The Office of the Comptroller of the Currency has some very good advice in its publication, The Directors Book: “Sound financial performance means more than simply how much the bank earned last quarter. Equally important is the quality of earnings over the long term.”
This has always been challenging for bank leaders because of the inherent cyclicality of interest rates and the overall economy. Now, additional challenges have emerged from the relatively new phenomenon of fintech startups that provide competitive alternatives for every bank product and service. The average time spent at the top of any industry, whether a bank, or a company in the Fortune 500, is getting shorter and shorter. Yesterday’s top performers are soon long forgotten, and today’s leaders are already watching out for tomorrow’s darlings in their rearview mirror.
How is that some companies seem to defy the gravitational pull of these forces? How do some companies always find new ways to keep the growth engine going? How do they transition their company’s focus from low growth products to high growth products? One of the most important roles of boards and executive management is the effective allocation of resources—financial resources, human resources, managerial attention—and the best leaders allocate resources not to optimize for current returns, but for the long run.
Kodak was not suddenly surprised by the invention of digital photography; they were one of its key pioneers. So why did they end up being a poster child for an industry leader disrupted by new upstarts? In the final analysis, they didn’t adequately shift enough of the company’s resources away from the dying celluloid film business to the nascent digital photography business. When they did, it was too little, too late.
Direct examples like this are harder to find in banking—and the lessons harder to learn—because banks never really die, they just get absorbed by stronger performers. “Lack of innovation” is never listed as a cause of death in banking, but there is an unmistakable commonality among the industry leaders today—they are all investing resources in new products and services, and many of them are technology-driven.
A huge part of Steve Jobs’ lasting legacy is how he focused Apple’s resources away from the less profitable sectors of PCs and peripherals to create new products at the right times to capture market share in the growing categories of digital music, smartphones and tablets. It remains to be seen if Tim Cook can do it again in smartwatches, in-home entertainment, or even the Apple Car, but innovation is a valued and expected act of leadership in the company’s culture.
Bank customers today are increasingly comfortable with the value those technologies provide, and they expect their bank to keep up with their growing expectations. That takes a leadership team that invests in new ideas, but it goes beyond technology.
Whether those new ideas are created from the front lines, in an internal innovation lab, or through partnerships with external entrepreneurs, they only become valuable when they are implemented. That takes a leader willing to dedicate the right resources—and that usually means directing them from something else—in order create new sources of value for the company.