It’s a challenge to find an industry that isn’t being disrupted by new technologies. Two of the most talked about, traditional taxi firms and hotels, have seen their industries transformed by the clever use of data, algorithms and shiny marketing in recent years.
The banking industry knows it is not immune to the march of innovation, big data and artificial intelligence (AI), and nor should it want to be. In an attempt to stay ahead of the curve, financial institutions are investing heavily, keen to avoid their own ‘Kodak moment’. Julian Birkinshaw, Professor of Strategy and Entrepreneurship at London Business School, is an expert on just how to do this. His work on the strategy and organisation of multinational corporations, focuses on agility, transformation, entrepreneurship and of course innovation.
So, how do banks adapt and thrive in these disruptive times? Birkinshaw’s advice is, “Be conscious of what the data and the technologies actually do and keep abreast of the latest breakthroughs, but be very thoughtful about business functions that are uniquely human, that allow us to complement those technologies, namely creativity, intuition and judgement.”
Birkinshaw is wary of the overuse of new or unproven technology, which he says can lead to information overload. He advises banks to engage with new technologies and innovative companies, but to avoid trying to implement too much too quickly, because many new products are not all that useful or practical today.
Birkinshaw uses AI to argue this point. He says banks are rightly embracing the principals of AI and should spend time determining how it can be used within their organisation. However, most of the day-to-day uses of AI are rather mundane. Robotic process automation is used to make sense of large pools of data more efficiently and quickly than humans. Manual oversight is essential to understand and act on the machine’s results, and to ensure there is no bias resulting from the underlying data used to train the algorithm. AI, as with all disruptive technology, is enhancing the roles humans play, not replacing them.
Birkinshaw advises banks to be part of this conversation by engaging with emerging technology companies. There are thousands of small fintechs looking for financial backing and / or engagement with banks. By forging new relationships and making smaller investments, incumbents can gain insights into new ideas and new technologies that may be beneficial for their customers.
Where and when to scale-up investment and engagement is the most difficult aspect, according to Birkinshaw. “It’s very easy to put little bits of money into lots of things. It’s much harder to know when and where to make the big bets.” Ultimately, the vast majority of start-ups will fail. It takes a depth of understanding and judgement, currently only available in humans, to identify those with the greatest chance of success.
You can listen to Professor Birkinshaw discuss more on this topic in this podcast. Birkinshaw will be presenting at Sibos London on Wednesday 25 September in a session entitled – Fast/Forward: Staying Ahead of the Curve in a Disruptive World.