I often get asked about who I think are our closest competitors. And as much as we like to think that we’re unique, there are companies that do similar things to us. We are definitely not alone in this space.
However, when reflecting a bit, our biggest competition is not another platform builder, white label product or software developer. It is of a quite intangible nature actually. The fiercest competition we face are the forces inside big financial institutions that drive them to attempt to do things on their own when they shouldn’t. It’s often the obstacle that is the hardest to overcome in a lot of the partnership conversations we have.
In economics there is the concept of comparative advantage. In slightly simplified terms, it means that while you might be good at a range of things, you probably have some clear advantages over others in some tasks. Or stated differently: it is unlikely that you are the best at everything you do.
Taking an example we all know: While the chef of an Italian restaurant might be the greatest maker of pasta and pizza in the whole city - it is unlikely that she is also the best at running a fast and efficient delivery service. She might very well try to be both. But where is it more likely that her true talents lie: In inventing new and exciting recipes, creating an atmospheric restaurant and being a great patron to her guests? Or in optimising delivery routes, running a fleet of drivers and building seamless digital ordering processes?
We all know the end result of this thought experiment. Deliveroo, Uber Eats and the likes are testament to restaurant owners’ realisation where their comparative advantage lies. Everyone is better off focusing on their core value add: chefs cook, drivers deliver and happy clients enjoy the result of their cooperation. Looking at financial services, the industry we engage in, we often observe a different pattern though.
What does this mean for banking?
Being a successful bank with innovative products, efficient risk management and well oiled distribution channels is a complex operation to begin with. Nonetheless, there often is an inherent temptation to also try and be a technology champion. And while identifying potential for innovation and technological ways to address it, are very likely core strengths of a well functioning business - after all, it’s your own people who know your clients, systems and processes better than anyone else. The next steps are much harder to achieve successfully internally.
The configuration, build and deployment of technology solutions within an organisation requires specific knowledge, working structures and skill sets. You might have all of these within your company and you might even be good at bringing them together. But eventually you have to ask yourself: Would we create more value focusing on our core strengths right now? Are we trying to execute tasks that another party is much better positioned to perform? Or put more bluntly: Is there really no one out there who might be better at this than us?
Understandably, some of these questions are hard to answer. And how we answer them depends on many factors from organisational and incentive design to basic human psychology. However, with transformational changes in consumer behaviour as well as regulation and the threat of challengers entering vertical after vertical, I don’t think they should be left unanswered.
Assessing for the future
To assess an organisation’s strengths, it often pays to look at what is working and what isn’t. How have digital transformation projects played out in the past? How long did they take us to complete? How much resource did we have to divert from our core activities? And again, there are no easy answers or shortcuts here. But stepping away from any complex assessments and efficiency matrixes, I propose a very simple test:
If you sometimes feel like a pizza chef on a scooter stirring tomato sauce while taking food orders - handing some of these tasks to a strong partner might just be what you need right now.
Nikolai will be speaking on a panel at the Customer Experience Exchange BFSI in London on the 25th & 26th Feb:
'Exploring the impact of Fintechs on traditional financial services to effectively navigate disruption.' You can sign up here.
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