’s great to be here.

Paul, you have a background in banking in South Africa, but now you’re onto a new venture. Give us a little background about what Jack Frost is and aside from writing books, what you’re doing these days.

Jack Frost was founded in 2016 when I left my corporate career in the innovation space. I founded a company that really has one mighty challenge that it’s aiming to help solve, which is helping innovators thrive. We’re an agency based in Cape Town that helps passionate executives and their teams think differently about their strategy, building innovation culture, and also venture building and investing.

Your new book, Character Insights for a Regenerative Future, isn’t explicitly about banking, but I’m guessing it’s informed at least to some degree by your experience in banking. The book subtitle refers to five leadership superpowers that drive innovation. I don’t want to be a total spoiler about what those five are, but there are a couple that I do want to talk about. The first of them being intellectual humility. Innovators tend to see themselves as smart people, as bold, as visionary, and those traits tend to come with a pretty healthy ego, too. How does humility create power for an aspiring innovator?

Yeah, this is a great question, and it reminds me of the myth of the lone creative genius that often is perpetuated within large companies that are waiting for a superman or superwoman to arrive and solve all the strategic problems that exist. I used to work for a CEO at a bank in South Africa, who at the time we didn’t really have the language for it, but he used to often say, ‘No one person in the room is smarter than everyone in the room.” His name was Michael Jordaan, he’s the former CEO of First National Bank. Really the point there is that intellectual humility is all about opening your mind to learning from opposing views, being open to constructive discussions even when you disagree with someone. Ultimately it’s about becoming wiser because you’re less judgmental and open minded, you land up learning more and being a better leader.

The other one of the superpowers I want to ask you about is empathy, which I’d imagine share some qualities with humility. Having a sense of empathy is increasingly being talked about in U.S. banks, but I haven’t heard much about it in an innovation context. How do you think about empathy, and why is it a necessary ingredient for innovation?

Yeah, I guess it’s bandied about a lot in the design thinking community. It’s a big part of the early stage of the problem-solving methodology and approach. For me, personally, in the innovation space, it’s something that operates at the crossroads of three things: kindness, a genuine desire to want to be helpful and of service; social intelligence, which is the ability to connect with other people, given that we are social beings and our ability to collaborate is certainly one of the things along with our creativity that’s differentiated us from other species; and the last one is curiosity, just wanting to know more. For me, the classic definition of empathy is being able to show an interest in other people’s perspectives and lived experiences and then actually take those into account when unpacking a problem and/or trying to come up with a solution.

Looking more specifically at the banking industry, Paul, how do you think they’re doing in terms of innovating? And if you had to pick one of your superpowers that banking really needs more of, which one would you pick, and why would you pick that one?

There are actually two, if I may, Terry. I think that purpose, which is sometimes defined as a commitment to wanting to make a meaningful contribution to the world over a long period of time, or be part of solving really wicked complex problems that are intergenerational in nature is something I’d love to see more of in banking. The other one is self-control, so doing what’s best despite short-term temptations. Some of these definitions, by the way, I’m borrowing from an organization called the Character Lab and I find it a great resource for anyone who’s new to this character strength topic. The reason why I’ve singled out these two – purpose and self-control – is that I was in a debate earlier this week. I was on a panel discussing executive pay here in South Africa, the argument being made by the custodians of the status quo – in other words, executives – was that there’s a small pool from a supply perspective and that’s what’s driving up the price of their enumerations and incentives. I’m with Eric Ries, who’s the author of The Lean Startup and The Startup Way and has subsequently gone on to found the Long Term Stock Exchange. My understanding of where Eric’s coming from is that the biggest killer of innovation is essentially executives being incentivized around quarterly or annual bonuses. In the discovery-driven innovation world, where answers are still emerging and sometimes even problems are still being unpacked over a short period of time, these are the projects that end up being cut prematurely because execs are looking to please analysts around quarterly reporting cycles and/or earn big bonuses associated with returns in the short term. Doing what’s best despite short-term temptations, from an innovation portfolio management perspective, is something I’d love to see more of in banking. The custodians of the investments that are being made in the innovation space being more patient around projects that are only going to deliver value over 36 to 60 months, rather than prematurely killing them. The other one is just a commitment to making a more meaningful contribution to the world over a longer period of time, so genuinely being motivated by a long-term and sustainable impact versus short-term bonuses.

With banking going increasingly digital, it seems that in a lot of ways banks and credit unions are playing catch up with fintechs. A common refrain that we hear over here is the banks need to act more like fintechs. I want to ask you, is that the right goal for banks?

I don’t think so. I certainly think that there’s some inspiration to be taken from fintechs, and part of that is trying to shed some legacy and move a bit more quickly. But I really have experienced firsthand the power of size and the power of scale and reach and customers and brand and data. I believe that banks, particularly those that are really operating at scale and have heritage, can really make a significant contribution to solving some really difficult, wicked problems in the world over the short and medium term. So I’m quite bullish that they are well placed to play to their strengths, which arguably relates to their size.

While we’re talking about fintechs and technology more broadly, for a lot of people, technology advances are synonymous with innovation. We certainly see that all around us on the consumer goods side – anybody with a smartphone in their pocket thinks about it that way. When you consider the financial services space, in your mind, where does ever improving technology fit into a truly innovative enterprise?

My personal experience of banking in South Africa, as we see the impacts of technology be more directly experienced from a customer perspective, is that the customer experience, at least in the short term, is actually deteriorating rapidly. I’m a huge fan of technology as an enabler and driver of innovation and change, but I do wonder whether the price that we’re paying is that the tail is starting to wag the dog from a customer experience, and possibly an employee engagement experience. I’m not sure what the answer is, but I think the ethics of persuasion are things that we need to debate a little bit more and how technology is participating in that space. This arms race for human attention and the extent to which technology and the way that banks are showing up is adding to the shadow side of that.

Another thing, Paul, that is synonymous with innovation is the idea of the major breakthrough, the game-changing product or game-changing service or process, and sure, when it happens, that’s great, but those things probably overall are fairly rare events. Not everything needs to be big to be impactful. How do you think banks should be thinking about smaller innovations?

They should be encouraging and supporting them. They really are a wonderful source of quick wins. They often play out in a space that’s very well-known and understood so they’re easy to measure. Cumulatively, even though they can be incremental in nature, they add up and they can become a treasury that could be leveraged for innovations that are operating on longer time horizons. It’s also great to democratize innovation inside organizations and often people who can make small changes, and there are far more of those people, particularly those who are working at a process level. I guess the big caution here is not to do the wrong thing a bit righter. Ideally, people should also have the ability to reimagine even processes that have been around a very long time, and those would also qualify as credible innovations in my view. Certainly, they’re cheap to implement. They’re quick to turn around and get results. They build trust, they build what I’d call mojo – self-belief inside the organization. They’re less risky than the ones on the other time horizons, although we always advise our clients – and it’s not unique to us, with thinking that we’ve inherited and borrowed from elsewhere – to have a balanced portfolio. We believe in the golden ratio. It’s often sector and organization-specific, but generally around about 70% of energy and interest should be on what we call “mini-vations,” about 20% on new products and services for other existing customers or new customers, and then only about 10% on moon shots. Often I think the problem is inside organizations that the term “innovation” doesn’t have a shared understanding about it. Often these incremental or smaller mini-vations aren’t seen as credible or valid.

One of the front-burner focuses for U.S. banks these days is the emphasis on sustainability. The outside pressure is certainly growing and you’re also hearing about it from more prominent voices inside the industry as well. How can an innovative mindset be adopted on the sustainability issue in a way that yields real results that can push back on the idea of greenwashing, which we also hear a lot about?

I’m fascinated by the extent to which, under the ESG banner, the environmental pillar seems to have matured, though it’s people aren’t really debating whether climate change is real or not, but there are now debate has matured into debating what the numbers mean, and the metrics around and definitions around that pillar seem to be pretty refined and adopted globally. I’m not sure that it’s as mature for the governance pillar and certainly not for the social, or people, pillar. For me, those two represent somewhat green fields and they’re very important pillars to consider, particularly the governance one in a world where we’re witnessing or at least uncovering systemic corruption left, right and center. Also given that the people side of the social impact imperative is very much, particularly in Africa, linked to the environmental imperative. The short answer is the opportunity to innovate is to focus on all three of those pillars rather than just the environmental one, which sort of has earned the right to get a bit of focus because there are a lot of measurable things happening there, so it attracts a lot of resource and attention because it’s easy to report on and engage on. But I think we could be working together to flesh out the other two pillars and mature them more quickly in terms of definitions and metrics and the way reporting happens.

Be it for sustainability or for any other significant change within a bank or any organization really, there needs to be a high degree of buy-in at the top. Early in our conversation here, you referred to the executives as custodians of the status quo. How do you view the role of the CEO and other top executives in driving innovation, and is this role different at banks than it might be for other companies, do you think?


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For us at Jack Frost, our view is that a leader is anyone who can see potential in people and processes and has the courage to develop that. From our perspective, the work that executives should be doing is strategic – implementing strategy –and the time horizon associated with that is medium to long term, depending on the level at which the CEO is operating. If they’re running a large organization within one geography, maybe that time horizon is pushed out by a year or two, but it certainly is work that should impact the world in five-plus years’ time. For me, the most important thing is not an advocate or ambassador whose fame for this topic burns bright right at the beginning of the marathon, but then peters out when things get tough and messy. It’s really going to be somebody who’s willing to carry that flame for at least five years, but probably closer to 10 in order to really embed systemically into the organization and for it to be a sustainable capability going forward.

One final question, Paul. Banking being a global enterprise, innovation is taking place all the time, all over the world. From your vantage point in Cape Town, what do you think U.S. banking institutions can learn from your country or from other developing countries that might make the banking experience more efficient or otherwise more pleasant for Americans?

Terry, it’s a tough question because I don’t have a good yardstick on what the average American banking experience is. What I can say from the ecosystem perspective is that what we could learn from the American banks is how to partner better with the innovation ecosystem and to really help build capability and resilience in that innovation ecosystem. Currently, I find promising fintech propositions are either prematurely bought out by the banks here locally and/or when they’re looking to raise money to meet demand and scale, but aren’t in the market for IPOing. That is quite devastating because, often in the raising of funds, even if the original founders lose discretionary control over the organization, they at least have their next treasure chest that they can go on to build another innovative startup with. Personally, I think that’s what we could learn from the American banks, particularly the bigger ones.

There’s plenty for all of us to learn from each other, certainly when it comes to innovation. Paul Steenkamp at Jack Frost in South Africa, many thanks again for joining us on the BAI Banking Strategies podcast.

Thanks so much, Terry. It was a real honor to be here and appreciate your interest in our work. Thank you.