P3.1 DANGERS OF A BIG BANG APPROACH TO CATCH UP WITH TECHNOLOGY INNOVATION
The opportunity to disrupt finance and build a new financial sector is large, and much advice about how to tackle it has emerged. Most of it centers on encouraging banks to upgrade their digital strategy and align their business models more with those of IT companies to integrate FinTech startups into their existing value chains.
However, innovation is a more complex beast. It is not only technical issues that play a large part in the financial system of the future, social and organizational challenges are also important drivers. Recommending that banks get on the bandwagon and transform themselves into tech companies misses the point. To applaud technology startups indiscriminately as the harbingers of the future, despite the fact that many of their services are unprofitable, lack transparency, and come with a host of privacy and security issues, bears an eerie resemblance to the irrational exuberance of the first dot.com boom around the millennium.In the run up to the year 2000, several established multinationals with firm roots in the so- called old economy felt a pressing need to catch up quickly with promising technology startups. Authors Catherine Chu and Steve Smithson describe the case of a large American-owned multinational car manufacturer that aggressively drove e-business across the whole company in 1999 to avoid missing the boat on e-commerce.6 The new CEO of the company believed in the need for a “technology and business revolution” that he spearheaded by recruiting senior staff aggressively from tech companies and forging partnerships with new tech companies. This hasty “big bang” approach to innovation cost the company dearly. The business culture of existing staff members clashed with the culture of the new hires. The absence of quick wins of the new strategy, despite the heavy use of outside consultants, undermined the credibility of the costly initiative. An e-business gap emerged between established and new divisions that was impossible to bridge. When the company posted a loss twice the size of its profits of the previous year in 2001, and the dot.com euphoria showed the first signs of weakness, the new CEO was fired. The company assumed a back-to-basics strategy—after writing off millions of dollars that it had sunk into the push toward digital.
Although technical barriers play a role in the implementation of new technology, organizational and social issues are more important. It is naive to assume that established market leaders in finance and banking will be able to turn their organizations upside down overnight just to catch up with new technology that is not even proven to yield sustainable advantages. Despite their good ideas, FinTech startups and entrepreneurs hardly have all the answers when it comes to a sustainable and robust financial system of the future.