Building an Innovation Culture in Financial Services Organizations

Three proven ways for banks, insurers and asset managers to lay a foundation for innovation.

Research has shown that companies that continue to invest in their innovation even during economic downturns consistently outperform their peers for years afterwards. But how have these companies managed to instill a culture of innovation throughout their organizations?

A baked-in culture of innovation helps build long-term value and impact, as employees are encouraged to explore new ideas and opportunities, and look for  improved processes and ways to differentiate the firm’s offerings  from competitors. However, it takes work to create a robust culture of innovation - particularly in Financial Services, which are highly regulated.

Many large financial institutions are complex organizations with a patchwork of organizational silos, many with distinct risk and compliance requirements. This creates complexity that can lead to inertia, as stability is consistently prioritized over experimentation. There is often also a perception of excessive bureaucracy, which can frustrate employees and lead them to abandon innovation efforts and discourage others.

While each large FS organization has its own context and nuances, there are three overarching approaches that innovation leaders have successfully used  to encourage the development of an innovation culture:

1 Define and Communicate an Innovation Agenda and Link to Wider Strategic Goals

Due to the exploratory nature of innovation, employees can feel left adrift when asked to innovate in their day-to-day roles. Creating a clear and compelling agenda for innovation in the organization - one that aligns with the strategic goals of the organization - gives employees direction for their efforts. It provides a framework against which employees can match their talents and areas of expertise. In a recent survey of the Most Innovative Companies (published Jan. 2024), “63% of respondents say one of their key tactics for maintaining innovation readiness or overcoming impediments to innovation is by articulating innovation goals to the entire organization.”More importantly, it helps to direct team members across the organization to apply their inherent knowledge to work on problem areas that are most relevant to the firm at a point in time. However, it’s important to revisit the innovation agenda on a regular basis, updating it if the organization’s strategic priorities change.

2 Educate Teams about the Fundamentals of Innovation

Just telling people to ‘be innovative’ without giving them a basic understanding of the foundations of successful innovation is setting them up to fail. Innovation management is a science that has been actively developed by both academics and business leaders for many decades. Successful innovator organizations start by creating a shared language for innovation, including core concepts like the 3 Horizons Model. With this foundation, they begin to develop ‘new ways of working’ that permeate the wider organizational culture. There are some great ways to speed up this process, including the ‘Certified Applied Innovation Leader’ (CApIL) training program.

3 Assess your Innovation Capabilities as an Organization 

Once innovation goals have been defined, and a baseline understanding of innovation has been set with key teams, leaders need to get a data-driven understanding of their organization’s actual capabilities when it comes to innovating. These can (and should) be benchmarked not only against sectoral peers, but also against similar-sized organizations in other sectors, and even globally. This kind of benchmarking helps to promote an innovation culture because the exercise requires engaging with stakeholders both internally and externally to understand their perceptions. This signals that the organization is taking innovation seriously, and the sharing of the results afterward gives insight into areas of strength and weakness. These insights help the organization both to know where to invest to strengthen innovation capability and build momentum for ongoing improvement.