A risk-averse attitude could hold back financial services organizations and prevent them from fostering a culture of innovation, according to research.
The study, conducted on behalf of Pegasystems and Cognizant surveyed 500 retail financial services and insurance industry executives across 56 countries to examine the challenges and opportunities they face in a time of rapid technological change.
It found that nearly two-thirds of all executives (61%) felt their governing board would tolerate a maximum failure rate for innovation pilots of only 30% or less, indicating the existence of a deeply-rooted ‘safety-first’ culture within the industry that could hold back innovation. This is at odds with the fact that 98% of all survey respondents agreed that the most important contributing factor to innovation in retail financial services was the need to move outside of their comfort zone, ‘think beyond traditional boundaries,’ and ‘identify new ways of meeting consumer needs.’
This is particularly troubling considering that many within the financial services industry predict that a storm of digital disruption caused by the arrival of many new, innovative technologies is on the horizon. Fifty percent of all survey respondents said that digitally-savvy new entrants to the market will be either ‘massively’ or ‘significantly’ disruptive in the next five years, while more than one-third (39%) made the same prediction about the Internet of Things. Meanwhile, a quarter of those interviewed said that blockchain would have a ‘significantly’ disruptive effect within the same period.
“Banks and insurers will have to realize they will need to fail fast and learn quickly if they are to engage with the digital transformation process required to remain competitive,” said Graham Lloyd, director and industry principal of financial services, Pegasystems.
“In my opinion, a 50% failure rate should be the absolute minimum that any of these organizations should be willing to accept if they are to cultivate a successful culture of innovation, as anything lower than this signals a lack of commitment to embracing change. Senior figures within these businesses must take the time to walk in their customers’ shoes and see innovation failures less in terms of cost and more in terms oflearnings and savings. Only by opening themselves up to the innovation imperative – along with the associated risks – can the industry avoid being left behind by the new age of digital disruption.”