While a degree of cultural conservatism can be helpful for some banks and other financial institutions (FIs), it can be harmful when it comes to updating back-end systems. Indeed, innovation demands that older systems—including cultures—be altered or even done away with entirely. That said, implementing a modern corporate banking solution that addresses the needs of businesses today often requires mitigating the effects of cultural inertia in an FI.
What Is Cultural Inertia?
Cultural inertia, also described as “social inertia” or “organizational inertia,” is a phenomenon where a culture or subculture becomes resistant to change. This phenomenon has been observed in organizations of all sizes, including nations, corporations, and even small social clubs.
Behaviors that indicate cultural inertia tend to create uniformity and predictability within an organization. However, the phenomenon has also been found to be the cause of illogical decisions. An example of such a decision would be continuing to collaborate with problematic vendors or business partners even if there are better options available. In FIs, cultural inertia has also manifested in decisions such as holding on to outdated paper-based systems or previous-generation digital corporate banking solutions.
MIT researchers have even linked cultural inertia to “broken culture syndrome”, a phenomenon where an organization’s leadership and even many of its lower-ranking members violate the organization’s stated core values. If left unaddressed, broken culture syndrome can seriously impede an FI’s ability to compete in increasingly hyper-competitive finance landscapes.
What Causes Cultural Inertia in Financial Institutions?
Given that corporate banks and other FIs rely on stability as a selling point, the term “banking innovation” is almost self-contradicting. Because organizational goals influence culture, banks are almost always vulnerable to cultural inertia. Individuals and teams working within the bank may be discouraged from rocking the boat too much as drastic changes may affect stability. This has made cultural inertia a particularly serious hurdle in banking modernization efforts.
How Can Modernizing FIs Mitigate “Cultural Inertia”?
Banks and other FIs need to follow their own paths toward fixing their internal cultures. However, there are some general principles of mitigating cultural inertia that should apply to most FIs. Some suggested strategies include the following:
Create a Plan for Shifting the FI’s Culture
Shifting an FI’s culture is no easy task, particularly when the institution is well-established and has had considerable success “playing it safe”. As with any other difficult task, serious planning is necessary when it comes to making major changes across an entire organization. A gradual shift to a new cultural framework should also be considered to reduce the amount of disruption to the business during the transition.
It should also be taken as a given that some important people in the institution will not be able to change and may need to be given new roles or let go. After all, the top leadership, middle management, and line employees must sincerely commit to change if such efforts at changing culture are to be successful.
Work Within the Framework of the FI’s Mission and Vision
FIs do not necessarily have to reinvent the wheel to become more innovative. In fact, some FIs may already have an official mission and vision that encourage the pursuit of innovation and perhaps address cultural inertia itself. The cultural change that many FIs need is often merely a matter of revisiting their roots, determining if they’ve strayed from their objectives, and pivoting to get back on track.
Of course, mission and vision statements should not always be considered set in stone. If they do not guide the FI into becoming more competitive, new frameworks for the business should be considered.
Reevaluate the Organization’s Tolerance for Failure
Cultural inertia is, at times, caused by an organizational intolerance for failure. Such intolerance is, perhaps, a given if an institution handles large volumes of money and has a massive responsibility to its stakeholders.
However, to consistently innovate, a margin of failure needs to be present to allow for the testing of new concepts and financial products. By addressing the intolerance for failure within the culture, FIs will be able to more effectively invest in their own long-term growth and resilience.
Consistently Move to Change Problematic Culture Issues
Most organizations that experience cultural inertia are, at the very least, partially aware of the problem. Some may even try to take certain actions, such as inviting motivational speakers or sending employees on retreats, specifically to change the internal culture for the better.
While these actions are a good start, FIs should avoid making these attempts performatively. Otherwise, employees may call out these attempts as insincere or severely lacking, dealing a huge blow to an FI’s trustworthiness and reputation.
Additionally, FIs should ensure that the top policymakers are also subject to these culture-shift attempts. Doing otherwise would cause said FIs to appear biased and make policymakers seem hypocritical. Ideally, FIs should make sure that everyone consistently moves towards the ultimate goal of a future-forward organization.
Why Should FIs Take Cultural Inertia Seriously?
In the past few decades, card companies, alternative finance businesses, and cryptocurrencies have all become serious threats to the survival of traditional FIs. Because many of these FIs failed to adapt to a rapidly changing financial landscape, they’ve become less relevant in today’s eCommerce-centric economy.
Arguably, adopting corporate banking solutions conscientiously would have enabled these FIs to have a more secure position against new competitors in the digital age. Put another way, if these FIs had addressed issues of cultural inertia early on, the challenges they face today would not be as serious.
That said, corporate banking modernization efforts should always consider the possible influence of existing institutional culture and subcultures. Internal cultures can dictate the types of banking solutions and implementation approaches that FIs choose to incorporate into their existing systems. More importantly, internal cultures will determine how well an FI’s employees leverage new and emerging technology to the institution’s advantage.