In the summer of 1943, while Allied forces battled across Europe, a different kind of war room hummed with activity in Burbank, California. Here, in a hastily constructed building, a team of engineers was about to change the course of aviation history.

This was Lockheed’s top-secret Skunkworks project, led by the brilliant engineer Clarence “Kelly” Johnson. Their mission? Build America’s first jet fighter. Their timeline? 150 days.

Fast forward 80 years, and the financial world stands at a similar crossroads. As artificial intelligence reshapes the landscape of global finance, Wall Street titans find themselves racing to innovate. But what if the key to outpacing the disruptors lies in a dusty playbook from World War II?

Steve Jobs once said, “Innovation distinguishes between a leader and a follower.” In today’s rapidly evolving financial sector, this distinction has never been more critical. The question is: will traditional financial institutions lead the AI revolution, or will they be left following in the wake of tech giants and nimble startups?

The Skunkworks Legacy

Johnson’s team delivered the impossible. In just 143 days, they designed and built the P-80 Shooting Star, launching the U.S. into the jet age. As Ben Rich, Johnson’s successor, recounts in his book “Skunk Works,” the secret to their success was a radical approach that prioritized small, autonomous teams, minimal bureaucracy, and a relentless focus on innovation.

“The best solutions evolved from an environment that encouraged people to challenge one another’s ideas,” Rich noted. This ethos echoes the words of famous founders and innovation leaders over centuries. Innovation is equal parts attitude and aptitude.

Imagine a “Financial Skunkworks” within a major bank. A small, elite team given the freedom to challenge every convention, the resources to experiment boldly, and the mandate to move at startup speed. It’s not as far-fetched as it might sound.

The AI Arms Race

In the world of finance, innovation labs and accelerators have become increasingly common. JPMorgan Chase, for instance, opened its first in-house tech hub in 2015, expanding to a 125,000 square foot fintech office in Manhattan by 2019. According to the company’s 2021 annual report, they’ve invested $12 billion in technology, with a significant focus on AI and machine learning.

This level of investment aligns with broader industry trends. A 2021 study by Deloitte found that 86% of financial services institutions believe that AI will be critical to their success in the next two years.

But not every attempt at corporate innovation succeeds. The cautionary tale of Kodak, whose digital camera innovation was stifled by fear of cannibalizing its film business, serves as a reminder that innovation requires more than just good ideas — it demands a culture that embraces change, even when it’s uncomfortable.

The Engineering-to-Finance Paradigm

The journey from engineering to financial innovation isn’t unprecedented. In fact, it offers a powerful blueprint for today’s financial institutions looking to leverage technology for competitive advantage.

Consider the case of General Electric under the leadership of Jack Welch from 1981 to 2001. GE, primarily known for its engineering prowess, made a strategic pivot into financial services that transformed the company and the industry.

“An organization’s ability to learn, and translate that learning into action rapidly, is the ultimate competitive advantage”
- Jack Welch

This famous philosophy drove GE’s expansion into finance, leveraging the company’s data-driven approach and technological expertise to disrupt traditional banking.

Under Welch’s guidance, GE Capital grew from a small unit providing loans for GE appliances into a powerhouse that at its peak accounted for nearly half of GE’s profits. By 2000, it had become one of the largest and most profitable financial services companies in the world.

The GE Capital story offers valuable lessons for today’s financial institutions grappling with technological disruption:

Cross-industry innovation: GE’s engineering DNA gave it a unique perspective on financial problems, much as today’s tech giants bring fresh approaches to banking. This underscores the potential for financial institutions to leverage expertise from other domains, particularly in data science and AI.
Adaptability: GE’s willingness to venture far from its core business in pursuit of new opportunities mirrors the kind of bold thinking required in today’s AI-driven landscape. For traditional banks, this might mean reimagining core processes or even business models in light of AI capabilities.
Technology as a differentiator: GE used its technological expertise to gain a competitive edge in finance. Today’s financial institutions have the opportunity to do the same with AI, using it not just to optimize existing processes but to create entirely new products and services.

Cultivating the Innovation Mindset

“Innovation is the ability to see change as an opportunity — not a threat,”
- Steve Jobs.

Creating a culture of innovation isn’t about ping pong tables or casual Fridays. It’s about fostering an environment where curiosity thrives and calculated risks are rewarded.

Goldman Sachs has taken steps in this direction with its Accelerate program, launched in 2017. As outlined in their 2020 sustainability report, this internal incubator allows employees to pitch and develop new business ideas, fostering a startup-like culture within the firm.

This approach aligns with research findings. A 2021 study by McKinsey found that companies with a strong innovation culture significantly outperformed their peers, achieving 2.4 times higher revenue growth over a 5-year period.

The Talent Tug-of-War

“The secret of my success is that we have gone to exceptional lengths to hire the best people in the world,” said Steve Jobs. In the war for talent, Wall Street is finding itself in unfamiliar territory — the underdog.

According to a 2021 report by Revelio Labs, a workforce intelligence company, the finance sector has been losing talent to tech firms at an increasing rate, with a net outflow of 10,000 workers to the tech sector in 2020 alone.

However, financial institutions are fighting back. In 2021, Citigroup, hired 1,000 technologists for its institutional clients group technology team in Singapore, recognizing the need to attract top tech talent to drive innovation.

The Ethics Imperative

As AI becomes more prevalent in finance, questions of ethics and fairness take center stage. In 2019, Apple Card faced controversy over alleged gender bias in its credit limit algorithms, highlighting the critical importance of ethical AI development in finance.

Microsoft co-founder Bill Gates once said, “Technology is just a tool. In terms of getting the kids working together and motivating them, the teacher is the most important.” In the context of AI in finance, this underscores the crucial role of human oversight and ethical guidelines.

In response to such challenges, many financial institutions are taking proactive steps. For instance, Bank of America established an AI Ethics Committee in 2019, as reported in their 2020 Annual Report, to ensure the responsible development and use of AI across the company.

A 2022 study by the Cambridge Centre for Alternative Finance and the World Economic Forum found that 78% of financial services firms have implemented or are developing policies to ensure the ethical use of AI.

Cultivating Innovation: A Leader’s Toolkit

To transform a traditional financial institution into an innovation powerhouse, leaders need to cultivate specific skills and take concrete actions. Here are key steps and competencies for fostering a culture of innovation:

Embrace Adaptive Leadership — Leaders must be comfortable with ambiguity and rapid change. Adaptive leadership, a concept developed by Ronald Heifetz at Harvard, emphasizes flexibility and learning. In practice, this means:

Encouraging experimentation and viewing failures as learning opportunities
Regularly reassessing strategies based on new data and market changes
Leading by example in continuous learning and skill development

Create Psychological Safety — Google’s Project Aristotle found that psychological safety was the most important factor in high-performing teams. To create this:

Encourage open dialogue and constructive disagreement
Acknowledge your own mistakes and limitations
Reward employees for voicing concerns and new ideas

Foster Cross-Functional Collaboration — Innovation often happens at the intersection of different disciplines. Leaders should:

Create cross-functional teams for key projects
Implement job rotation programs to broaden employees’ perspectives
Use collaborative tools and spaces to facilitate idea exchange

Implement Design Thinking — Design thinking, popularized by IDEO and Stanford’s d.school, can drive customer-centric innovation. Leaders can:

Train teams in design thinking methodologies
Use customer journey mapping to identify pain points and opportunities
Conduct regular ideation sessions focused on customer needs

Develop a Clear Innovation Strategy — According to a 2021 BCG study, 75% of innovation-leading companies have a clear, well-communicated innovation strategy. To achieve this:

Define clear innovation goals aligned with overall business strategy
Allocate resources specifically for innovation projects
Establish metrics to measure innovation progress and impact

Cultivate External Partnerships — Innovation doesn’t have to happen in isolation. Leaders can:

Establish partnerships with startups, universities, and tech companies
Participate in or create innovation ecosystems and accelerators
Engage in open innovation initiatives to tap into external ideas

By focusing on these areas, leaders in financial institutions can create an environment where innovation thrives. Remember, as management expert Gary Hamel said, “You can’t build an adaptable organization without adaptable people.” The key is to foster a mindset where every employee sees themselves as a potential innovator, capable of contributing to the company’s future success in the AI age.

The Road Ahead

As we stand at the intersection of finance and technology, the path forward is complex. The financial institutions that thrive in the AI age will likely be those that can combine the innovation speed of a startup with the resources and expertise of an established player.

The spirit of Kelly Johnson’s Skunkworks — small teams, big ambitions, and the courage to challenge conventions — may well be a valuable model for financial innovation. As Amazon’s Jeff Bezos puts it, “What we need to do is always lean into the future; when the world changes around you and when it changes against you — what used to be a tail wind is now a head wind — you have to lean into that and figure out what to do because complaining isn’t a strategy.”

In the end, the question isn’t whether traditional financial institutions can innovate. It’s whether they have the courage to unleash the innovators within their ranks and create the cultural and structural changes necessary to thrive in the AI age.

The race is on, and the financial sector’s ability to innovate may well determine its future in an increasingly AI-driven world. As management guru Peter Drucker wisely noted, “The best way to predict the future is to create it.”

About the Author:

Raviv Wolfe is a seasoned finance professional and the creator of the Sip & Scrypt series, exploring the intersection of AI and financial services. With years of experience in revolutionizing finance and a passion for technological innovation, Raviv offers unique insights into how firms can thrive in the AI era.

Tags: Artificial Intelligence, Finance, Wealth Management, Insurance, Innovation, Digital Transformation, Financial Technology, AI Strategy, Mid-Sized Business, Competitive Advantage

This article is part of the Sip & Scrypt series by Raviv Wolfe, dedicated to exploring how AI is reshaping the financial services landscape. Join us as we uncover the strategies that will define success in the AI-driven future of finance.

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The Skunkworks Revolution: How Wall Street Can Innovate in the AI Age