How important is innovation?

I recently took part in an innovation rally. It was said there that a) few financial firms manage to get intro Forbes list of innovative firms, and b) that it was an achievement that 50% of this firm’s (statestreet) employees think innovation is essential. However this means 50% don’t think this, and is this not in fact the reason financial firms struggle to be innovative?
What’s the single most valuable resource on the planet? Human capital. The firms that find ways to tap into the cognitive and creative surplus of their employees over the coming decades will be the most successful ones. Because these firms will be making the most efficient use of that valuable resource, empowering people throughout the organization and presenting as many people as possible with genuine opportunities to innovate.
Do you agree with this analysis? And if so how can today’s firms more effectively and efficiently innovate?

2 comments

  • Banking in the majority of the 20th Century had most often been considered the domain of the conservative, and given the strong regulations for parts of that time, it was appropriate.

    With the loosening of regulations in the last 20 years banks have been allowed to become more innovative with the financial products they offer and the instruments they use.

    Whether the blame for the credit crunch can ultimately be put on these pieces of innovation, say derivatives, is for debate, but the point that this innovation has a downside as well needs to be spotlighted.

    So contrary to your proposal that it is the staff/employees’ lack of vision & innovation which is holding back a banks’ ability to use its’ human capital efficiently, I would say that the required role of banks to provide stability and pragmatism in the financial economy is the greater limiter of its poor performance in the Forbes list.

    As a small side point, I think that 50% of State Street employees’ statements that innovation is essential is likely to be far more due to them deciding what answer (most likely from a small multi-choice list) management would most like to see/hear.

    To prove that point, if the employees really believed that the bank’s success was determined upon innovation, then you could expect them to link that with the idea that their own success within the bank will be determined by their ability to innovate.

    Therefore the result you would expect to see and hear in a bank environment would be numerous and constant proposals to create something new, unique, different, and useful.

    Instead you actually see the majority of workers doing overtime on repetitive tasks in order to mark themselves out as committed, responsible, and worthy of promotion.

    On your larger statement that Human Capital is the most valuable resource on the planet I would say that this is the glib talk of management gurus.

    Water is valuable, followed by a few other necessary natural resources, such as food. Human capital is not even the most important resource in business.

    If you give me a few powerful individuals and enough monetary capital I am confident that I could run my race better than your collection of ideas. Further more, you cannot start a bank in particular with only human capital.

    Human capital well used should beat a company that does not use Human Capital efficiently, Ceteris Paribus, but all things are never equal, and you could also make the same argument for any other resource, such as the bank with more money, ceteris paribus, will be more successful, or the bank with a better current ratio, ceteris paribus, etc ,etc, ad nauseum,.

    • You’re getting good at these debates. And in many ways I agree with you, especially with the importance of stability in the financial services. But would you say that the invention of complicated derivatives and other financial instruments is the true problem? Or would you say that such innovations have their uses but were over-used? Arguing the former would to my mind be like saying that because we eat more fast food today, and are also more educated one must logically cause the other. Of course this would be ludicrous, since there are an almost infinite number of factors which influence our level of education. But was the same not true, even if to a lesser degree, with the recession?

      Have to be quick now so I’ll just respond quickly about human capital. What to you is the more important to an athlete? Their brain or their legs? Without a fully functioning brain the legs would not know where to go. But as the Paralympics shows the same is not necessarily true in reverse. Water is of course valuable. But without education we would not know to sterilize it, and so suffer diseases such as cholera (a signif problem here before Pasteur). Without education we would not be able to pump it from one location to another. Without education we would not be able to harness it as an energy source. U get my drift

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