Without a focus on agility, the plucky challengers risk turning into the very banks they’re trying to disrupt, says Dr Simon Hayward from Cirrus.

If CYBG (the owner of Clydesdale Bank and Yorkshire Bank) takes over Virgin Money, it will create the UK’s largest challenger bank. But can a challenger bank continue to challenge the big players as it evolves, or might it grow up to become more like them? Dr Simon Hayward, CEO of Cirrus, considers the possible issues ahead.

The ‘challenger bank’ category encompasses a multitude of players, many of whom are considered by industry analysts to be more agile, innovative, and customer-focused than the long-established market leaders. The UK government has encouraged greater competition in the banking market, both to increase choice for customers and to reduce the risks associated with market dominance by a few big players.

CYBG believes the deal with Virgin Money would offer customers a ‘genuine alternative to the large incumbent banks.’ If the deal goes ahead, Virgin Money may remain a distinct brand. However even with distinct brands, the overall organisation could of course benefit from the economies of scale which bigger banks take for granted.  This could help CYBG and Virgin Money to compete more effectively in the highly competitive UK banking industry. However, something else that can help them compete is retaining the ability to continually disrupt that industry. A key challenge for this challenger bank is to ensure the new organisation can stay agile as well as creating real synergy in a rapidly changing marketplace.

Why be a challenger?

Today, many of us are multi-bankers, using a variety of providers for our current account, savings, mortgage, loans and credit cards. Technology makes this easier than ever because it gives us choice and control.  Successful challenger banks recognise this and have become adept at spotting and seizing opportunities. Most have chosen to specialise in specific areas rather than emulate the wide portfolios of products and services offered by the big banks. The most successful challenger banks, like the most successful ‘disruptors’ in any industry, are agile.

Can a challenger bank remain agile as it grows?

It is possible to continue being challenging, disruptive and agile as you grow.  Amazon is a good example of this – it began by disrupting traditional book retailing and is now the world’s biggest online retailer, challenging market after market (and, building on its e-commerce expertise, rumoured to be considering a move into online banking next).

However, although it’s possible, it’s not always easy – particularly in a heavily-regulated industry like banking. At times, it can be difficult to balance the need for compliance with agile working. Another watch-out for CYBG and Virgin Money (and any evolving business) is the widespread tendency for organisations to introduce more systems and processes as they grow. During a takeover, it is well worth maintaining a focus on simplicity and avoiding complexity where possible.

I have witnessed some striking results during mergers and takeovers when business leaders have encouraged colleagues to challenge every rule and process to see how it can be stripped back and pruned to within an inch of its life. This has helped to reduce the burden of bureaucracy across their businesses, ensuring process simplicity throughout the integration.

The agile leadership paradox

If the deal goes ahead, the two organisations will need to manage the paradox of agile leadership. The agile leadership paradox involves creating a new, connected organisation while at the same time disrupting that new organisation sufficiently to reinvent it.  Getting this balance right is critical if the new business is to compete on a sustainable basis with competitors. The principles of agile working need to be adopted across the entire business: greater emphasis on simplicity, shorter planning cycles, ruthless prioritisation focused on what customers want, and embracing digital opportunities.

The banking industry is becoming more and more complex and competitive. The proposed CYBG takeover of Virgin Money has prompted further speculation about more tie-ups among challenger banks. In the fast-moving and highly-competitive banking industry, the organisations who are best able to evolve and adapt are most likely to seize the opportunities ahead.

Dr Simon Hayward is CEO of Cirrus and author of Connected Leadership and The Agile Leader.

© Management Today 2018

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