Published : 2 years ago, on 15/12/2022

By Simon Hill, the CEO and founder of innovation scale-up Wazoku

The pandemic, a major war in Western Europe, supply chain disruption, rising interest rates, inflation, a growing need to operate more sustainably – it is safe to say that it has been a highly challenging few years for banks and other Financial Services (FS) providers. When you factor in a looming cost of living crisis and probable recession, it’s unlikely that the situation is going to get easier any time soon.

McKinsey’s Global Banking Annual Review (published in December 2022) stated that banks must become ‘more resilient and reinvent their business models to ride out the current volatile period’ and achieve long-term growth and profitability’. This means much focus on innovating and bringing fresh approaches to the challenges ahead.

Innovation has never been so important, and banks should be looking to be more innovative as we head into recession rather than playing it safe and trying to limp through these challenging times.

Innovation necessity

2023 will present many challenges for businesses, with the economic downturn and ongoing uncertainty very much to the fore. During such times, FS firms must continue to innovate. They must keep delivering first-class customer experiences, improve products and services, and address ongoing issues such as sustainability and finding new opportunities.

A recent report into global innovation covered what businesses are experiencing and planning for their spends and trends, cultures, opportunities, and talent. It revealed that the top three business challenges from an innovation perspective are balancing short-term innovation vs long-term thinking, business resistance to change, and resources and funding.

A shifting business landscape requires action: whether it’s the need to increase employee engagement, improve sustainability, deploy new technologies, or harness a global talent pool. No bank can hope to get through the recession without focusing on innovation.

Innovation in FS has become a necessity, as since the pandemic, there has been a worldwide shift in meeting customer needs and providing digital capabilities on-demand. The 2021 Digital Innovation Benchmark Report has shown that 80% of respondents thought that their businesses would be less successful in five years if they were slow to innovate and that three in five were concerned about the pace of innovation in their business.

FS trends in innovation

In fact, this need for innovation in FS has been the case for many years now. From traditional banks needing to adapt to meet the challenge of more agile fintech challengers, to the pandemic causing an almost overnight switch to more digital services – these were all addressed by more innovation, not less.

Recent history – the pandemic in particular – has shown that agile organisations prioritising innovation are best placed to come through challenging times. But the pandemic shifted focus to incremental changes. This has now given way to a more measured approach that brings breakthrough and adjacent innovation to the fore.

Innovation undoubtedly brings great cross-functional collaboration in businesses worldwide – and their networks – but the issue of alignment remains. Across internal innovation, the time and budget spent on activities is the critical point of difference between innovation teams and their stakeholders. For external innovation, it’s all about resistance to a change of practices: something the industry is working hard to overcome with engaging talent and incentivisation.

Innovation in practice

For FS firms committed to innovation – in any upcoming recession and beyond – it’s a question of how best to approach it. Sourcing external talent and using open innovation to bolster success is becoming more common across the industry.

Business leaders are increasingly aware that they do not have all the answers to the challenges facing the organisation within the parameters of the business. Open innovation refers to the practice of seeking ideas from outside an organisation, effectively creating a long tail of innovation by accessing a global crowd of experts to solve various challenges.

Businesses that have embraced an open innovation crowd have found they can tap into an infinitely powerful resource – customers, partners, experts, consultants, designers and more, all over the world. This can reap fantastic insight into improving FS and innovating through a recession.

Gathering ideas from employees, improving efficiency, and using open innovation are key drivers that consistently unlock critical value in any enterprise, including those in FS. This is best achieved via a purpose-built innovation operating system, where an organisation can do all three simultaneously.

Innovation is critical to coming through challenging times in FS. The McKinsey report spoke of the need for banks ‘to reset their agenda in ways that few expected nine months ago’ embedding speed and agility into the business, reinventing business models to sustain a long period of economic challenges, and bringing purpose to the fore, especially ESG issues.

A collective approach to problem-solving helps achieve these goals, bringing great cross-functional collaboration in businesses around the world and their networks. That’s never been truer – or more in need – as FS firms head into 2023 hoping to avoid the worst impacts of the recession.

About the author

Simon Hill is the CEO and founder of innovation scale-up Wazoku, working with organisations globally, such as HCBS and Mastercard, to help capture and crowdsource ideas and innovation.