“We are behaving in 1994 models of operating while thinking in 2020s strategy.” -Alex Castro
Technology took major leaps forward in the past few decades, yet many financial brands are still operating as if it’s the 1990s. Now they’re seeing upstart fintechs stealing their customers away.
Alex Castro, founder of ReM Score and author of Measure, Execute, Win is a leading voice in resolving this challenging issue. At first, he’s often met with intense fears of change.
“Change is scary,” Alex says. “Doing things differently is scary. You have to go and convince people, ‘We’re going to do this instead.’”
Alex discussed the topic of new operations models for financial brands recently on the Banking on Digital Growth Podcast.
Successful Ideas vs. Successful Execution
Alex hears plenty of ideas.
In his work helping companies transform, ideas bubble up all day long. “There’s no lack of good ideas in today’s business world, yet most of them are doomed to failure,” he says.
What separates a successful idea from an unsuccessful idea?
Alex points out that Microsoft Zune was a great idea and, in many ways, was better than the Apple iPod. Yet the iPod succeeded because its execution was so much better.
At many financial brands, ideas are analyzed to death.
“Just because you've gone through hyper-analysis on the idea of whether to fund it or not does not mean that now you just toss it over the wall to the team and say, ‘Go roll this thing out,’ right? That's where 99% of ideas die,” Alex says.
Why does this keep happening at financial brands full of smart, successful people?
In the financial industry, most professionals have at least a basic understanding of concepts like credit scores, bond ratings, assessments, and investments. They still struggle to understand the financial viability of investments in innovation. It’s not irrational. It’s perfectly rational because new ideas lack the same credibility we expect in this industry.
An idea has no credit score. There’s no easy metric to see whether funding an internal project will pay off.
This is why there’s so much fear and hesitation about exploring options like AI or machine learning. There’s no precise measurement to predict the return on investment (ROI).
How Decision-Making Biases are Killing Financial Brands
We make buying decisions dozens of times per day. From grabbing a morning coffee to arranging a new mortgage, our buying decisions arise from our internal dialogues and biases.
Sometimes we’re confirming something we already believe, like “I’m drinking Starbucks coffee today because Starbucks coffee is the best.” Other times, we’re jumping on the bandwagon of a fun new trend or choosing something because it’s what our kids or friends prefer. In today’s highly connected digital world, there’s also a sense of FOMO or fear of missing out.
Alex knows of more than 100 cognitive biases impacting the average person. While our biases help us navigate our world efficiently, they also stand in the way of new decision-making processes.
As a result, our biased thinking interferes with executing innovative ideas in our business.
We hope our professional projects will succeed, but many ultimately fail. It’s a bitter pill to swallow.
“Last year, $280 billion was spent on technology transformation efforts that produced zero value. Hope is not a strategy,” Alex says. “That money is pouring out the door.”
What if you reduced your project failure rate by just 10% to 20% per year? It could be an impressive new level of value creation. But in the ROI-obsessed financial industry, it never feels like enough.
Alex works to help people and companies realize 10% or 20% is enough to start a wave of transformation. “Don't let it slip away,” he tells people. “Don't let this moment, this defining moment of your career, this defining moment of your brand, slip away.”
Failure and the Falloff Rate
Failure intertwines with the concept of the “falloff rate,” which refers to how many projects fall off into oblivion instead of becoming successful.
Alex spells out several ways the falloff rate eats fresh ideas. First, the notion of falloff keeps your company’s board and other top executives unhappy with you. This can be embarrassing and demotivating. It might be a massive financial blow to your company’s return on invested capital, too.
There’s also a reputational risk for your brand. Any whiff of failure can spell disaster in a world with instant digital connectivity. A tweet can travel around the world before you’re even finished failing!
Alex shares a reminder that many financial executives forget about the impacts of failure on employee engagement and retention. “People are taught to win from birth,” he says, and experiencing feelings of failure can be deeply unsettling. The person might become sullen at work, quit their job, or even quit the entire financial industry.
Opportunities From New Operating Models
After a brief rise in productivity between 1994 and 2004, the United States is now experiencing some of the lowest levels of productivity since the 1970s. Alex says it’s largely due to a perception of failure preventing successful execution. “We are not getting through the execution process of delivering the ideas.”
Many financial executives remember the tech boom of the late 90s and early 2000s and view it with rose-colored glasses. They recall experiencing a big leap forward in technology with unexpected productivity and profitability.
Tech advances haven’t panned out in predictable ways. Every type of new technology evolves and goes stale very quickly while human brains struggle to adapt so rapidly. Many financial professionals are still stuck in the 90s or early 2000s with their operational models.
Strategic planning isn’t the Holy Grail. Survival depends on a shift in mindset away from strategy and toward execution.
Alex says, “I'm going to say this and it's probably going to agitate some people, but fundamentally where a lot of the struggle is today is that the tech industry is not in alignment with business needs.” He says the tech industry is too focused on selling products and arranging contracts. If your project doesn’t work out, your tech provider will shrug and say, “Oh well.”
This is why financial executives often think, “I don’t want to talk to another tech salesperson.” They’re tired of pushy tech whizzes caring more about selling products than helping with important projects.
Alex issues a challenge. “The next time you have a conversation with your vendor and they give you such a great idea, look at the vendor and say, ‘That is a fantastic idea. I love that. It sounds like an amazing thing that's going to happen for our business. We're not going to pay for anything until it's fully functioning. And I'll pay you on the data stream it's producing.’”
See what they say. If they back away, question their capability to work as a genuine partner in executing your project to its full potential.
Shift the paradigm toward collaboration and co-creation. Stay tech-agnostic and focus on the problem-solving capacity of your partners and their digital solutions.
Why Data is Crucial for Execution
Let’s go back to the idea behind a credit score or bond rating. These are the metrics the financial industry typically uses to assess the potential for success.
When you’re struggling to give your project a credit score or predict its ROI, turn to data collection for answers. Alex explains that Instagram, TikTok, Twitter, Facebook, and other online platforms are such valuable data gatherers because they capture behavior and instantly feed content to drive sales and engagement.
Of course, you don’t want to feel like a commodity when you’re using Instagram. You think, “I’m unique!” But here’s the reality: Your behavior is a subset of behaviors that can be grouped into large buckets of shared behaviors. At scale, patterns emerge.
These patterns morph over time for the same reason that it’s almost impossible to predict precisely which sports teams will win next year. Numerous factors and conditions are constantly changing the calculation every day.
Your only hope of staying on top of the changing conditions in your market is to gather fresh data and synthesize it into something useful. Alex emphasizes that this must occur extremely quickly, not within the leisurely 1-to-3-month timeframe of the 90s.
“Our position is that you need to collect that data and have that synthesized response and actionable insight in 2 to 5 days,” he says.
This is how the ReM Score was born. It’s a readiness score to help organizations avoid strategic roadblocks to success. An organization’s ReM Score includes 14 domains of measurement representing key aspects of the business.
Alex shares a reminder that past performance isn’t a reliable indicator of future success, which is why the ReM score measures readiness instead. It’s time to stop obsessing about past performance and look to the future.
“Release that old thinking,” Alex says. “Now you have room for more of what I like to call ‘modern consideration’ in how you’re going to do your transformation.”
For more information about the ReM score and the modern operating model, connect with Alex Castro on LinkedIn or at the-mcorp.com. To learn more about financial transformation, reach out to James Robert Lay at the Digital Growth Institute.
This article was originally published on February 22, 2023. All content © 2023 by Digital Growth Institute and may not be reproduced by any means without permission.