1. Preparing for the New Reality

Radical, incremental, and disruptive changes represent innovations and must be understood to develop a sustainable strategy. You will learn the differences and dynamics between various types of innovations. We illustrate them in a three-dimensional cube and explain how they interact with each other. Banks rose to the largest firms of the world, and at the same time, they are facing pressure from clients, policy-makers, society, and competitors as never before in history. Large banks imply systemic risks; however, herewith one may see the justification that banks remain necessary in contrast to the prediction made 20 years ago. Living in a globalized service economy driven by increasing digitalization, we rather argue that banking is necessary and banks as we know them today are diminishing in favour of online services. The banking, wealth, and asset management industry used to be paralysed over the last 10 years because of the burden of regulatory requirements caused by the financial crisis. Many incumbents missed to adapt their business models to the new reality and are recently threatened by fintech firms and new market entrants from outside the financial industry, mainly from emerging growth regions in Asia. As clients are expecting more digital, personalized, and seamless services than ever before, incumbents must not only understand the new reality and transform; the more they must embrace open innovation and collaborate with challenger firms in an ecosystem.