Innovation as a survival instinct


I like to talk about innovation because it epitomises modern life. It excites me as it does other adrenalin junkies.

You must believe me about the adrenaline junkie bit. I believe I qualify for that characterisation because I once bungee-jumped at the Victoria Valls Bridge way back in the mid-2000s when my sense of adventure was a little oversised.

Just like I stepped back on that famous bridge to take the jump, this week I step back and take a closer look at aspects of innovation which I consider to be insightful.

Innovation is a buzzword in the financial sector hence a wave of innovative trends/products such as the cardless ATM cash withdrawal, agency banking, mobile banking, mobile-based insurance cover and Internet banking. What is driving all this innovation? Is it better products consumers of financial services need, or is it better ways of accessing existing products? In the Zimbabwean banking context, the imperative for innovation is basic survival instinct, it would appear.

Tawanda Nyambirai, group chief executive officer of TN Financial Holdings, once stated only innovative and adaptive banks would survive in the ever-changing financial services sector as non-providers of financial services explored new growth areas and new income, leveraging on their distribution network.

Those who venture into non-traditional areas of banking, attract quite some flak in the process ironically.

Their unconventional posture challenges traditional ways of banking and this may unsettle the majority of people, considering that banking is supposed to be a conservative business after all.

According to Jeff Dyer and Hal Gregersen in their insightful article titled Learn How to Think Differently, innovators excel at connecting the unconnected and they engage in associational thinking.

But are innovations always good for the market? Not according to Seth Klarman, the fabled US author of a book on value investing.

Financial market innovations, he argues, are good for the bankers, but bad for clients, so he urges investors to recognise early success of an innovation is not a reliable indicator of its ultimate merit.

Although benefits are apparent from the start, it takes longer for problems to surface. What appears to be new and improved today may prove to be flawed or even fallacious tomorrow. So be warned about the multiplicity of new products touted as innovations — sometimes there is a sting in the tail! There is even a school of thought that subscribes to the fact innovation is not for the financial sector.

This group berates products such as derivatives as weapons of mass destruction/deception and fingers them for contributing to the global financial crisis.
“Clever derivatives broke dozens of companies. It killed them. They went bankrupt! We don’t need these kinds of innovation in finance. It’s OK to be boring in finance. What we want is innovation in widgets” says Berkshire Hathaway’s vice-chairman Charlie Munger.

Is this why locally the likes of Barclays Bank choose to be “boring” when it comes to their lending policies?

If so, given the level of non-performing loans that have blighted the post-dollarisation sector, could they be having the last laugh?

But there has to be a balance between the instinct of self-preservation and the sense of duty. The risk-return trade-off is not a walk in the park — it requires some effort to manage it, not just avoidance.

So why do the new market entrants tend to be the ones that innovate?

According to Chris Skinner, who writes the Financial Services Club Blog, this is the classic innovator’s dilemma, which says incumbents become fat, lazy and focus on features and functional enhancements rather than disruption. The new entrant then comes in with an offer the incumbent sees as not a threat and can be ignored because it focuses on the wrong thing. This is because the new entrant is not focusing on the evolution of the current system based on feature and function, but is trying to do something completely different.

Is innovation a preserve of those with deep pockets? The late Steve Jobs did not think so. “Innovation has nothing to do with how many R&D dollars you have. When Apple came up with the Mac, IBM was spending at least 100 times more on R&D. It’s not about money. It’s about the people you have, how you’re led and how much you get it,” he argued.

So there you are, anyone armed with the right kind of motivation and the right support structure can innovate.

Research has proven one-third of anyone’s innovation comes from their genetic endowment and two-thirds of it is driven by the environment. Unfortunately, most of us grew up in a world where thinking different was punished instead of being encouraged, both at home and at school, so we tend to develop anti-innovative outlooks in adult life.

So, who should innovate?

Organisations often wittingly or unwittingly create the exclusionist notion innovation is for designated experts and specialists — the nerds in research laboratories or the folks in the R&D department.

However, according to a recent Bloomberg Businessweek article by G Michael Maddock and Raphael Louis Viton, the best innovators are learners, not experts. The same can be said about innovative cultures; they are learning cultures.
Leaders, who have built these cultures, either through intuition or experience, know that in order to discover, they must eagerly seek out things they don’t understand and jump right into the deep end of the pool.

They must fail fearlessly and quickly and then share their lessons with the team.

Omen N Muza writes in his personal capacity. He is a banker and managing director of TFC Capital (Zimbabwe) (Pvt) Ltd, a Harare-based financial advisory company with interests in banking and agriculture as well as the convergence area between them.