A little while back a former colleague of mine was invited to a job interview where they were asked to make a short presentation on “the barriers to innovation in Professional and Financial Services”.
As a prep for their interview, they asked for my opinion, and I – in turn – asked my own network in the professional and financial services sectors for their own views.
Whilst my contacts replied with number of expected factors – not least the stifling effect of Compliance and challenges in adapting legacy IT systems – there was a broader theme that came up time and again which I wasn’t quite expecting, and I found intriguing. It can be summed up in a single word:
As one contact with long experience in the FS sector put it: “Fear of any risk, fear of the future, fear of breaking creaking legacy processes, systems and infrastructure, fear of the FCA, fear of learning from mistakes and continuous improvement, fear of simplicity, even…”
Fear of change seems to be widespread in these sectors. As one senior marketer at a leading London law firm told me: “There’s a general reluctance to relinquish processes which are deemed to be working ‘adequately’, despite the BD and Marketing team’s expertise and knowledge that the process could be greatly improved and benefit ROI.”
They went on: “There is (also) increasing paranoia regarding the security of data which has created inertia in entertaining any project where data is held in the cloud” – as if outdated on-premise servers are somehow immune to hacking.
Fear in these sectors seems to be a cultural issue more generally. As one contact from a law firm put it: “I worry that people will refrain from trying something new in case it goes wrong and they are criticised for it going wrong”.
Quite often a firm’s operating model will stifle innovation. In the words of a media consultant who works closely in the legal sector: “Some firms are too fixated on metrics that don’t reward or encourage innovation. If it’s all about chargeable time and reducing WIP then you probably won’t have the freedom and time to truly innovate.”
It may be, of course, that leaders in FS and PS don’t see the value in innovative thinking because they aren’t necessary creative, entrepreneurial thinkers themselves. As the CMO of one major law firm explained, “They’re often methodical, logical problem solvers, rather than completely lateral thinkers. They often tend to stick within their guide rails, rather than looking to rip the rails up.”
Certainly it doesn’t feel like innovation is a priority in a world of constantly changing priorities. As one senior banker asked: “What have FS companies been thinking about over the last 12 months? Innovation? Well maybe, but really it has been Consumer Duty”
Another major law firm CMO seemed to sum up what a lot of their peers are saying: “Genuine innovation is involves risk and lawyers are trained to be risk averse: This often presents a fundamental block on innovation.”
It’s not just law firms fearing risk either. A relative newcomer to the accountancy world told me: “Innovation requires creativity and breaking a current set procedure. Put it this way – creativity in tax usually leads to going to prison!”
It would seem innate cultural conservatism is often baked into a firm’s operating model. As an angel investor with a particular interest in FS told me: “In banks, no one got fired for saying ‘No’. Survival is the main path to financial reward.”
And of course as any marketer in the sector will tell you, the risk-averse culture of conservatism often extends to a firm’s marketing, especially in professional services. As I’ve written elsewhere, PS firms tend to favour caution over creativity when it comes to selling their wares.
So where does this culture of caution come from? A marketing services CEO with a myriad of legal sector clients thinks that “one big barrier to innovation is how important precedent is for lawyers. Law firms are not run by businesspeople – they are run by lawyers. Lawyers have a predisposition to look for an earlier occurrence of something similar when making a decision – they look for precedent. This culture builds very strong, resilient firms”.
And of course the argument for resilience can be a seductive one. A banking or accounting or legal firm that has been around for 300 years simply by dint of “sticking close to their desk and never going to sea” – as WS Gilbert once put it in a slightly different context – probably sees little reason to invest in innovation in the first place.
But I do wonder whether that is just a case of survivor syndrome? Down the years there must have been dozens of building societies, for example, that got swallowed up by a larger rival in the past simply because their undifferentiated operating models made it all the more easy for them to be assimilated into a bigger beast.
I’ve worked in FS on and off for 25 years myself, and for what it’s worth my own view is that larger traditional FS companies are more likely to see risk as a cost of business, than embrace it as a potential profit driver. Strategies tend to be “straight line” – in that firms choose to drop what isn’t working and continue to do what does. New processes do get adapted only until they start to fail, and then it’s “back to the old way”.
So – with the presumption that innovation can actually be a force for good in the FS and PS worlds – what is to be done?
Well it ought to be said for starters that the overall picture probably isn’t as bleak as maybe I’ve painted it. As one senior law firm marketer pointed out, “a number of UK-headquartered law firms in particular have established standalone ‘innovation hubs’ looking for tech opportunities in particular to drive change.”
Another law practice CMO added: “Where there are change and innovation teams / dedicated roles it helps, but they need to be embedded within the fee earning teams not a separate function.”
Perhaps it’s telling that this comment came from a CMO in a marketing services firm with deep experience of FS companies, rather than an FS company per se: “I would argue that if there are any barriers to innovation, it’s a lack of shared positive purpose. For example, if the financial services industry rallied around, say, increasing participation in sustainable investing, then industry innovation would quickly centre on fractionalisation of shares, and adoption of app enabled investing”.
Yet it should be obvious that this isn’t really happening, especially at the larger providers where the “innovation strategy” tends to be to wait and see what the disruptors do, and then buy them up if the disruption looks like working. In the meantime, we’ll let the VCs blow their money on the experimental stuff, and more fool them if they lose their shirts in the process.
So maybe that’s it: the key barrier to innovation is a fear of innovation itself?
A bit harsh?
Let me know in the comments. As ever, all feedback is a gift.
Image by: Public Domain Pictures at Pixabay