Editor’s Note: A version of this piece first appeared on Chris Skinner’s blog, The Finanser.

We all know the Catch-22 in a bank: It wants to be innovative, but only as long as there is no risk. However, with any innovation, there is risk. So instead, the bank lets you play in the innovation sandbox like little kids. If you try to step out of the sandbox, bank management will slap you back down with something along the lines of: “That is your place. Stay there.”

Then, any innovation that comes out of the sandbox is incredibly hard to internalize as the bank’s culture is there to wipe out the antibodies of the cannibalistic innovators —which is precisely why heading up innovation at any financial firm is a frustrating job that inevitably leads many to move to a fintech startup or visit employment centers.

But there are workarounds to the predicament — once more bankers realize the source of the real problem.

Any innovation that comes out of the sandbox is incredibly hard to internalize as the bank’s culture is there to wipe out the antibodies of the cannibalistic innovator. Adobe Stock

This realization was made clear to me when I was talking to a bank executive about such innovation challenges. During our chat, he made the point that we all know banks don’t like failure. But what’s lesser known is how it’s all to do with the compliance culture. Failure, after all, implies issues and can raise regulatory alerts. Banks want to avoid regulatory alerts at all costs, so failure is not an option. During this conversation, I took the view that microservices architectures in an open marketplace of application programming interfaces allow failure, as they don’t have the same repercussions. But he brought home the argument when he said:

“Look, Chris, you should know this. We, as a bank, find it difficult to invest in conjecture. So if we trial a project for $1 million and it fails, then we soul-search to see what went wrong and, more importantly, who led the wrongness. Someone has to be blamed. And that someone is then fired. However, if we are thinking about a $1 million project and can hire a consulting firm to investigate the project and tell us whether it will work or fail, then we are far happier. So we might hire one of the big consulting groups and spend $1 million on their report that tells us our project — which would have cost the same to trial — is going to fail, and then we are happy because they told us it would fail for $1 million but look how much further cost, embarrassment and shame they allowed us to avoid.”

Whoa, I thought. Then and there, I realized the enormity and, at the same time, the reality of his statement. I have seen this dynamic firsthand: It is far better to get someone externally to come in and tell you if something is right or wrong. If it turns out he gave the wrong advice, then the bank has someone to blame and possibly take to court. However, if an internal person says it, his career is doomed if he got it wrong.

The reasoning also ticks so many other boxes. For example, I remember a C-suite member of one bank talking about business cases, ROI, cost-benefit analysis and the future project revenues and costs. He said that the bank was rigorous in ensuring that there was a business case for anything and everything. If you wanted to do any new project, you had to show the numbers.

That is a difficult feat if you’re innovating; it’s never been done before. The trick of the game, he told me, is to make the numbers convincing: Show the bank that you’ve done your research. Show that you used some consultants to bring together some customer focus groups who overwhelmingly believe your next generation app will get a million users in a month, and then flesh that out with projections and graphs. Make it look amazing. Don’t just put it in a PowerPoint; PDF it with the best graphic designers in town — add some GIFs or videos which, when in the boardroom, keeps the management awake.

The reason this advice is sound and sage is, once you get the money, you can stop worrying. You got the money based upon your sound, but fudged, business case. You actually made the whole business case up and the numbers are all estimates based upon a finger in the air and a discussion in the pub over a napkin. The fact that you have numbers and seem to have substantiated them — and have research and presentational material that looks amazing — gets you the money.

Once you’ve got the money, don’t worry. No one ever, ever, ever goes back and looks at the numbers from last year to check. Yes, they may check if you have a substantial failure but, if you work the numbers and the politics, you can pretty much get away with anything for a long time.

OK, yes, I realize the two conversations seem a bit at odds. On the one hand, if I fail spectacularly, then I’m out. But if I get the analysis, I’m in. On the other hand, if I present a load of fictional thoughts, I get the money while if I tell the truth, I don’t.

But this is how it works — not just in banks, but in any large corporation. It’s called politics. If you are seen to fail, you are out; if you are seen to be doing the right things, you are in. Bear that in mind when you innovate. Large firms will not allow public failures. Equally, large firms rarely properly invest unless they have numbers.

Chris Skinner

Chris Skinner

Chris Skinner is an author, expert and speaker on banking, finance and fintech. He is the author of the The Finanser blog and chairs the Financial Services Club.

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