Balancing Short-Term Wins with Long-Term Success in Retail Banking: A Personal Reflection

Introduction

Growing up in a family of academics, the habit of questioning the “why” behind everything became second nature to me. My father, a history professor, often encouraged me to look beyond the immediate and consider the broader context of any situation. This upbringing instilled in me a mindset to seek sustainable solutions rather than settling for quick fixes.

This philosophy has profoundly shaped my professional journey within the world of digital banking, where I’ve observed a troubling trend: a relentless focus on short-term gains at the expense of long-term success. Short-termism is not just a symptom; it’s a deeply rooted structural problem, driven by investor expectations, executive incentives, and flawed performance metrics. However, the common belief that investors only care about short-term gains is increasingly outdated and fails to capture the evolving landscape of investor priorities.

Importantly, the solutions I propose are not just theoretical concepts or empty thought exercises—they are grounded in substantial research and real-world observations. Decades of studies, alongside my own experiences leading technology transformations in financial services, show that companies balancing short-term execution with long-term investments outperform their peers across key financial and operational metrics. This blog series is an effort to share these learnings and, hopefully, contribute to advancing the broader conversation around sustainable success in retail banking.

Why Retail Banking is Stuck in the Short-Term Loop

1. Misinterpretation of Investor Expectations

There’s a persistent belief that investors in mature sectors like retail banking care solely about short-term returns. As a result, banks prioritize immediate gains, such as quarterly profits and dividends, while underinvesting in technology and infrastructure. But this perspective is increasingly flawed:

• The Shift Toward Long-Term Value: The rise of passive investing, representing more than 50% of all US mutual fund assets, is driving a shift toward long-term thinking. Passive investors prioritize stability and sustained performance over quarterly fluctuations, favoring companies that demonstrate resilience and foresight.
• Evidence of Changing Priorities: Studies by McKinsey Global Institute and MIT Sloan Management Review have shown that firms with a long-term orientation outperform their peers in revenue, earnings, and market capitalization over time. This suggests that many investors do value sustainable growth and are wary of strategies that chase immediate gains at the expense of future health. Even the research of my former INSEAD professor, Morten Hansen, who co-authored "Good to Great" with Jim Collins, conclusively demonstrated that across multiple sectors, companies achieving long-term greatness prioritize disciplined focus and sustained investments over quick wins or short-term gains.

While short-term performance remains important, the belief that it is the only thing investors care about is no longer true. Addressing long-term risks and opportunities, especially around technology, is increasingly seen as a marker of good management.

2. Short Executive Tenures and Misaligned Incentives

The average tenure of senior executives in banking is relatively short, often just 3–5 years. This leads to a preference for initiatives that can show immediate results. Compensation structures reinforce this behavior:

• Need for Quick Wins: Executives seek high-visibility outcomes during their tenure, often prioritizing new features over foundational technology investments.
• Deferred Consequences: Decisions made for immediate impact often create hidden long-term costs—technical debt, operational inefficiencies—that only surface after the executives have moved on.

This short-termism is further exacerbated by knowledge gaps in technology: most senior leaders lack a deep understanding of underlying platforms. Consequently, investments in infrastructure and technology are deprioritized until it’s too late, leading to costly, reactive overhauls.

3. Lack of Credible Ways to Balance Short and Long-Term Goals

KPIs are overwhelmingly weighted toward immediate financial metrics, such as quarterly profits or customer acquisition costs, with little focus on long-term health:

• Inadequate Metrics: Lack of metrics that highlight long-term technology health or customer lifetime value.
• Absence of Long-Term Planning: Strategic plans often fail to address future challenges, focusing instead on quarterly earnings.

Learning from Other Industries: How Streaming Transformed Its Metrics

Banking isn’t the only industry grappling with a misalignment between short- and long-term value measurement. The entertainment industry’s transition from DVDs to streaming provides a compelling case study. The shift demanded new metrics that captured evolving consumer behaviors and long-term engagement, such as continuation rate (how far viewers progress through a series).

This kind of adaptive thinking—the ability to identify new metrics that better capture shifting value drivers—is precisely what the banking sector needs to adopt to ensure relevance in an evolving market.

A New Metric for Banking: Introducing the Technical Debt Index (TDI)

To drive meaningful change in banking, we need a metric that bridges the gap between short-term gains and long-term stability: the Technical Debt Index (TDI).

What is Technical Debt?

Technical debt represents the accumulated cost of prioritizing quick, easy solutions over robust, sustainable ones. Like financial debt, it incurs “interest”—in the form of escalating maintenance costs, operational risks, and reduced agility—that can eventually cripple an organization’s ability to innovate.

The Role of TDI

The Technical Debt Index provides a quantifiable measure of the technical health of a bank’s systems. It aims to:

• Enhance Internal Transparency: Highlight areas needing attention, prioritize technical improvements, and allocate resources more effectively.
• Signal to External Stakeholders: Publish TDI alongside financial results, enabling investors to assess the bank’s long-term technological health.

Components of TDI

1. Code Quality: Measures complexity, adherence to standards, and technical debt ratio.
2. System Dependencies: Assesses reliance on unsupported technologies.
3. Test Coverage: Evaluates automated testing scope to catch defects early.
4. Defect Density: Tracks the frequency and severity of software defects.
5. Infrastructure Obsolescence: Monitors aging hardware and software.

Why TDI Matters for Balancing Goals

1. Grounded in Practical Experience and Research: TDI is not a theoretical construct. It is a distillation of both industry best practices and my own experiences in helping organizations identify and mitigate technical risks.
2. Improves Transparency: TDI makes technical debt visible and actionable, helping business leaders make informed decisions.
3. Aligns Incentives: Including TDI in KPIs encourages executives to consider long-term stability alongside short-term results.
4. Differentiates Banks in the Market: By addressing and reducing technical debt, banks can position themselves as forward-looking and resilient.

The Path Forward: Setting a Standard for the Industry

TDI can become a pivotal metric in the banking sector, much like external audits became for financial reporting. Early adopters will likely be those with healthier technology ecosystems, using TDI to demonstrate their strategic foresight. Eventually, standardizing TDI and having it independently certified could become an industry norm, providing investors and stakeholders with a clearer picture of a bank’s long-term viability. Audited company accounts, now the bedrock of the financial system, also started as a voluntary practice, and there's no reason why the same cannot be applied to the technological health of a company.

Conclusion

Balancing short-term wins with long-term success requires more than rhetoric; it demands concrete metrics that make the trade-offs visible and measurable. The Technical Debt Index offers a starting point for banks to build a more resilient and future-ready organization.

The narrative that investors only care about short-term performance is increasingly being challenged. As more investors prioritize stability, transparency, and resilience, metrics like TDI can serve as the bridge that aligns these expectations with the day-to-day decisions made by bank leaders.

Stay tuned for Part 2, where we’ll delve deeper into aligning executive incentives and fostering a culture of sustainable growth.

Have you successfully implemented something like TDI in your company?

Please share more about your experience down in the comments below... I am sure I am not the only one who would want to learn from your experience.