Innovation Declines as Finance Leaders Climb Senior Ranks
In finance, where every decision is a careful calculation that carries heavy weight, effective leadership is paramount. The financial industry operates within a framework of unique challenges, intricate risk management, and complex systems. Pinsight’s virtual assessment center has evaluated thousands of finance leaders over the years, and a recent study identified an interesting trend in the leadership skill of innovation.
Innovation, defined as proposing creative solutions to important business issues, is highly desirable in leadership as it promotes continuous success and a competitive edge, allowing companies to stay ahead of trends and find new ways to differentiate themselves. In general, as leaders grow into more strategic roles, their innovation skills increase. This trend was true for most industries in our sample, including manufacturing, healthcare, IT, and other professional services. For financial leadership, though, our study showed the exact opposite: the more senior the finance leader, the less likely they are to be innovative.
The more senior a finance leader is, the less likely they are to be innovative.
What’s the reason for this substantial decline in innovation across leadership levels? Based on our partnerships with finance industry leaders, we see two likely causes:
- Culture of Risk Aversion
One likely explanation for the decline in innovation among senior finance leaders is related to the nature of the financial industry itself. Financial institutions operate in an environment heavily regulated by government agencies, and as leaders rise through the ranks and assume more significant responsibilities, the pressure to maintain stability and minimize risk typically increases. Senior finance leaders often need to focus on compliance and adhere to established best practices and regulations, which can stifle creativity and deter them from pursuing fresher solutions that are perceived as carrying higher risks.
- Deep-rooted Reward Systems
Note that when finance employees are still at the individual contributor stage, they actually have higher rates of innovative thinking than individuals in other industries. Newer employees in the finance industry can bring novel perspectives and diverse ideas to their roles that incorporate the latest market trends and social perspectives. At this early career stage of learning and growth, a fresh and ambitious approach still fits within the metric of successful performance. However, as these individual contributors progress into leadership roles, the metric for success shifts and overwhelmingly rewards the maintenance of stability and the adherence to established best practices. In other words, innovation gets taught out of finance leadership because their systems are not set up to reward it. And so even though senior leaders may be capable of innovation, this skill is underdeveloped in finance while it flourishes in other industries.
While it’s likely no surprise to hear that the financial industry prefers stability, innovation doesn’t have to be synonymous with reckless risk-taking. Rather, it can be about finding new ways to manage risk, streamline processes, and meet regulatory requirements more effectively. Finance leaders who strengthen their innovation skills can help their organizations secure a more sustainable future while maintaining the sector’s core principles of stability and risk management.
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