Articles tagged 'management'
McKinsey surveyed a bunch of executives and found that:
84 percent of executives say innovation is extremely or very important to their companies’ growth strategy. The results also show that the approach companies use to generate good ideas and turn them into products and services has changed little since before the crisis, and not because executives thought what they were doing worked perfectly. Further, many of the challenges—finding the right talent, encouraging collaboration and risk taking, organizing the innovation process from beginning to end—are remarkably consistent. Indeed, surveys over the past few years suggest that the core barriers to successful innovation haven’t changed, and companies have made little progress in surmounting them.
As I’ve written many times before, I think they are barking up the wrong tree. They are trying to have their cake and eat it too which in the context of a traditionally organized (read 20th century business school optimal model) large company is like trying to pee in the corner of a round room. ie Pursuing ‘non-linear’ innovation is not only difficult for these kinds of organisations, it actually requires a framework that is often diametrically opposed to the framework that governs the rest of their business, the business that actually pays the (current) bills. And so it is entirely unsurprising that companies find it hard / impossible to assimilate this within their structures, culture and reward systems. Perhaps paradoxically, one could argue that the better managed a large company is for its current/core business, the worse this disconnect; in poorly managed large companies there is probably more room to roam “off the reservation” so to speak… But I don’t think anyone – including me – would suggest that it would create overall value to manage poorly just in order to pick up a bit of innovation juice around the edges.
So what’s a big company to do? Well I think they should look to invest some of their capital outside their walls. Not corporate venture per se – the corporate antibodies end up killing / ensuring failure of dedicated corporate venture initiatives 9 times out of 10. (A notable exception to this rule – the one of ten (hundred?) – is Intel Capital. If you think your company can do this then go for it. I personally suspect that one of the reasons Intel Capital managed to avoid institutional purgatory is that Intel has a very strong entrepreneurial culture and leadership (deep into the firm not just at the top) that had first hand memories of building businesses from the ground up. Google Ventures may enjoy similar success for the same reasons…) For the rest, I would suggest setting aside a certain amount of capital to make passive minority investments either directly or via specialist sector-specific early stage investors (like us if you are a financial institution, yes I’m talking my book) in companies innovating – especially in those using ‘non-linear’/disruptive approaches – in their markets.
Passive – meaning no board seats, no control – because the alternative would result in adverse selection bias or mission dilution/suffocation or both. Adverse selection, because the best, brightest and most ambitious start-ups in your sector will not take your money if you ask for control and mission dilution / suffocation because if they do take your money and give you some control, your corporate antibodies will do everything they can to assimilate and/or crush what they will correctly see as a threat to the companies core business.
So why bother at all? Why not just wait to see who emerges as winners and then buy them once the risk is gone? Principally for two reasons (in order of importance):
- Because you have to have a “position” to really harvest the informational value: this is the trader in me speaking – anyone who has ever traded any asset knows instinctively that the difference between an ‘opinion’ and actually having a ‘position’ is huge. Indeed any good trader who needs to follow any particular market closely – even if this market isn’t their first order concern and/or they don’t (yet) have any strong conviction – will take a small/nominal position in said market in order to ‘be in the flow’ and truly feel the rhythm of that market. Put another way, picture the impact of an internal board presentation on top 10 new industry trends and 20 new companies ‘to watch’ vs a presentation of ‘this is how the 20 companies we have invested in are doing’ and tell me honestly that both will have the same impact…
- Because you just might not get the chance to buy the winners – either at all (think Google, Facebook, etc.) or it will cost you very very dearly and worse you probably won’t have enough information to truely know / understand what you are buying (the most toxic manifestation of this is what I call the ‘panic buy’ – eg NewsCorp/MySpace.) In other words, the buy later strategy has it’s own set of very real risks. And even when/if you do ‘buy later’ a company that you haven’t invested in, as a result of (1) above you will almost certainly be able to better mitigate some of these ‘buy later’ risks.
So why don’t more big companies do this? I’m not sure. Would be interesting if McKinsey would ask this question (they are more likely to get answers than The Park Paradigm, not sure I have a lot of Fortune500 C-suite readers!) I suspect it is because the time horizons needed to be successful in such a strategy (5-10 years) far exceed the time horizons of most senior executives. And related to this, that they are afraid – quite possibly correctly – that “Wall Street”/”the City” will chastise them for spending any money on ‘speculative’ investments, that it is “not their job” and that they should “focus on their core”. Funny however how the most successful executives and companies however manage to ignore the peanut gallery and pursue their plans with conviction and diligence. Perhaps these are the companies who may listen and find value in my suggested approach…
Fred Destin wrote an excellent post mapping out the appropriate roles for a founder/CEO vs a non-executive/investor in a start-up. Actually, his advice holds true for any company but I suspect is much more often a problem in start-ups due to the executive teams generally having little or no real experience of working with and for a Board of Directors. I’m not going to rewrite or paraphrase his post, here is an exerpt but really if you are a start-up executive, please just go read it:
If you really believe in what you are doing, you come to the board telling board members what you are planning to do, taking considered advice on whether this is the right strategy, considering that advice and executing on what is, in your best judgement, the right path for the business. That’s what you are there to do. Take decisions fast, don’t fall for analysis-paralysis, trust your gut, execute and iterate. As Tim Ferriss would say, ask for forgiveness, not permission.
I particularly liked his list of why executives need to know how to manage their non-executives and filter their input:
Here are the top five lighthearted reasons why VC’s should not drive your strategy:
- We forget 50% of what we said at the last board
- We don’t know the people inside the company and hence have no clue what the team can really execute
- We meet many smart people and hence we have way too many ideas that you cannot possibly implement
- We are focused on the 5 year vision, yet we are focused on the quarter too, even we are confused
- We don’t need to deliver on it, you do. We come and collect when the job is done.
Item 1 and 3 hit particularly close to home!
The (dysfunctional) situation Fred describes reminds me of American football where the coaches (non-executives) are constantly telling the players (executives) what to do. I think the dynamic that is needed in a corporate setting is much more rugby, the coaches work with the players throughout the season, helping them to develop both their individual skills and a positive team dynamic, scouting the competition and staying on the lookout for new talent, but ultimately when the players run out onto the field, they are on their own. They need to make their own decisions and they determine who wins and who loses. The coach? Well he sits in the stands and watches. I’ve never seen one yet who scored a try or kicked a goal.
I finally got around to reading the now infamous Netflix presentation on corporate culture. I had more than a dozen people point it out to me and must admit this actually raised my level of skepticism – “sure, ok another vapid corporate culture slideshow…”
I was wrong. I wish I had written this. These 9 values and how they should be implemented align entirely with my thinking and – my former colleagues will have to confirm / refute this – how I tried to run the businesses I was responsible for at DrKW, and how I tried to use my influence on the Management Committee to get the firm to adopt these values. In this latter goal I would have to say I failed miserably. As for the former, I think I was more successful but ultimately it was perhaps futile, surrounded as we were by a sea of culture that was strikingly different.
The sad thing is, I’m convinced had we adopted this culture – and as a relatively small investment bank it was within our control – I think the financial and business outcome for DrKW would have been quite different. I would go so far as to say it would continue to exist today and would have thrived as a nimble and unique competitor in the financial wreckage of the past two years. Instead, it was inevitably destined to disappear: to small to save, big enough to blow up.
But DrKW was unfortunately not unique in rejecting this positive culture. I can’t think of any investment banks that would entertain truly practicing even two or three of the Netflix values, let alone all nine. (I’ve only ever worked for three banks so maybe I’m wrong. Please correct me if you think this is the case.) And yet were they run along these lines, I am certain that the worst of the afflictions that beset the financial system would not have materialized. The crisis would not have been. I know that is a pretty strong statement. But I don’t think it is hyperbole.
There are many talented and extraordinary people in the financial services industry who, fed up with the toxic cultures, leave it as soon as they can afford to. I’m sure you could build an incredibly successful company by attracting this talent with a cultural framework like this. Maybe we’ll be able to do it. I’m sure someone will. I can’t wait.
While in the technology and venture capital world, a mention of cloud computing these days is more likely to elicit yawns than excitement, in 99% of the rest of the business world it is all too often looked upon as ‘just another new technology’, something for IT to think and or worry about. Whenever I’m in this other world I try to make the case that ‘the Cloud’ is as transformational a technology as electrification or the invention of the microchip. In fact, I’m becoming increasingly convinced that it will be the technology that lies at the core of the sixth techno-economic paradigm of the modern era:
Just as Intel’s 4004 microprocessor was the catalyst for a wave of creative destruction in the 70s and 80s, will AWS prove the same for the 00s and 10s? Probably. We’re seeing it already. And it’s going to disrupt the hell out of the mastodons of industry across most sectors of the economy. Why? Because their cultures and leaders are entirely ill-equipped to face such a fundamental paradigm shift. They know how to play by the old rules. The strategic competitive advantages they built up over decades risk suddenly – poof! – to become obsolete.
And yet all too often, I’m met not with disbelief but with apathy, indifference. You can see the thoughts forming in their heads: “I’m a CEO, a business man, a producer! Why is Sean boring me with this technology stuff? Why doesn’t he just talk to the CIO?” Worse, too often when I talk to senior technology managers in big corporations, they also are disdainful, thinking: “Yeah, yeah, that’s all fine for your start-ups and Web2.whatever companies, but this is a real business. Serious. Not some website for teenagers to swap gossip.” Ok I’m exaggerating but a lot less than you think. Sometimes I figure I must not be saying it right. So I’m always on the lookout for good articulations of the potential and importance of cloud computing and its incredible relevance to anyone who is pretending to run a business. Especially a big one.
Peter Fingar has written a great one, a summary of the new book Dot Cloud: The 21st Century Business Platform. He sums it up nicely:
In short, Enterprise IT must extend out to Consumer IT, otherwise those companies simply won’t be able to compete. As we’ll explore, Web 2.0 has changed the landscape with social networks, and companies can ill afford to ignore the shift…
…Cloud computing isn’t just about on-demand IT; it’s about on-demand business innovation…
…Cloud computing isn’t just for small- and medium-sized companies and garage startups. Cloud computing makes it possible to create new business platforms that will allow companies to change their business models and collaborate in powerful new ways that weren’t practical before. What’s important for companies to consider is that cloud computing isn’t about technology, it’s about technology-enabled business models.
So if you know a CEO, or any senior managers (in any business) pass them this article. It will only take 10 minutes to read. And maybe it just might make them reconsider. And maybe they’ll invite me to lunch! 
Every executive committee member of a large bank, exchange or insurance company should read Kirk Wylie’s latest post to understand why their cultures are broken and why they so regularly find their organisations blithely running off the edge of a cliff, comfortable in the knowledge that, “well, hey at least we’re all doing it so it must be ok” and safe in the knowledge that their is a big taxpayer airbag (or trampoline?) at the bottom protecting them from any nasty consequences. Of course they are unlikely to – except in the unlikely event that it gets published in one of the traditional echo chamber publications like the FT or the WSJ.*
I’ll resist the temptation to copy/paste the whole post here but please go read it as this excerpt doesn’t give it justice:
Independent, entrepreneurial techies can actually make the biggest impact in the organizations that fight against them the most: they’re the ones that need them the most. Use them as agents for change, challenging assumptions, challenging entrenched attitudes, challenging technical group-think. Otherwise, your worst employees (the ones who can’t really get a better job elsewhere) win, and you as an organization fail.
Kirk is speaking of technologists, but the same thing applies across the organization. But big organizations kill entrepreneurship, actually it’s in their DNA. It’s not news, tall poppies and all that. As I was leaving 16 years of working – mostly happily – in big organizations I spent a lot of time thinking about why this was (and also why I hadn’t noticed it earlier in my career.) The answer to the second question was really because of luck. For 90% of my investment banking career I had the good fortune to be right in the heart of building three new and transformational markets: first the Ecu/Euro market, then the European credit markets and finally the move to ‘electronic’ capital markets. Throughout this part of my career, innovation, entrepreneuralism and independence actually helped me succeed because there was no pre-existing status quo to upset. This only became apparent to me in hindsight.
The answer to the first question is now obvious to me, but it wasn’t always so and really only revealed itself when I left and was able to step back and look at the machine from the outside. The expression ‘well-oiled’ machine says it all. This is the ultimate compliment used to describe a successfully managed organization. So where does non-linear innovation, disruption, questioning fit in a well-oiled machine? It doesn’t. In fact the more ‘well-oiled’ the machine, the less tolerant it is of exceptions. (Which also explains why I operated happily for so long at DrKW!) Switching metaphors, entrepreneurship is seen as a virus in these companies and they produce potent ‘corporate antibodies’ to seek out and subdue any such viral outbreak and they do everything (pace Kirk) to innoculate themselves against them in the first place.
But what is a CEO to do? The ‘well-oiled’ bit is equally important. I am sympathetic to this. (I mean if I was in charge I wouldn’t want too many of me’s running around, that would be chaos.) It’s not an easy question to answer and is made even harder (especially if you are running a public company) by the fact that the visible benefits of the entrepreneurial genes are only realized over time – I’d guess at least 4-5 years at a minimum and sometimes it might take as long as a full business cycle. And yet the average leadership tenure in these organizations is at best at the short end of that, and the compensation and stock market cycles are much shorter. I’ll be frank and say up front, I don’t have an answer but I’ve got a couple ideas I think are worth trying.
The first is to set – from the top – a deliberate human resource policy of seeking to “doping” the organization with a limited and controlled number of people like Kirk. (Doping is the process of adding controlled impurities to a material – for instance a semiconductor, or metallic alloy – to improve it’s useful properties.) This needs to be managed very deliberately, like a program – put a senior HR person in charge of this and manage it: these people will likely have a higher turnover, complain more often, get into trouble, want to change projects and/or departments and so need their own career track. I’m not sure what the correct ratio is, but I would guess it’s on the order of 1-2% of total staff, not necessarily evenly distributed throughout the company. (I knew my Materials Science degree would come in handy one day!)
The second is to create – and then protect institutionally, not personally – a specific department dedicated to exploring ‘white space’. When I say protect institutionally, I mean frame it like a trust so it cannot be undone or hacked by successive waves of management and is insulated from the quarter on quarter, year on year vagaries of the economy and/or the companies results. If you don’t do this, you will inevitably fall victim to the problems Azeem enumerates in his great post on why corporate venture capital (almost always) doesn’t work. Before all the serious, “pragmatic” people out there roll your eyes all at once (if indeed any such types would consider wasting time reading a blog) this doesn’t and shouldn’t need to be a big ask. Again probably on the order of 1-2% (even less for the biggest companies), of resources. The best example in practice I can think of is Xerox PARC, although the irony there is that Xerox didn’t really figure out how to plug PARC’s non-linear thinking and brilliant innovation back into the company (or at least not very well.) But perhaps that is not a bad thing (in proving my point) because I would posit that all other things being equal, Xerox’s share price has been higher (than it otherwise would have been) because they owned this asset. This cheap, deep out-of-the-money call option on the future. As far I as can tell, this is also what BT is trying to do with BT Design led by my friend JP and it is heartening to see that – at least so far – he is being allowed to continue to pursue this vision despite (and hopefully even because of?) the very poor results of the past couple years. I don’t know of any truly analogous initiatives in big finance.
And indeed that is (one of the reasons) we decided to set up Nauiokas Park. Clearly we’re not the whole solution, but we think we can play a key role for big financial institutions: a way to have (some of) their cake and eat it too: by entrusting a relatively small amount of financial capital to us, we think we can create just such a verdant ‘garden of innovation’, allowing them to harvest the fruits of some of the most dynamic entrepreneurs active in their industry, while protecting and nuturing them, away from the noxious antibodies of the corporate organism. Indeed, taking a page out of John Seely Brown, I guess you could describe our mission as seeking to create a vibrant knowledge ecology for finance and markets, and help our stakeholders profit from it:
There’s a fundamental change from finding ways to innovate inside a corporation to leveraging the knowledge ecologies of many little companies in places like Silicon Valley. You find that the shift turns much of the classical R&D into A&D – that is, acquisition and development. Larger companies can buy the research they need and instantly acquire a diverse portfolio of research groups.
I’ll be honest though, it’s not an easy sell. Even for the corporate leaders who ‘get it’ the reflex instinct is to think (sometimes aloud) “makes sense, but we can do that ourselves”. Well, you can’t prove a negative, but we’ve spent a long time inside these same big financial institutions, and our many years of experience led us to conclude that it is bloody hard to do (for all the reasons above and more.) On the bright side, being challenged makes you think harder and forces you to refine and adapt your ideas, ultimately making them better. Hearts and minds. Hearts and minds. Wish us luck.
* Just to be clear, I have nothing against the FT or the WSJ per se, I read them regularly (well WSJ not so much) and think they are solid publications. I’m not suggesting they aren’t important sources of information and opinion – you’d be stupid not to read them if you are in finance – just that, and this is the wonderful thing about the world in 2009 – I think you need to read much more widely and in particular embrace at least a diversity of viewpoints, if not views.
Ah. Now I know why I look forward to working on the weekend. And why I enjoy working in a start-up – despite the even longer hours – than in a big company. And my epiphany is down to Paul Graham (once again – I have to meet this guy) wonderfully articulating something I sensed and knew sub-consciously but couldn’t quite surface:
I find one meeting can sometimes affect a whole day. A meeting commonly blows at least half a day, by breaking up a morning or afternoon. But in addition there’s sometimes a cascading effect. If I know the afternoon is going to be broken up, I’m slightly less likely to start something ambitious in the morning. I know this may sound oversensitive, but if you’re a maker, think of your own case. Don’t your spirits rise at the thought of having an entire day free to work, with no appointments at all? Well, that means your spirits are correspondingly depressed when you don’t. And ambitious projects are by definition close to the limits of your capacity. A small decrease in morale is enough to kill them off.
Much of what I do (and have done for several years – including when I was trying to build a new division in my old investment bank – RIP) needs ‘intellectual momentum’: ie it takes time to get into the flow. Often time this looks like just farting around – and maybe it is – but there is no other way to rev up the brain and prepare it for the task at hand. Sort of like booting up a computer or a new program perhaps. (So does that mean I’m a PC? Oh no…) And then once started, the worst possible thing that can happen is to be interrupted. The cost is higher than just another hour’s reboot. It usually means starting all over again. Switching metaphors, imagine doing a high jump: if you get stopped 5 meters from the pole, you can’t just resume your run-up from there… So that’s what I mean by intellectual momentum. I used to think that my need for this was just because I was getting old, but now thinking about it, it’s always been this way. The best work I ever did at school or university fit this pattern as well: a longish incubation and then a burst of sustained productivity (and occasional brilliance even.) The production curve looks – of course – like a power law:
So from now on, I’ll try to keep this front of mind and to be a bit more ruthless about dividing days into ‘manager’ or ‘maker’, and when not possible try harder to schedule meetings either at the start of the day or the end. Thank you Paul.
ps I’ve got more done in the past 36 hours than in the past 2 weeks…
Reuters reports:
Research conducted by the blog UberCEO.com looked at Fortune’s 2009 list of the top 100 CEOs to determine how many were using Facebook, Twitter, LinkedIn, Wikipedia, or had a blog — and found they were mostly absent from the rapidly growing social media community.
The study found only two CEOs had Twitter accounts and 81 percent of CEOs did not have a personal Facebook page.
Only 13 CEOs had profiles on the professional networking site LinkedIn. Three CEOs stood out with more than 80 connections but they were all from technology companies — Michael Dell from computer maker Dell Inc., Gregory Spierkel from technology products distributor Ingram Micro Inc., and John Chambers from Cisco Systems Ltd.
…Not one Fortune 100 CEO had a blog. (my emphasis)
“It’s shocking that the top CEOs can appear to be so disconnected from the way their own customers are communicating. They’re giving the impression that they’re disconnected, disengaged and disinterested,” said Sharon Barclay, editor at UberCEO.com who runs executive PR firm Blue Trumpet Group.
The important thing isn’t whether they are blogging or not – it’s not for everyone – or that Facebook is critical for their job or their company. The important thing is that no knowledge – and (too) often outright hostility – to social media, the real-time web, etc. means that their understanding of the world in which they operate is frighteningly lacking. This has been a problem for time eternal for leaders of large organisations and is not specific to the advent of social media per se, but I would suggest that this time it is even more unfortunate than usual. One the speed of change and the deep structural paradigm shift that our society and economies are experiencing is more profound than normal ‘linear’ change. Secondly, their ability to ‘do something about it’ is real. In the past, I would of had much more sympathy for the corporate or political leader who said – “ok fair enough I’m a bit out of touch up here in my ivory citadel but what can I do about it”. Today that doesn’t wash. Or to a much much lesser extent.
So why are these leaders seemingly so ignorant and on the face of it disdainful of this new paradigm? Partly I’m sure it’s because they are really busy and have a never ending call on their attention: the urgent pushes out the important. This happens to all of us. More disappointingly – and here I can only speculate, I don’t know any of these 100 CEOs – I suspect that for many it is driven by fear. Not fear in a cowardly sense, but fear of looking dumb. Most people are afraid of this, and I’m sure toiling under the spotlight associated with running a Fortune 100 company only exacerbates this. These smart, ambitious, driven men and women must feel some annoyance after having spent 20 or 30 years climbing the corporate ladder to reach the pinnacle, only to find the rules of the game changed.
Here’s a suggestion. The Boards’ of these companies should ask there CEO’s to take a 1-2 month sabbatical to immerse themselves in the 21st web, preferably supported by a mentor or coach. When they came back they still might not blog. Or tweet. Or have a Facebook page. And that might be ok. But I’m certain they would have a much better understanding of why they don’t and what tools they might actually want to adopt. But most importantly they would have a better understanding of the world in which their company operates. First hand knowledge; not “Oh yeah my kid was telling me about that and tried to get me signed up. Damn teenagers!”
When I read this story on Citi taking it’s mortgage finance business offline for a couple weeks due to faulty processes (thanks to @felixsalmon for the pointer), for some reason the image of Milton from Office Space
pops into my head…
According to the June 22 letter, the review identified “valuation concerns” where “appraisal documentation is missing or incomplete,” or where property-assessment methods were “insufficient/lacking.”
Other missing information included employment confirmations, phone numbers, credit reports and rent verification, the letter said. The review also found “income calculation errors.”
Another fine example of six sigma in banking. Imagine if Dow and Dupont ran their chemical plants like this. Holy crap. Or Boeing built planes this way. Yikes. But then again, in those industries lives are at stake. Banking. [shrug] Just money. Ok a few billion hundred billion. But still, it’s not like anyone died. Sheesh.
Hmmm. In 2002 – yes 2002, seven years ago(!) – I wrote:
In a recent speech, Jack Welch, the former chairman of General Electric, made exactly this point: “…[if] you put six sigma in an investment bank, they would all gag!” In case you think he was just engaging in some gratuitous banker bashing, consider this: six sigma quality means havingfewer than 3.4 defects or errors per million operations in a service process. That is 99.99966% perfection.
Contrast this benchmark with the assurance once made to me — by a senior syndicate manager of one of the largest and most respected global bond underwriters — that it was perfectly normal and necessary to expect and reserve for 5%-10% errors in the allocation of a jumbo multi-tranche bond deal! Assuming an average of 200 individual orders (including splits) on a typical new issue, to reach six sigma quality levels you would need to have fewer than four errors over 5000 issues!
…And therein lies the next major opportunity for capital markets bankers over the next decade: to use technology not only as an enabler of innovation (as has been the case over the past 15 years) but as a driver of industrial efficiencies.
The guys in IT thought it was an interesting take on things (with $ signs in their eyes) but the ‘business’ side, well, let’s just say it didn’t strike a chord. Banks were special. Bankers were (even more) special. All that re-engineering and total quality management and painful restructuring and shifting centres of power…all good for manufacturing and you know, “other” industries. The ones they advised and financed and funded LBOs of… but not banking. Banking is “different.” You wouldn’t understand…What. A load. Of. Crap.
Well now they are paying for it. We all are paying for it. Rivers didn’t catch on fire but the financial system was well and truly polluted. But there is a bright side. The bright side is that there has never been a better time to come in and build businesses in banking and financial services that have an engineering DNA, businesses that are natively adapted to an industrialized and digital way of doing business. Indeed some of the pioneers in this mold have already enjoyed tremendous success (Markit Group comes to mind.) Others are emerging. And the incumbents have never looked less frightening (even if, especially because, they are now too big to fail.)
GigaOm writes today on the growing divide between the leading and lagging companies on the web:
The web is entering a period of intense creativity. Companies like Google and Apple are positioned to ride, if not generate, the momentum driving that creativity. The laggards are at risk of being stuck in perpetual catch-up mode. If that happens, the bluebirds will have flown for good — and the landscape of Internet companies will soon look dramatically different.
And yet this is nothing compared to the ‘creativity gulf’ that is emerging between leaders and laggards in other sectors of the economy, including in banking, insurance and finance generally. Only here, the leaders are still small and just starting to emerge. Further, GigaOm points out that even once this creativity divide is created and continues to grow, the deleterious effects of being on the wrong side of this divide can take many years to really start to bite:
Other Internet names seem mired even further in the past. Yahoo’s interest in a deal with Microsoft for “boatloads of money” is a headline that belongs in 2008. eBay keeps trying to recapture the magic it had five years ago. And MySpace is still trying to renew its lifeline to Google.
None of these laggards will see a quick end. They’ll be able to endure for years serving the people who haven’t taken to Facebook or maybe tried and then abandoned Twitter, people who are comfortable with a simpler, more familiar experience on the web. But it’s an ever-shrinking crowd. A decade ago, AOL chose a complacent path by maintaining its gated online community, shunning the migration of content and services to the web itself. And look where AOL is today.
Substitute ‘financial’ for ‘internet’ in the analysis above and the parallels are obvious. The big difference of course is that the analogs for Google, Facebook, Apple and Twitter in finance are not yet obvious and indeed probably don’t yet exist (or are at the very early stages of their development.) However, the environment supporting the emergence of new digital leaders in finance has never been more fertile. This is one of the main reasons I created Nauiokas Park with Amy: in order to discover, support and develop the next generation of leading companies delivering financial services and products from the right side of the digital divide. The next several years promise to be exceptional vintages in our opinion.
“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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