Judging by recent developments, there can be no doubt that Kenya’s banking industry is undergoing a disruption.
In the last couple of months, for instance, more and more banks have been restructuring — cutting down on staff as well as reducing the number of branches by closing some.
More is expected in the coming months. The key driver for decision making in the industry is cost cutting — the anchoring message being “alignment of the business to the current environment”.
Ordinarily, such decisions are based on the quest for revenue enhancement, technological advancements, and innovations.
The Kenyan reality is, however, that changes are coming fast, making it easy to predict that the banking industry will in five years look very different from what we currently know it to be.
Bank branches will no longer be a source of competitive advantage. Banks will be operating at half the current branch network, and in 10 years we will have branchless banking with virtual money as the dominant mode of transactions.
This is a reality arising from changes in the market as well as the consumer preferences. Consumers have become more demanding and technology is transforming the way they do things.
It may be lost to many that only five years ago, consumers of banking products were, for the first time, exposed to a 24/7 banking system which has now taken a life of its own.
Innovations are happening at a faster rate than expected, effectively putting non-compliant companies on the path to extinction. Kenya has firmly entered the era of ‘digital disruption’.
Industries and companies are being disrupted and others are enjoying and cashing in on the disruptions. In the transport industry, for instance, Uber has become the largest taxi company without owning any vehicles; Facebook is the largest media company without producing any content; Airbnb took three years to reach over 500,000 rooms and market capitalisation of more than $25 billion whilst it took Hilton Hotels more than 50 years to achieve similar results. Skype, which owns no telecoms infrastructure, is the largest phone company.
If there is anything that should be keeping the management of companies awake at night, it should be how to enhance the capacity of their organisations to innovate.
Innovation needs to be part of the corporate DNA if organisations are to achieve sustainability and success.
The challenge is how to make large corporations more agile and ready for innovations. Put differently, the question is how to make the elephants dance to the innovation tune. It starts from the top — CEOs and boards must have the goodwill and intention to steer their organisations in an innovative direction. This calls for moving away from business as usual.
READ: Nairobi finance inclusion rate linked to banks’ innovation
Management has to allow for innovations and create a climate that is conducive to it. To increase the chances of success, there is need to increase the number of attempts to innovate.
Innovation is about both ‘breakthroughs’ and creating a difference such as developing new products and making them commercially successful; adopting new business models; changes in products and service delivery mechanisms and developing new processes. Innovation in organisations will follow one of the three distinct approaches; that is incremental, distinctive and disruptive.
There is a need for quick and dirty experimentation in an organisation. This experimentation will lead to new ways of doing things and management needs to allocate resources to such experimentation.
The experiments need to be fast, cheap and must ensure the release of beta versions of the products and decisions need to be made fast on whether to discard or adapt.
The organisation should try to come up minimum viable products (MVPs) and have them tested in the market for customers’ feedback. The feedback should be used to iterate the product until an acceptable version is arrived at.
In regard to employees, innovation requires a different breed. The organisation must have within its ranks people with entrepreneurial risk-taking mindset. The employees must be willing to fail and learn from their failures.
This is because the mantra for innovative businesses is, “if you are failing, fail fast and move on.” The employees also need to have the ability to focus on monetising the ideas.
This is critical if businesses are to be sustainable. The culture of innovation for employees is something that can be built in an organisation if there is deliberate effort to build innovativeness from within.
As companies head towards the innovative environments, it will be critical that they consider open innovations. This is where companies invite external parties to take part in design competitions and innovation challenges within organisations.
It is critical that the businesses assess how innovative they are and if they have a culture of innovation. If not, they need to brace themselves for extinction.
It is critical that the Kenyan corporations assess how innovative they are and if they have a culture of innovation. If not, they need to brace themselves for extinction as we have seen some Kenyan companies that were successful in the last decade disappearing from the market due to lack of innovation.