Institutional Friction Impedes Innovation

What is Institutional Friction?

Institutional friction is the accumulated resistance to change that naturally develops inside every successful organization. Every bank has it. Institutional friction emerges from the organizational structures, competing priorities, and natural complexities of running a modern financial institution.

In many ways, institutional friction is the byproduct of being well-managed. Banks are designed to bring multiple perspectives into important decisions. Business leaders evaluate commercial opportunity while risk managers consider uncertainty. When it’s time to fund, finance leaders price the cost of money.

These three functions - business, risk & finance - are the traditional “three-legged-stool” of a bank organization.

Supporting this triangle is the technology group focused on enabling automation, while the back-office organization determines how to make the wheels turn. And the support functions continue – human resources, legal, compliance, etc. All these functions run within a traditionally risk-averse culture, where having independent perspectives traditionally makes better lending and business decisions.

The challenge is not that these independent perspectives exist. The challenge occurs when these functions work against each other and slow down innovation - instead of working together from the beginning.

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