Building Resilient Financial Institutions: Embracing Organizational Plasticity

The financial services industry, including established organizations, is no longer considered recession-proof. Recent events have shown that even these institutions can be negatively affected by systemic shocks and uncontrollable circumstances. As financial institutions focus on improving cost efficiency, protecting revenue, and managing risk, they inadvertently create an opportunity for disruptors, particularly fintech organizations, to enter the market and gain market share.

Fintech disruptors have certain advantages over traditional incumbents. They benefit from regulatory clarity, as they are more agile and can experiment with multiple models simultaneously. In contrast, incumbents tend to wait for regulatory clarity before taking action. Fintechs also have the freedom to explore innovative ideas and are not bound by the same rules and regulations as larger organizations. As a result, when the economy rebounds, incumbents may find themselves lagging behind fintech disruptors.

To prevent losing ground and take advantage of economic upswings, incumbents must develop what is known as Organizational Plasticity. This concept, inspired by neuroplasticity, refers to an organization's ability to adapt and reorient itself to new situations. By investing in audacious innovation experiments on a judicious scale, incumbents can achieve Organizational Plasticity.

During a downturn, incumbents should focus on what truly matters. Instead of merely acquiring new customers, they should prioritize becoming the Primary Financial Institution (PFI) for their existing customers. This requires a shift from transaction-based customer service to a relationship-based approach. Customers expect seamless, simplified, and convenient experiences, and organizations must meet these expectations.

On the technology front, incumbents need to ensure the maturity of their platforms and data. They should be capable of supporting complex experiences and orchestrating dynamic solutions. A strategic and sustainable approach to technology development is crucial. The 4Ps model, derived from Kent Beck's 3X framework, provides a structure for cautious experimentation to build Organizational Plasticity.

The 4Ps model emphasizes:

● Purpose over product: Organizations should prioritize addressing core purposes and solving customer problems instead of merely selling products. This requires strategic clarity and a focus on customer success at all levels.

● Principles over practices: Incumbents must embrace their core values and evolve methodologies accordingly, rather than blindly adhering to rules and guidelines. Open Banking presents an opportunity for innovation by aligning with regulations and customer data protection.

● Personalized over popular: Incumbents often struggle to achieve true personalization, relying on audience segmentation in product design. Investing in product innovation, such as precision banking tailored to individual customers, can provide a competitive advantage.

● Pragmatism over prudence: During a downturn, incumbents often adopt a wait-and-see approach. However, by leveraging available data and investing in risk-aware initiatives, they can prepare for accelerated growth in the future. Operating model innovation can be transformative.

To embrace the 4Ps model and develop Organizational Plasticity, financial services players need strategic clarity, the right operating model, strong technology foundations, and robust data foundations. Strategic clarity ensures a purpose-driven approach, while the right operating model enables effective implementation. Technology foundations and data foundations are crucial for scaling innovative solutions and leveraging data for decision-making.

Thoughtworks has helped organizations achieve Organizational Plasticity through digital fluency, platform thinking, the edge framework, engineering effectiveness, and sustainable tech initiatives. By making judicious investments in innovation, organizations can prepare for the upcoming economic upswing. Contact Thoughtworks to learn more about achieving Organizational Plasticity and making strategic investments in innovation.

Author: Muralikrishnan Puthanveedu, Head of BFSI for Thoughtworks in India