A plea to put an end to the innovation magic show

Replace misdirection and marketing buzzwords with careful consideration and research into how technology can make a difference to your business and/or clients, urges Virginie O’Shea, post-trade FinTech analyst and advisor.

This week I’ll be participating in an industry Oxford debate about blockchain’s future in financial services. Unsurprisingly, I’ll be on the against team. The debate will raise the industry’s experiences of the shortcomings and challenges relating to distributed ledger technology as part of pilots conducted by everyone from the German central bank to the Australian CSD. But another thing the debate has raised is the amount of money and time that has been wasted on what I will call “innovation magic shows”.

One of the basic tenets of magic tricks – as any magician worth their top hat will tell you – is the art of misdirection. The magician is able to astound audiences by getting them to look at something else and make them miss where the action is really happening, as a card is switched from the top of the pack to the bottom or a coin is slipped from a pocket. And how does any of this relate to innovation and next generation technology pilots in capital markets? Well, these pilots can often form part of a public relations magic show, where money is spent on enabling a firm to appear innovative and cutting edge, but very little actual change happens.

What are the characteristics of such a magic show – where time and money that could be better spent on addressing real problems is misdirected on expensive consultants and pilots that are likely doomed to failure?

  1. The fanfare is loud and the pilot is championed as “groundbreaking” by the PR and marketing machine, but not a single exec can properly articulate the benefits of said pilot for the firm’s clients or the firm itself.
  2. Not a single executive appears to understand what the technology actually does or how it works.
  3. The hired consultant throws every buzzword under the sun at you, but also cannot articulate the point of the exercise.
  4. The area of the business on which the pilot is focused is on the very fringes of relevance to the firm in question.
  5. No clients are involved or have even been consulted about the project.
  6. The project is being run by a team that doesn’t feature a single member of a relevant business unit.
  7. The only way employees know about the project is because they read about it in the financial press – internal comms on the subject is minimal to zero.

Now, these aren’t the only characteristics of these projects, but they are a warning sign that there’s an aspect of the Derren Brown or David Copperfield (not the Dickens character, the perma-tanned Las Vegas magician) in the cards.

Of course, innovation and ‘moon shots’ are important in any area of technology application – being able to experiment with new technologies and try to apply them to improve processes and insights across the spectrum – but should an industry that is currently burdened with heavy costs related to compliance and facing ever-thinning margins, waste money on something for the sake of a PR exercise? The internal credibility of innovation and chief innovation officers or digital officers has been negatively impacted by these magic shows. My ongoing research over the last decade has highlighted how much resentment business line heads and IT and operations teams feel towards these innovation time wasters, as they are perceived. Investment that could be spent on integration work or gradual legacy replacement projects is being misdirected towards window dressing and magic tricks.

The cold, hard fact is that change isn’t easy. There is no magic wand that can be waved or magic bullet that can be shot out of a sparkly cannon to solve the manifold industry challenges that executives face on a daily basis. Blockchain or artificial intelligence and machine learning-based technology is exciting in its potential, yes, but it isn’t magical. To be able to effectively apply these new technologies to your existing environments, you need to first work out where the problems lie and how the technology can be realistically applied to solve them. Many firms have made the mistake of thinking about the technology before they understand what they can actually do with it that will make a difference to their business or their clients.

Effective communication and painful cultural change are the order of the day for true innovation to succeed. Get the business to work with you, instead of being blindsided by magical tricks and marketing buzzwords. Of course, the maturity of the technology itself also plays an important part in the success of the endeavour – hence my concern about the application of blockchain and AI (but more on that in the debate). If AI struggles to tell the difference between a dog and a croissant, do we really want compliance systems to be entirely AI-run? Hmm.