OREANDA-NEWS. April 04, 2016. Introduction: BNY Mellon, the oldest bank in the United States, has spent three years reinventing its business processes to behave very much like a six-month-old innovative FinTech startup when it comes to developing and deploying new tools and technology for the company. 

By Suresh Kumar, BNY Mellon

All around us, industries such as travel, transportation, and communications have faced disruption from tech-driven startups such as Uber and Airbnb. Until now, the financial services industry has found itself fairly well protected, largely because of the regulatory and compliance complexity in our market. But finance-focused startups – FinTechs – are here and they’re growing. According to a recent report from Accenture, investments in FinTechs tripled in 2014 alone. 

Startups, including FinTechs, often focus on one particular service or function and find ways to innovate on that function, often by creating a simpler user experience. As incumbent financial services institutions consider our future and our approach to innovation, we must change the way that we approach client solutions to keep pace with this quickly changing landscape and offer the ease of use and convenience that clients are accustomed to in most other aspects of their lives. 

As incumbents, we have many things in our favor: established customer bases, solid revenue streams, knowledge of clients’ expectations, and a deep understanding of the industry. But many of us are also beholden to complicated processes, multiple layers of approvals, and an aversion to risk taking. As FinTechs rise, Wall Street incumbents can benefit from examining the practices of highly innovative companies and understanding their mind-set and speed in order to amplify the benefits that come from being an industry leader with the nimbleness of a startup.

In today’s “technology-is-king” world, the gap between Silicon Valley and Wall Street is shrinking, but not fast enough.
In 2012, BNY Mellon undertook an ambitious digital transformation to better prepare our then-228-year-old company for the future, including the need to be more innovative. For guidance, we looked to other progressive companies, including the technology and innovation leaders in Silicon Valley. We met with startups, FinTechs, and venture capital firms, learning what aided their success and seeking out opportunities for collaboration. As we worked with these new colleagues, we learned from them, again and again, the keystones to successful innovation and industry advancement: collaboration, experimentation, sharing, adapting. And while these behaviors certainly aren’t unique to Silicon Valley – they can be observed at successful startups and corporations around the globe – there are lessons that we can learn and behaviors that we can emulate wherever we are, particularly on Wall Street. 

Throughout BNY Mellon’s journey toward digitization, I’ve been a little envious of these startups at times. As my team worked through decades of legacy technology and adherence to myriad regulatory and compliance concerns, we knew that it was, in many ways, more difficult to rebuild than to start from nothing and build precisely what we needed in the optimal manner in which we needed it. But as a globally significant financial institution, that was simply not possible – downtime is not an option for us. So we needed to find ways to apply the lesson of Silicon Valley to our reality – and in our reality, we have to change engines while we are driving full speed down the highway. 

With that in mind, here are some of the key lessons that I’ve learned from Silicon Valley that I believe can be adapted and adopted to advance financial services.

Competition Isn’t the Enemy of Collaboration
Those in Silicon Valley strongly believe that strategically collaborating with others – even those who you may be competing with – will bring more benefit than harm and that an open exchange of ideas is a chance to collectively advance technology. On any given evening, there are multiple open invitations to the community to join a meetup or hackathon to share information, learn from each other, and crowdsource solutions to problems. But be assured, this is not an intellectual commune where what’s mine is yours and vice versa. There are clear boundaries, and as willing as many are to share general knowledge, they will rabidly protect intellectual property that could be a competitive advantage. 

Take the open source movement for software in which all of the primary code needed to build a piece of software is available for free to anyone. Not only can people access it for their own use, but in many cases, they can contribute back to it. This means more eyes are on it, more brains are on it, and the software becomes more reliable and more features are added. Yet software companies still thrive because they have adapted their business to be one that profits by providing support services and perhaps more advanced versions of the software for which they charge a premium. 

As technology rapidly moves from a business support function to a business differentiator for companies, it’s no longer about just hardware and software to help meet business needs. It’s now about redefining business models. And that was the result of an industrywide movement rooted in exactly this sort of collaboration. Financial services, as an industry, should likewise look for common challenges and explore ways to work together to solve them. 

Financial services can learn a lot from Silicon Valley – in fact, the future of our industry depends on it.
Recently, a number of companies that would otherwise be considered competitors joined together to work with a startup called Symphony to build a secure and compliant communications tool to meet our unique needs. Also, a number of financial institutions have now joined BNY Mellon as members of Pivotal’s Cloud Foundry, an organization that is working to advance cloud technology. And, more recently, a number of consortia have been formed among banks and startups to explore potential uses and implications of the blockchain. As I see it, we will all benefit from these partnerships and the pooling of our resources and knowledge to solve common problems. 

Innovation Requires a Culture Shift
Silicon Valley’s modern innovation story is rooted in the pioneering of a new material (silicon) to build semiconductors for transistors in the 1950s. Over the next six decades, Silicon Valley’s legacy of innovation evolved to a focus on computer hardware and software development, bolstered by a deep pool of talent from local institutions of higher education. 

As the area’s reputation grew, it became a magnet for smart, ambitious people – and for large technology companies and government agencies, both of which infused funding into the region. While there are other areas that are rich with talent and anchored by corporations, Silicon Valley has maintained an edge. The reason for that – and I’m not alone in thinking this – is that Silicon Valley organically evolved to what it is today, which is a complex ecosystem of innovation. As the region developed, the people there established their own unique ways of doing things. 

Take, for example, the agile methodology for software development. Agile is an iterative, incremental method of managing design and development that allows for the creation of new solutions in a highly flexible and interactive manner. Though the roots of agile began elsewhere, Silicon Valley companies have embraced and advanced this methodology. Agile can be a major enabler of innovation, and success often hinges on an organization “being agile” rather than just “doing agile.” Doing agile may help to improve some development processes for technologists and developers, but to reap the full innovative benefits, companies need to be agile – and this requires changes across the entire organization. These changes go beyond independent application development project teams to the program and portfolio level. This involves changes to everything a company does, from the way it prioritizes its portfolio and funds projects to the way it engages with the business to deploy to production. Agile is about smaller teams moving quickly, with the same people involved from the beginning to the end. 

For innovation to take hold and grow across the company, senior leadership needs to embrace, support, and advocate for the culture change that is required for continued success.
Hand in hand with agile are practices such as continuous integration, in which code is deployed several times a day rather than building up to one large longer-term integration, and DevOps, which emphasizes cross-organizational collaboration and automation of delivery. The benefits are considered to be faster, more frequent, and more reliable development. 

Being innovative also requires an embrace of failure and an ability to shake it off, learn from it, adjust, and try again. “Fail fast and pivot” could be the regional motto for Silicon Valley. 

An enabler of “successful failure” is the concept of design thinking, an advancement largely pioneered at Stanford University. Design thinking begins with an empathetic view of a user’s problem followed by rapid ideation that moves right into the development of a prototype of a possible solution. The philosophy is to act quickly on hunches so that they can either be deemed viable and iterated upon or a failure that needs to be taken back to the drawing board. 

And while investing time and money into a hunch may be uncomfortable for risk-averse incumbent companies, there are cues that any organization, no matter how regulated, can take: Don’t stew too long on an idea – share it and get feedback early on. Expect that your first pass at a solution likely won’t be your best. Really listen to your clients’ needs and keep them central to everything you develop. 

You Can’t Fake Innovation
Innovate or die has become a battle cry these days, and most companies have a strategy to encourage innovation. But many struggle with pushing it from a strategy to a viable culture shift that produces game-changing new ideas and solutions. 

As my team worked through decades of legacy technology and adherence to a myriad of regulatory and compliance concerns, we knew that it was, in many ways, more difficult to rebuild than to start from nothing.
For many companies, innovation begins as a project or initiative, or it bubbles up from the technology or engineering departments. But for that sort of organic impetus to take hold and grow across the company, senior leadership needs to embrace, support, and advocate for the culture change that is required for continued success. 

That culture change begins with talent. It’s one thing to want change, but to realize it, you need people with diverse skills and ideas. Hire for the skills your organization lacks and develop the employees that you already have to their fullest. Break down barriers between the business side of the house and the technology side of the house. Bring clients into the process so that all involved understand the problem that needs solving and work together to solve it. 

At BNY Mellon, we’ve built a network of innovation centers around the globe – London, Pune, Chennai, Jersey City, and Silicon Valley. These centers are designed to encourage collaboration with open workspaces, inviting “huddle” areas in which to sit and discuss projects, and a suite of tools, like an internal social networking platform, to make it easier to extend collaboration beyond a single location. We have 2,000 employees located in these centers, and we plan to open several more in the near future. The results have been tremendous. We are doing co-creations with our clients, exploring use cases for disruptive technologies such as blockchain, and, recently, have introduced an initiative to have the employees located in innovation centers focus 10% percent of their time on innovation center projects. 

At each location, we are reaching outside of our own organization to be part of the broader technology community. Our center in Silicon Valley frequently hosts well-attended meetups. The Jersey City center has hosted hackathons and events for organizations such as Girls Who Code, a nonprofit program that aims to foster and encourage school-age girls to explore technology careers. In London, we are actively engaging with the large FinTech community to foster partnerships and share ideas. 

Another way to stimulate innovation is to build a sense of corporate “intrapreneurship.” At BNY Mellon, we’ve implemented this by adopting a service-based model for technology in which core functions are looked at through the lens of “what benefits do you provide?” instead of “what do you do?” That seemingly subtle shift has resulted in each service area – and that area’s service leader, who is empowered to act like a CEO for that service – thinking about how he or she can improve the service. This has resulted in cost reductions, process improvements, and increased understanding of the needs of their services’ consumers. 

We all know the adage “you can’t manage what you can’t measure,” and that may just go double for innovation initiatives. For all of their creativity, speed, and unconventional methods, successful startups are diligent in their measurement. By practicing evidence-based management, companies – whether incumbents or startups – have unbiased transparency into the success or failure of an initiative. Establishing meaningful metrics and instrumenting activities and processes to the extent possible provide not only a real-time heartbeat of a project or business function but also an opportunity to test different methods or solutions. This A/B testing, as it’s known, lets you quickly ascertain which way is more successful: way A or way B. 

While simple in concept, it can require a change in the mind-set of employees, as well as the discipline and diligence to ensure accurate, consistent measurement. At BNY Mellon, we built our own data and analytics platform called Digital Pulse. Digital Pulse is today capturing more than 20 billion events per month, allowing us unprecedented insights into both solutions and processes. 

In today’s “technology-is-king” world, the gap between Silicon Valley and Wall Street is shrinking, but not fast enough. And while the disruptions that have altered the way we watch television, plan our travel, and even communicate with one another so far have been staved off by the complexity of our highly regulated industry, they are imminent. While we as an industry may be inclined to circle the wagons and try to keep these disruptors at bay, I believe we should learn from Silicon Valley and welcome them, listen to their ideas, offer them our insights, and collectively advance our industry for everyone’s benefit. Financial services can learn a lot from Silicon Valley – in fact, the future of our industry depends on it.

About the Author:
Suresh Kumar is Senior Executive Vice President and Chief Information Officer for BNY Mellon, where he is leading the Client Technology Solutions organization to become the industry leader in delivering innovative and exceptional technology solutions that enable its clients and employees to succeed.

Kumar serves on BNY Mellon’s Executive Committee, the organization’s most senior management body, as well as the company’s Operating Committee. He is also the Chief Executive Officer of iNautix Technologies, a BNY Mellon company that provides offshore development services.