The following is a guest article by Sharon Williams, Managing Director, Solutions Augmented Ltd, a transformation advisory business that works with financial services businesses.
I am sitting in a brasserie close to the Barbican meeting an old colleague. We have known each other for years, and worked together several times. It’s getting close to Christmas and the place if full of City people, raucous as they wind down for the holidays.
Most years we have met like this. She is running a large IT program for her current employers and I am empathizing with her about the process of budgeting. She is exhausted, but she tells me that she thinks she has secured funding for her change programmes and team for the next twelve months, but we both know that the Christmas break is just an interruption in the process. The discussion around funding probably started in August and will continue for months into the new year. I start to talk to her about some a cool AI company that is working out of Cambridge that I have come across. She shrugs her shoulders. She interested, but there is no appetite for that kind of innovation at this time in her firm.
A few months earlier I had met some representatives of a small software company. They had a fantastic product and an established customer base, but had yet to find clients within banking, potentially one of their biggest markets. They were full of the enthusiasm that is characteristic of successful start-ups with a strong vision, but they wanted advice on how to approach the market. They talked about their product strategy, the developments to come over the next twelve months, which they intend to deliver through multiple version releases. I wondered whether they thought this would work given the change control requirements of a large organisation and the constraints on opportunity to deploy a new product that depends on multiple releases. I could see there was some bafflement. Their product is great and well-priced, and surely, they were thinking, enhancements could only deliver an advantage to their potential customers.
These two meetings highlighted for me a particular pain point for technology management and the challenge for companies working within the innovation space. Whilst the big tech themes for 2019 are likely to be AI, Blockchain and Big Data (as they probably were last year), the appetite for an organisation to incorporate any innovations into their IT solutions will depend on their ability to accommodate change. Business in the financial services environment, seeing an opportunity that innovation offers, do not always recognise the obstacles to change that exist. For both my friend and the software company, there was no doubt about the benefit of introducing innovation, but they both had obstacles in making it a reality–capacity, complexity, costs and culture.
New software providers should understand what their bigger rivals already know – within a large financial services enterprise the opportunity for change is limited. The maintenance of the production environment, the adaptations required to meet regulatory change, the upgrading of the infrastructure all suck up capacity. All change, other than critical patches, are likely to be deployed at weekends to reduce risk, and competition for those weekends is fierce. And regardless of the provider’s own due diligence, each release will demand its share of testing, packaging, documentation and user training.
The grail is, of course, to reduce the complexity of the production environment, by packaging out the maintenance of the legacy platforms to third parties, to ‘buy not build’ products for generic functions where this is possible. And many of the large banks have successfully embarked on this process. But the management of the third-party providers is, in itself, a considerable investment, with its own demands of diligence and monitoring, and should not be underestimated.
Another tripwire is the challenge of providing transparency on costs. By definition the process of allocating funding depends on a series of estimates. An initial budget may be derailed by an increase in allocated costs, such as manpower rates, location costs or internal billing. Often the remedy to this is to extend the life of the development stage, without regard to the benefits that may be eroded if deployment is deferred. And in the case of innovation, by definition, the organisation is venturing into new territory, where there is a greater chance of unknowns.
The twelve-month investment cycle pervalent within financial services can mean that the technology strategy becomes inflexible, making it is difficult to quickly accommodate a tech opportunity if it hits at the wrong time in the funding year. The bigger the organisation, the less flexibility it is likely to have, with all its funding and capacity fully allocated from the start of the year. Unless there exists a well-supported innovation culture (and there are examples that work well) it is difficult for a large organisation to act quickly. Leaner, more agile rivals will always have an advantage.
The challenge of successful innovation depends not only on a robust technology vision, but on navigating an organisation’s ability to change. For a vendor this means going beyond evangelising about product benefits to developing insight into how their clients operate. Gaining an understanding of potential costs in resources and opportunity, or the cultural shift and organisational changes that may be potential barriers to adoption, may keep a great idea remaining just an idea rather than something that actually delivers results.
One thing, though, is certain. Without change there is stagnation, and an opportunity missed will be an opportunity taken by another. I hope my friend succeeds in her programmes this year, as there is no doubt that she is a savvy assessor of business benefit. I hope, too, that the innovations offered by the start-up I met with make it into the financial markets. A greater understanding of the challenges faced by organisations looking to leverage innovative technology can only help.