Sean Park Portrait
Quote of The Day Title
In the beginner's mind there are many possibilities. In the expert's mind there are few.
- Shunryu Suzuki

Fixing finance, part 326.

“The single most important thing was to dismantle the organisational structure,” he recalls. “We tore it apart in 60 days, removing a large number of leaders who had been there a long time and who represented an operating style that lay outside any proper understanding of market dynamics.” In their place he promoted a group of younger executives, many with a background in consumer marketing, who understood and could provide what he wanted: accountability, openness, rapid communication and impatience with hierarchy and internal politics.

An interview with the CEO of [insert name of rare banking success story] c. 2014? One would hope so. Especially as the value of this approach – if it wasn’t self-evident enough to intelligent Boards everywhere – had already been proven: the quote is in fact from Sergio Marchionne (in The Economist) on how he was able to turn Fiat from a basket case into a market leader.

The market dynamics in financial services have clearly changed (this was already true a couple years ago but is now apparent and obvious to even the most blinkered…) and events have highlighted that incumbent management in most large financial institutions are no better adapted to embrace this new reality than their analogs in the auto, telecom, media or any other industry. But they do have the advantage of having seen first hand the disastrous results in these other industries of failing to act and of desperately holding on to an obsolete business model, so the hope is that even if they have been slow off the mark, that the best amongst them will be able to re-invent themselves under the cover of the current systemic turmoil.

An interesting question would be – can this kind of change be implemented without first changing the CEO? ie Is parachuting someone from outside a necessary condition to achieving the kind of change that Mr. Marchionne achieved at Fiat? (If so, I’d guess you’d need not just someone from outside the company but someone from outside the Establishment.) Another interesting question would be whether or not – as the senior non-executive Director – Mr. Marchionne pressed for a similar approach (to the one he took at Fiat) at UBS? And if so, whether or not he was rebuffed, ignored or embraced? Is the appointment of Mr. Grubel (clearly an outsider, although also part of the Establishment) an indication of this strategy in action?

If anyone has any examples of the ‘Fiat experience’ in action/being replicated in financial services (banks, brokers, insurance companies, etc.) I’d love to hear about them in the comments.

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Permalink||Comments|Filed under 'Financial Services, People'
  • (I know of this happening in a Swiss insurance firm - an American CEO came in a fired 15% of the workforce.)

    I'm not sure you'd find your 20-something year olds to be that interested in innovating. The people I know in finance are fat and happy :-) They've spent their whole working lives in a bubble economy. Why would you tear up something that pays and cares for you much better than any other industry? That said, if you're a childless under 35 year old, you're going to adapt pretty well to anything.

    I've heard someone from Lloyd's describe the secret of their (pre-HBOS) success as having elderly staff with no incentive to excel.

    P.S. Am currently in Shanghai and going to have a chat with a p2p lender over here on Fri. Anything anyone would be interested to ask them about?

    P.P.S. Scalar's entered the most-good-java-devs-are-planning-to-learn-sometime stage, so I expect it'll mainstream this year.
  • Not in banking. Manufacturing yes. Hectic change management! Only way it works is with 110% support of the man at the top, or a change agent authorised by the CEO's boss :-) I.e. someone who will be listened to. Total change in two weeks of a manufacturing setup. Total chaos for 4 days, those not supporting the change were out by then. The rest got the message and helped. New management and supervision structure arose in that two weeks. At the end of that, the process was running, with a few holes which were patched at the same rate of change.

    Do it quickly, or let the existing structure moan and drag it back to the old ways.

    It works.
  • My initial inclination was that the financial industry would get chipped away slowly by many smaller firms (hedge funds, private equity, etc.) in a "death by 1000 paper cuts", but this crisis has shown me that the power within finance is consolidating amongst the old guard, so any change will have to come within. While there are the Citadel's out there, you have Goldman Sachs and Morgan Stanley set to become this wave's Citi and BofA, so its not going to be a change from the ground up as much as I wish it could be.

    That said, there is one hurdle I believe that is resulting in "an operating style that lay outside any proper understanding of market dynamics,". This hurdle is regulation. People in finance are so scared of their market because they conditioned to be. When I was at Citi, we couldn't say anything to the client that even came close to a human thought because of compliance. I believe that this is something universal (at least in Private Client). This is a problem that shouldn't' be underestimated. When you believe that your customer is a potential threat, you will treat them like so. The "war with your market" that the Cluetrain guys talk about has never been so fierce than in the area of finance and the recent events are only going to make the battle more ugly as both sides are angry/distressed. You're not going to see "accountability, openness, rapid communication and impatience with hierarchy and internal politics" when there are external and internal battles to be fought. Also, how can a CEO enact real change when he has to continually answer to another governing body before he answers to the customer.
  • Agree that regulation is definitely a barrier, but not an infinite one. And (perhaps ironically) whereas the regulated nature of finance used to primarily be a barrier to new entrants, today I suspect it is more of a barrier to existing players rethinking their business than it is to new entrants entering the market.

    I take your point and I think it is valid, and certainly shouldn't be dismissed or trivialized, and yet... And yet it is equally important not to throw up one's arms in despairing of ever changin anything / accepting a slow decline into mandated mediocrity. But I am sympathetic to the enormity of the task and in particular the perennial problem of the urgent crowding out the important. I can hardly imagine the strength of the tidal flow pulling a major bank CEO along in spite of their best efforts to swim against the tide. Even something as basic as managing their daily schedule or inbox must seem overwhelming at times. But all the more reason to take the Marchionne approach and implement management / cultural change in a big bang. Most of the time the toxic side-effects of this sort of treatment seem to outweigh their benefits. But when the patient is going into cardiac arrest, secondary and tertiary consequences fade in importance.

    I know it's easy to pontificate from the peanut galleries and much much harder to act on the front lines and the cult of the miracle CEO is always overdone; and that success is not pre-ordained with this (or any other approach) however I wonder given the state of distress in the industry if banking couldn't do with it's own Marchionne right about now. I struggle to see how such an approach could make things worse and the upside potential to me seems very real.
  • I agree. I think that's where the innovation edge is. The CEO who can create a firm that treats regulation as a mere formality (like paying taxes) but at the same time makes itself less likely to need regulation, will be wildly successful. The CEO who is the "great liberator" will be king. It will take time but it is definitely possible, but difficult.

    Technology that both streamlines regulatory procedure and empowers and humanizes customer service will be key to any such "liberation".
  • Chuck Farley
    A glimmer of fresh thinking from the software people at a large commodity house:

    http://tinyurl.com/qcl4hg

    Scala is an open, modern and extremely powerful programming language. Implementing a production system in Scala is edgy, and as far from the "no one gets fired for buying IBM" dogma as you can get.
  • Thanks for this Chuck, hadn't previously heard of Scala. Did a quick surf around the Scala website but (obviously) seems to be framed as a resource for developers. Not being a developer myself, would be interested to see a couple case studies and/or list of use cases (from a business point of view.) Do you know if/where I could find some?

    Also would be interested to hear from (the many?) developers that read The Park Paradigm as to whether or not they have any views on or experience using Scala in their projects/companies.
  • I just read the Marchionne interview and I agree he talks a great game. We're going to hear a lot more from him and about him in the next few months, I guess.

    A word of warning for him (and you?) from an aging opsimath: I don't believe there's a causal link between age and stick-in-the-mudness. There may be a statistical correlation but we know that's not the same thing.

    If you only look for talent and open-mindedness among the young you are committing the same sin as those who only look at one sex or a narrow ethnic subset and that's not good business.

  • Completely agree that age - using the traditional "what-year-were-you-born-in" algorithm - is at best a highly imperfect metric for calibrating adaptibility and open-mindedness - which are really at the heart of the issue. The correlation isn't zero, but goes up very considerably if you use the well worn "age-is-how-old-you-act-and-feel" adage. Indeed, I've met 25 years olds that would have an equivalent age of 60 using this test, and conversely 60 year olds that have magnificently retained and even enhanced their 'childlike wonder' (to paraphrase Fake Steve Jobs!)

    Indeed the Holy Grail in terms of finding ideal managers and leaders are these more experienced and wise aged twenty-somethings. (Of course I'm totally talking my own aging book here too!)

    Perhaps what we need is some sort of scale or test analogous to 'dog years' to be able to articulate this idea easily: "He's 48 but 27 in innovation years..." or something like that!
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