Part 1. The trouble with evolution
Banks are, at first glance, unlikely places to look for sustainability-focused innovation.
After all, they don't have smokestacks, chop down trees, pull coal out of the ground or manufacture things that choke landfills.
So why are some banks positioning themselves as sustainability champions, authoring sustainability reports, and creating products with a green slant? Are they just keeping with the times? Are they discovering new areas of opportunity? Are their efforts paying off financially? These seemed like important questions to explore, especially for financial and innovation specialists.
Where banks stand today
Most banks engaging in sustainability today find themselves in one of two camps:
- Applying the sustainability lens to the bank's mission and business. This includes everything from setting ethical standards for investing, to designing products with sustainability features at their core. Green operations and philanthropy are givens in this category.
- Tweaking existing business and operations to incorporate sustainability and social responsibility. This might include recycling and energy efficiency measures on the environmental side, and enhanced HR practices and community involvement on the social side. It might also include building green features into existing products.
There are notable strides being made in the first category by groups such as the Global Alliance for Banking on Values, a network of banks using finance to deliver sustainable progress. But the incredible innovation in this space involves change that goes to the core of the bank. As such, it's a daunting task for big banks with deeply ingrained practices and successful status quo products. That's why it largely remains the domain of small, nimble, community service-oriented financial institutions and credit unions.
The vast majority of banks in North America fall into the latter category. They're wasting less, running more efficiently, and creating sustainability programs for employees.
These are admirable measures. But are they innovation, and will they pay beyond initial cost-savings?
An out-of-balance innovation portfolio
Look at products like ATMs and online banking, and you see innovations that revolutionized banking. In one fell swoop, they changed the consumer's relationship with their branch, and gave them unprecedented control over their money.
Look at preferential loan rates for energy efficient reno's, or paperless statements, and you don't see any sort of revolution. These are existing products with green tweaks.
The same applies to things like building a LEED-certified branch or helping employees live and work more sustainably. They are evolutions on operational efficiency and forward-thinking HR practices.
Not that there's anything wrong with tweaks per se. They keep cash cows fresh and grow brands safely and reliably. Not to mention reducing carbon, cutting costs, and improving morale.
But if all you do is tweak, you're bound to be passed by those who take a more aggressive approach and create products that can't easily be replicated and commoditized.
The answer? Evolutionary innovation needs to be balanced with three other types of innovation:
- Differentiation--Innovation that sets you apart from your competitor. It's what Apple did when it blended multitouch screens and mobile phones to create the iPhone.
- Revolution--Groundbreaking ideas like PayPal, these innovations are bets you make that the market will move toward your vision.
- Fast-fail--The steady stream of 'small bet' innovations you create to test your hypotheses and move you inexorably toward successful, game-changing products and services.
Where's the brand?
If corporate sustainability is to be financially sustainable, there needs to be a payoff beyond efficiency. That payoff is the brand.
Does housing your office in a LEED building pay off your brand promise? Yes, if your promise is all about being a green bank. No, if you're a big bank with a mainstream brand.
Our 2010 MapChange study shows that mainstream banks investing significantly in green infrastructure do not reap brand rewards. Their efforts may make them more efficient and virtuous, but it doesn't make them 'top of mind'.
Now stop and consider what sort of brand payoff those banks would get if they made more of their (often sizeable) contributions to rebuilding mainstream America.
Imagine if banks took a step back, and observed what Muhammad Yunus did: "Today, if you look at financial systems around the globe, more than half the population of the world--out of six billion people, more than three billion--do not qualify to take out a loan from a bank. This is a shame."
It was this sort of observation that led Dr. Yunus to found Grameen Bank, one of the most successful financial institutions of the last 20 years--and a bank with an extremely powerful brand.
Stop. Think. And consider.
Creating a sustainable bank by evolutionary increments is a short term strategy. Measures like eco-efficiency and employee sustainability programs are becoming 'greens fees', and unremarkable. So how to frame a long term vision, and build a sustainable bank that differentiates and leads?
- Think outside the jar. There's a wonderful phrase in Buddhism: 'Have a beginner's mind.' What would a beginner's mind solution be for fighting climate change with banking?
- Look through the "green lens." At Nike, there is no one person or department in charge of sustainability. The athletic apparel giant has incorporated sustainability into all its decisions--and everyone on staff has a sustainability mandate. This fosters innovative thinking, and prevents 'bolt-on' solutions.
- Make many small bets. There is no 'right' way to build a product that doesn't as yet exist. But there are measures you can take to avoid building the next Segway. Key to success is working on a small scale to test ideas, then growing and measuring their impact.
Looking for more concrete examples of where this could lead? You'll find them in next week's conclusion to this article.
Marc Stoiber would like to acknowledge the tireless efforts of Brad Peirce and Maria Umbach in co-authoring, steering, and inspiring this article.